How Billionaires View Wealth (And How To Avoid Financial Disaster)

Guest Post

This is yet another guest post by Dennis Yu who is the CEO of Bliz Local which is a Local Online Marketing company.

How Billionaires View Wealth (And How To Avoid Financial Disaster)

Danger Brown recently wrote a post on how he's gone from $36k a year to $120k a year in the space of 2 weeks. But that's just a few days of data extrapolated forward-- not a year's worth of actual earnings. Have you been guilty of this? Just because you made $1,000 yesterday, it doesn't mean you've locked in $365,000 for the next year. And the second mistake is to start living as if this new income is steady-- your expense base might be steady, but if your earnings falter, it might all be taken away from you.

A billionaire friend explained it to me this way:

• So instead of going from that old Honda Accord to a new Acura-- even if you can comfortably afford it now, drive your car a few months longer, and get that BMW M3 as your next car. You'll really notice the jump.
• Instead of upgrading from your tiny one bedroom apartment to a nicer one bedroom apartment or a crappy two bedroom apartment, allow your income to keep rising-- with expenses flat-- then move into a new house.

You want those changes to be dramatic and appreciable. Further, it allows you to build up a larger cash cushion in the meantime, since you never know when Google changes their mind, your campaigns don't back out anymore, a business partner steals from you, or something else you just cannot predict. This is not the same as being a miser or saying you can't enjoy life.

Most affiliates suffer from the poor man's problem-- as soon as they get their paycheck, they squander it all that evening and are broke the next day. Because they are pretending to have made it, they can't really enjoy themselves. One superaffiliate we know who is flat broke, called up asking to borrow money because he wanted to eat sushi that night. Kid, ask your mom to make you a sandwich-- there's plenty of food in the fridge. But isn't it great to genuinely be able enjoy what you have, knowing you're not spending your last penny on bottle service to impress people you don't even know?

Folks like Shoemoney, Scott Richter, and I fly coach (and they have a lot more money than me)-- we joke about how people waste their money on useless things, yet go cheap on the things that do matter-- things related to building your business.

Ever heard of the Capitalist Precipice?
It explains why most people are always broke and on the verge of financial catastrophe. Let's say that when I got out of school, I got a new job making $50k a year. Compared to my meager student jobs delivering pizza or allowance from my parents-- man, I'm rich! What am I going to do with all this money? Wallpaper my room with ten dollar bills?

But then I have new bills to pay for-- rent, utilities, car insurance, going out, and so forth. And thus, my expenses have kept just in line with my income. And the worry eats me. Until I get promoted to Manager-- and now I'm making $75k a year. Whoopee! If I was making it at $50k, then I have another $25k. Of course, I have to take all my co-workers out to celebrate-- and I'm paying, naturally.

But my social circle has changed, as I'm hobnobbing with others who are managers and above. No matter how my economic status changes, I find myself right in the middle of my peers-- with plenty of folks above and below. But I'm still smack dab in the middle. And these peers who are far richer than me invite me to their activities-- playing golf, eating at the nice places, joining the yacht club, and so forth. I don't have the income to keep up with these guys and soon I'm drowning in credit card debt.

Yet all along, I've been increasing in status, have all these nice things, and from any public perception-- am highly successful.

The Capitalist Precipice is YOU standing on the edge of a cliff, as the cliff gets higher and higher. One misstep and you're a goner. The costs to play the game and the risks get higher and higher, too. Maybe you can borrow money or work extra hard or get lucky here and there-- but you're just inches from disaster. And the worry will eat you, as you're aware of the fiction you maintain, not truly being able to enjoy the nice things you have.

So the solution to this trap that most folks fall into? Live within your means and delay upgrades to your lifestyle, so that the jumps can be significant. That will buy you safety as well as allow you to really appreciate the things you've worked so hard to accomplish.

The billionaire that I referenced earlier is my buddy David Filo-- co-founder of Yahoo! For years, he drove this beat up gray car. We'd all make fun of him for it. As the richest man in the world under 40, you'd think that he could do better. Better than taking public transit to work or still living in the apartments. Last time I saw him, he was as down-to-earth as ever, but had upgraded his car to a mid-range Audi. Nobody he needed to impress-- that's real wealth for you.