I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 227 million views in the last few years.
On the answers below, taken from my online Quora answers, I focus on a range of topics including:
- What are some tips to becoming ultra wealthy (say somebody with a net worth of over $30m)? Also, how does that compare to acquiring one or two million? I compare some of the differences I have observed.
- Can somebody live off 5.5 Million Yen a year (about $55,000) in Tokyo if they have a family, including one child?
- What are the most typical ways to become wealthy, including real estate, stocks and starting your own business? Besides, should we care what is typical and normal anyway?
- What is the reason why more people don’t save and invest for the future, yet many people in developing countries manage to save? Is it because of the economic crisis, or could more complicated issues be at play in most developed Western countries?
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Firstly, it depends on what you mean by “extremely wealthy”.
Definitions vary but the most common ones are:
- High net worth individual = A high–net–worth individual (HNWI) is somebody with around $1 million in liquid financial assets. By liquid that means cash, stocks, ETFs and not your primary residency or business
- Ultra-high-net-worth individuals (UHNW) are typically people with investable assets of at least $30 million.
Now of course, it depends on many things, such as where you live. Having $1m in liquid assets in a cheap country isn’t the same as having it in Hong Kong or London.
Anyway, I see the following key differences and commonalities
- Business owner vs salaried worker
It isn’t just possible to become wealthy on a salary, it is the norm. Most wealthy people, at least in developed countries, just invested relatively small amounts into assets from a young age.
But most ultra-high-net-worth individuals are company owners. That means that the following attributes are important:
- The ability to take calculated risks
- Playing the numbers game. As a business owner, you only have to be correct once in your career to make it big, like a “one hit wonder” in music. Ideally you need more than one, but one is enough. You have more chances to make it big if you try many ideas.
- Now the question is, aside from playing the numbers game, how can you enhance your chances of being right once? Reading a lot can help, as can focusing on execution and not just ideas. Getting rid of toxic people, and having a better network of people, also can only be a good thing. Yet I have found that one commonality between very successful people and others is the willingness to do things differently. Most people are so obsessed with doing things in the way that they have always been done, and doing what is normal, that psychologists have terms for it – normalcy and familiarity bias. Yet extraordinary success requires extraordinary decisions – breaking industry and social norms.
- Following on from the last point, not caring too much about what others think about you is also key.
- Being good at cash flow management, branding, sales or marketing is also more important for a business owner. It is very hard just to rely on other people.
- Once success has been achieved, other people will try to eat your lunch, best to keep pushing yourself.
- I have noticed that most people who reach $1m-$2m start to take their feet off the accelerator. You see this in many “recurrent income” industries like insurance and financial services, where people can live off their existing client bank. People who reach UHNW status are more likely to keep scaling their ambitions.
2. The commonalities
The commonalities between wealthy and ultra wealthy are:
- The willingness to play the long-game. Most people would just spend a $500,000 inheritance as an example. Your mindset has to be different. Leveraging time is key to success.
- Not spending loads of money on things you don’t need, to impress people you don’t like as per the quote below. No matter how much money you make, you can’t stay ultra wealthy by overspending. Michael Jackson made close to $1billion in his career, but he was close to broke on his deathbed. Most inherited wealthy people and lottery winners also lose the money eventually – at least by the third generation. Wealth is therefore about managing AND making money, not just making money alone. Making loads of money but spending loads is like having a good attack in sport but an awful goalkeeper or defence line!
So, succinctly, people can reach high-net-worth status by just investing every month for a long period of time and compounding.
The world is full of middle-aged, and middle-class, teachers, accountants etc.
To get to ultra-high-net-worth, you need some of those skills, but much more, and a different mindset.
My top five would therefore be:
- Keep doing what you did to get to the first, “smaller”, initial success.
- Then, never stop raising expectations about yourself and your ambitions if you start achieving success. Most people get satisfied and complacent
- Work on communication, business and finance related skills. Keep upskilling yourself.
- Don’t let criticism or negative people hold you back.
- Be focused. Know what you want. Don’t procrastinate.
