when you get rich, tell NO ONE

Here are the seven things you need to do when you suddenly get rich, from a millionaire businessman:

1. Stay Quiet and Private (Stealth Rich)

The most crucial initial step is to maintain absolute secrecy about your newfound wealth. This is termed being "stealth rich." The speaker cites the example of Jack Whittaker, who won $314.9 million in the Powerball in 2002. Unlike the recommended approach, Whittaker openly shared his winnings, leading to negative consequences: his wife divorced him, friends abandoned him, and his granddaughter tragically died from an overdose. Whittaker himself admitted that his generosity and openness "destroyed both his fortune and his family."

The rationale behind this secrecy is that once people know you have money, you become a target for robbery, lawsuits, blackmail, and scams. The speaker emphasizes that money doesn't change people but rather reveals their true nature. The only person you should inform is a qualified attorney specializing in trust and estate planning, as a trust can significantly reduce taxes and enhance privacy.

2. Don't Quit Working, Quit Your Job

While it might be tempting to quit your job immediately, the advice is to quit the job itself, not working altogether. If your current job is not fulfilling, it's recommended to leave it. The speaker suggests doing so at an opportune moment, perhaps during a power trip from your boss. However, it's essential to find another job that you genuinely enjoy, at least for a period.

The danger of quitting work entirely is that individuals can become consumed with how to spend their money, leading to boredom and potentially poor financial decisions. Many end up starting businesses they know nothing about or buying establishments that end up on shows like "Kitchen Nightmares." The speaker advocates for maintaining a normal routine for at least six months to process the wealth and resist immediate spending temptations. Working also serves as a mechanism to prevent excessive spending.

3. Pay Off High-Interest Debts

It's vital to address debts, especially those with high interest rates, as they can quickly erode your fortune. The primary culprits are credit cards, which often carry interest rates of 20-30%. Car loans and personal loans with high rates should also be prioritized.

However, the approach to mortgages differs. While many rush to pay off their homes, it might be more financially prudent to keep low-interest mortgages (2-3%) and invest the money instead. This is because the potential returns from investments could outweigh the cost of the low-interest debt. Paying off high-interest debt is presented as a guaranteed return, akin to earning that interest rate risk-free. The goal is to use this as a "reset button" and avoid falling back into debt cycles.

4. Don't Lend Money to Family and Friends

When you suddenly become wealthy, close relations may feel entitled to a share of your money, often believing you didn't earn it through hard work. They might request loans they don't intend to repay or propose business ventures for investment. The speaker asserts that the quickest way to lose family and friends is by lending them money.

While it might cause temporary resentment, it's better to refuse these requests to avoid messy situations. If you do wish to help, the speaker suggests a rule: give money only if someone genuinely needs it, with the understanding that you never expect repayment, and they must never ask for money again. This prevents people from using you as an emergency fund and encourages their financial responsibility. The speaker frames this as "cruel to be kind," ultimately preserving more relationships than acting as a perpetual financial support.

5. Never Spend the Principal, Only the Interest

A common mistake among those who get rich quickly is maintaining a consumer mindset, focusing on spending the money rather than preserving and growing it. An example is given of a family who won the lottery and quickly spent millions on a new house, sports cars, and private schooling, only to lose it all within two years due to bad investments and crushing debt.

The "golden rule" is to "never spend the principal, only the interest." The objective is to create a "money tree" that generates income, rather than cutting it down for immediate use. This leads to the concept of a "freedom figure." To calculate this, determine your desired annual income and multiply it by 25. For instance, if you want $200,000 per year, you need to invest at least $5 million. The aim is to live off the interest generated by this investment without touching the principal. The rule of 25 is based on a 4% safe withdrawal rate, though the speaker aims for higher growth.

6. Invest for Preservation and Growth

To achieve the desired passive income, you need to invest your wealth. Ordinary savings accounts typically offer low interest rates (e.g., 0.5%). The speaker proposes an example portfolio for $5 million, focusing on preservation and growth, acknowledging that this is not financial advice and depends on age and risk tolerance.

• Low-Cost Total Stock Market Index Fund ($1 million): Diversified across over 1,300 stocks (e.g., Apple, Microsoft, Amazon). Aims for long-term growth, averaging around 9% annually over 20 years, potentially generating $90,000 per year.
• Low-Cost Total Bond Market Index Fund ($1 million): A pool of loans to governments or companies, offering stability during market crashes. Averages around 4% annual returns, potentially generating $40,000 per year.
• Residential Real Estate ($500,000): For property appreciation, historically growing at about 7% annually in the US, potentially generating $35,000 per year.
• Commercial Real Estate ($500,000): For steady cash flow, with tenants often staying long-term and maintaining properties. Historically provides returns of around 8% per year, potentially generating $40,000 per year.
• Blue Chip Crypto (Bitcoin and Ethereum) ($500,000): Acknowledged as highly volatile but a strong performer over the last decade. Treated as a 5-10% "moonshot" allocation. Bitcoin's past decade saw 49% annual gains, but a normalized range of 10-15% is considered, potentially averaging $62,500 per year.
• High-Interest Savings Account (e.g., SoFi) ($1 million): Offering up to 4.5% interest, potentially generating $45,000 per year.

This example portfolio could generate approximately $312,500 per year in passive income if market performance aligns with long-term averages. The speaker also mentions a sponsorship from Trading 212, offering a free fractional share with a promo code.

7. Allocate "Fun Money" and Focus on Freedom

The remaining $500,000 from the $5 million portfolio example is designated as "fun money" for discretionary spending. The speaker emphasizes that true wealth is not about material possessions like Lamborghinis or mansions but about the freedom to choose how to spend your day and never having to do things you don't want to do.

The rich who remain rich are those who "buy back their time." After securing oneself financially, the focus should shift to thinking beyond oneself and leaving a legacy. The ultimate goal is not to chase possessions but to achieve freedom.

Key Concepts

• Stealth Rich: Maintaining secrecy about newfound wealth to avoid negative consequences.
• Freedom Figure: The amount of money needed to generate a desired annual income through investments.
• Rule of 25: A guideline for calculating the freedom figure by multiplying desired annual income by 25, based on a 4% safe withdrawal rate.
• Principal vs. Interest: The distinction between the original sum of money and the income it generates, with the advice to only spend the interest.
• Passive Income: Income generated from investments that requires minimal ongoing effort.
• Diversification: Spreading investments across different asset classes to reduce risk.
• Index Fund: An investment fund that tracks a specific market index.
• Blue Chip Crypto: Established and widely recognized cryptocurrencies like Bitcoin and Ethereum.
• Buying Back Time: Achieving financial freedom to have control over one's time and daily activities.