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Learn Why Mansions Are the Result Not the Cause of Wealth
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Listener question:
If it is about not buying too expensive but buying smart, then why are billionaires and millionaires buying 40/50 million dollars houses, yachts, cars?? Dave
Good question. I can see why it's confusing. You might think that's how they are getting rich, by buying huge mansions. The ability for the to afford a mansion came after they built their wealth, it's not the way they built their wealth.
Just like athletes sometimes get huge contracts and then buy a big mansion, their athletic prowess is what made them their wealth.
Or a Hollywood actor or actress buying a huge mansion.
Buying a $50 million dollar house is not what made them rich.
Now that they are rich, they may want to enjoy it by buying a trophy property, or they may be looking for ways to park money that is outside of the banking system, in my opinion. That was happening in Miami and NYC (Russians), Vancouver (Chinese), etc. Their are currency issues in foreign countries, so parking some money in the US is an option.
That's why we are seeing crazy prices being paid.
On a smaller scale, I see this happen with new money all the time. Someone had an influx of cash due to their business or job and they go out and buy a $200,000 Bentley or other car. They do it so they can show the world how successful they are. The problem with it is they have just stopped themselves from creating real wealth because if you don't understand how wealth is built and you don't understand the 6 Steps to Wealth, then you are probably oblivious to the fact they just spent their nest egg or capital that would have created wealth for them!
They think their business will go on forever, and I hope it does, but with habits like that, whatever money they make won't be kept, it will be spent! No matter how many millions they make, they still have to pay taxes and they still have to invest for wealth. If they don't invest, the money won't continue compounding and it's gone! That's why professional athletes, lottery winners, and other people who inherit money have gone through it within 5 years.
Spending does not equal investing. Especially spending on depreciating assets!
The $200,000 spent on the car will be worth less 5 years from now. Whereas if he could have invested it at 8%, it would already have grown to almost 50% more: $293,865 or $294,000!
Over 20 years, the $200k at 8% would have grown to almost $1 million! ($932,191)
In 30 years, over $2 million!
A person buying a $50 million mansion also already has their wealth, so if they want to use it for toys, that's up to them.
For anyone starting out building wealth, it isn't the right move. You have to follow the steps that make wealth grow, understand how to compound money and not buy depreciating assets.
That's why they always say the first million is the hardest!
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