The short answer is yes. You “can” survive on that amount of money. However, you can’t live comfortably on that money unless you make some sacrifices and you are single.
You aren’t single, so it will be tough. Let’s do the maths. 5.5m = about 4m after taxes and stoppages.
This is unless you are an independent contractor or live on overseas sourced income which isn’t taxed in some situations for the first few years of living in Japan.
That is about 350,000 yen or so a month. A decent sized flat in Tokyo might cost 250,000+ for three people.
The only way it is doable is to live in the outskirts of Tokyo, or nearby cities like Chiba, which are connected to the metro system, and typically take about an hour to get into Tokyo.
Many Japanese workers live in nearby cities and commute every day, or indeed these days work at home due to coronavirus.
If you were single it would be easier, as it is normal for people to live in tiny apartments as a single person.
Although getting used to this might be difficult if you are new to the country!
Go for the outskirts. You can get a house in some places for 3x less than a flat in central Tokyo.
5.5m after tax is much more doable.
The most typical ways are:
- Get ting wealthy slowly as a salaried employee
- Invest every or at regular intervals at least
- Keep doing it for decades
- Never time the market or speculate
- This is boring but very effective. For sure a tried and tested way to get wealthy slowly
2. Starting a business
- Some people do a combination of the first method (investing regularly) together with starting a business, or put all their eggs into starting a business
- This is much riskier than the first option, especially if you put all your eggs in this basket, but the rewards are huge
- The first option is available to everybody who earns above a certain amount of money. This option isn’t. I don’t think everybody can earn more working for themselves than working for somebody else.
- What has become more typical, but used to be less typical, is working online as a self-employed person, like a YouTuber or whatever. Online businesses are also now typical. They weren’t before.
3. Real estate
- This isn’t that dissimilar to the second option. In many ways, having a real estate empire is like running your own business. You have costs going out, money coming in and cashflow to manage. Many tax authorities also consider having real estate as being more akin to running your own business than a pure investment. If you have ETFs as a salaried employee in the UK you usually don’t have to fill out a tax form. If you are a salaried employee + have a rental property than you do.
- This can be highly effective if you are a professional real estate investor who uses leverage carefully, but most people can no longer beat passive stock investments with real estate, due to the excessive fees and taxes charges in most countries.
- There are still a minority of countries left which offer tax incentives for real estate + reasonable property values + good ROI from rents……just not as many as a decade or two ago!
- Winning the lottery
- Marrying into wealth
- Just happening to meet somebody who expands your network almost overnight.
- Just getting into the right industry at the right time, or being in the right location at the right time.
- It isn’t sensible to rely on luck though.
As an aside, whilst it is good to consider what is “tried and tested” I wouldn’t care too much about what is typical.
Being a YouTuber used to be atypical. Now it is typical. Those who are making the most money got in when it wasn’t typical.
So, being sometimes abnormal can be very profitable. As soon as something becomes typical and normal, it is more competitive.
What kind of economy have we been in for decades?
At least in most developed economies we have been in a consumer economy.
Most developed countries produce less, and consume more, than a few decades ago.
A lot of the popular narratives on TV are about this. Take some of the most popular TV shows of recent decades.
Shows like Friends which presents an unrealistic view of how much young people can consume:
Social media has made that problem 10x worse, with some people presenting an unrealistic version of themselves online.
I am not saying this is the only reason for the issue you allude to in your question.
The keeping up with the Jones’ mentality has always existed, it is just more extreme and global now.
Likewise, the increased costs for young people in many countries, together with two economic crisis in 12 years, also hasn’t helped matters.
Yet culture plays a big role too. I spent some time living in some pretty poor countries where people would find the money to save and invest.
Often times, different incentives also exist in such places, such as a lack of proper welfare benefits.
In addition to that, Insecurities about the future can influence people’s behaviour.
If you are from a country which has experienced hyperinflation, war, famine and various crisis in recent times, you might start taking more precautions to guard against the worst possible outcome.
In comparison, if you live in a more stable place you might be more complacent, even if relative stability can make planning for the future easier.
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