The Broke Millionaire

Be careful with your goal of becoming a millionaire. Not all millionaires are the same.
The economic downturn of 2009 revealed many broke millionaires. Most of them qualified as millionaires only by their net worth. It’s like the cowboy with the big hat, but no cattle.  

There are two types of millionaires: one with a net worth (also referred to as “paper”) and the other with an income.

Paper millionaires are focused on the difference between their assets and liabilities.
They are satisfied as long as their net worth is positive (the value of their assets exceeds their total liabilities).  

Many of these millionaires earn big salaries, like c-level executives and highly paid professionals such as business owners, executives, medical providers, sales professionals, engineers, and others, but they may be suffering from a false sense of security.

A big problem with paper millionaires is that the primary source of their net worth is their home, cars, autos, vacation homes, collectibles, art, and toys.  This gives them a false sense of security because, although they may be millionaires in net worth, they’re living paycheck to paycheck by spending everything they make on an extravagant lifestyle.  They even go into debt to maintain this lifestyle.   

The truth is, paper millionaires are one recession away from financial ruin

The paper millionaire is in a tough spot when lending tightens and the markets weaken. Refinancing or selling off assets becomes slower than a tax refund. The next scenario is when they can no longer work. If they don’t replace their income quickly, they’ll end up exhausting all their resources and liquidating all their assets to maintain their lifestyles.

You cannot eat net worth, and if you cannot liquidate or refinance your assets because of the market, you’re up against the wall.

The Mailbox Money Millionaire is Disaster-Proof

The income millionaire (also known as the mailbox money millionaire) is just that. They rely on their investment (portfolio) income over their job.  They’re always prepared because they focus on creating and maintaining multiple sources of income.  The focus is on passive income – income they can make in their sleep. 

Investments in private real estate groups or funds (i.e., “private equity”) are the type of investments that mailbox money millionaires pursue.  Why? Because of their ability to generate three things: passive income, growth in value, and tax benefits. This is true even during downturns, since private assets are insulated from Wall Street volatility.

When an income millionaire has enough passive streams of income to meet their expenses, even if they lose their job, they have true financial freedom.

Financial Freedom Requires a Shift

The mailbox money millionaire has freedom. The paper millionaire does not. 

Achieving financial freedom requires shifting from the goal of being net worth-driven to having passive income from your assets.

Are Your Money Decisions Adding to or Taking Away from Your Income?

Mailbox money millionaires run each of their money decisions through a thoughtful process. They obviously don’t agonize over every single expense, like taking care of basic necessities or medical expenses, but with everything else, they will question whether a financial decision will contribute to growing their income or take away from it.  

Ask yourself: Will buying a bigger house, a vacation home, more cars, watches, or other luxuries contribute to growing your income, or will it just take away from the income you’re currently making?

Asking hard questions is why mailbox money millionaires do the things they do. It’s why they’ll forego unnecessary expenses and debt in order to save to invest in incoming producing assets like private real estate.

Achieve Financial Freedom by Becoming This Type of Millionaire

Mailbox money millionaires avoid financial disasters by putting their money to work for them.  How do you know if you’re a net-worth or income millionaire?

Simply look at your personal financial statement and look at your assets (all the things you own). Ask yourself:  Are the majority of my assets generating passive income, or are they generating holding costs, maintenance, and upkeep? In other words, are they costing you money?

Is it time you focused more on acquiring assets that generate passive income?

Nighthawk Equity helps smart investors acquire the right assets.

If you’re interested in learning how we can help you acquire the right assets that generate income, build wealth, and provide significant tax benefits, schedule a call with our team.