I always thought that being a billionaire meant you could go to the bank, swipe your debit card, and literally see a billion or more dollars in your bank account. Apparently this isn’t how it works, however. How then is someone considered a billionaire?
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Net worth isn’t only calculated by money in the bank. Assets, investesments and others can contribute.
Even though its unlikely for this scenario, you can have nothing in the bank but a billion in shares – You’re then still worth a billion.
Asset valuation. Their wealth is the sum of everything they own, including an estimate of how much they may have in a bank account. Its hard to know how much they have in a bank account because that’s private information, just like your account balance is.
Let’s say they own a mansion with an estimated market value of $10 million. That is add to their estimated wealth as $10 million.
Billionaires are considered such because they own a massive amount of stock (normally). Take the number of shares they own and multiply by the value. That’s value is added to their estimated worth just like the mansion.
But that number isn’t really accurate because they can’t sell all those shares for that amount. If the sell off that much stock the price of that stock will drop drastically.
It’s possible that someone may have bank accounts with a billion or more in them, but its unlikely their wealth is stored that way.
Assets can have different levels of liquidity (ease of exchange at current fair market value). For example, your house is less liquid than your phone which is less liquid than straight cash.
Billionaires often own parts of companies that they lead or advise. A large part of these company’s values is tied to the billionaire’s impact, usually via decision making. Companies are far less liquid than most other assets.
For example, I’m a paper millionaire. My startup was valued at $1m several years ago and has only increased in value. Remove me, however, and my startup is next to worthless. The value of my startup is mostly projected value if I continue executing my vision.
Also it’s super inefficient to keep all the money just in the bank.
Only keeping them under the bed might be worse.
Money should work, otherwise inflation will eat them.
Billionaires own stock in a company. If Company A is worth 10 billion, and the CEO owns 50% of it, their net worth is 5 billion. The only way for them to use that money is to sell shares, or part of their stake in the company. However, that means giving up power in their company, so most billionaires can’t actually use the majority of their money. Instead, they typically take out loans against their stock for most expenses, and only sell stock if they really need a lot of cash.
You estimate the value of their total assets. A billionare own a lot of stock in companies in additon to other property. They can not realistically sell all their stock but they can sell a few and see what people are willing to pay for them. This gives an estimate of how much they are worth.
So they might not have a billion dollars in their bank account, however if they asked their bank and allowed the bank to hold the stock and other valuables the bank would be willing to loan them a billion dollar.
People in the Millionaire/Billionaire class seldom have that kind of wealth in cash.
Their net-worth is calculated as the some total of their Assets (what they own)
Assets can include physical things like Cash, Homes, Cars, Art, Furniture, etc that are tangible things and are easy to calculate their value.
But most of the wealth for a Billionaire exists in investments like Stocks. A billionaire will own stocks which are shares (part ownership) of a company. Those shares have value on paper based on the estimated value of the Company. So if ABC financial is worth 100 million dollars and you own 51% of the stock, then that stock is worth 51 million dollars.
But a share like anything else has no cash value until you sell it. Which is like you owning a house. Your house might increase in value over time (that makes it an investment) but you won’t see any of that cash unless you decided to sell it or borrow against it.
The same is true for Billionaires and stocks. They might own billions of dollars worth of Tesla or Amazon but they don’t get any cash for that unless they sell stocks. This is also why people say Billionaires don’t pay enough taxes because you don’t pay taxes on stocks you own, only on the cash you make when you sell them.
So how do they get cash without selling stock?
Billionaires are often CEO’s or other high ranked executives in their own companies and they get a salary for that in addition to owning stocks. This is often in the millions per year. They can also make dividends which is company profits paid to stock holders.
Executives of big companies basically get to write their own contracts, so they often also include things like company cars, cellphones, computers, travel benefits, and other benefits in their contract so that the company pays for it.
You’d also be surprised to find out how often Billionaires finance things (borrow) vs buying in cash. Because financially and for tax purposes it makes more sense for them to get a mortgage than it is to buy a house in cash. They can also afford to have teams of lawyers and accountants working for them to sort all of that out.
Seeing a lot of technical responses here, so I’ll add an abstract opinion:
“Billionaires” also have 24hrs in a day. Same sun, same moon. Same planet.
They have access to luxuries; flights in private jets and probably own properties in different countries.
Business is by invitation; so everything is usually already paid for.
As a billionaire you rarely have to think about “a bill for dinner”. Probably.
As a billionaire, you have a lot, I mean, A LOT of pf shit to do every single day. A lot of people to see and decisions to make. Decisions that usually impact the world or the lives of people directly.
My father-in-law has a net worth of over a million dollars, but he has very little money. He owns his home, owns his car, and various investments and retirement accounts, and even had a small plane he bought over 50 years ago. The value of all of that is over a million dollars, but he has less than a few hundred in his bank account at any given time.
Assets. Your value isn’t just in the money you have, but in the things you own. Most millionaires and billionaires have their money tied up in all sorts of various assets and investments in order to grow their fortunes and diversify their wealth, so as to maintain their wealth in the long-run.
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