How can rich people drop all so much money on a daily basis but when they need larger amounts of money, they need to liquidate assets?
Yes, I know that wealth can come from owning assets outside of cash, but how can you spend hundreds of thousands of dollars a month if a their money and wealth is all tied up?
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Imagine you have twenty million dollars. You’re very liquid. First you buy a ten million dollar house. Now you’re less liquid. Then you spend ten million dollars on hookers and cocaine. Now you have no money, but still have the ten million dollar house. You’re not liquid at all. You could restore some liquidity, and afford more hookers and cocaine, by taking out a loan, using your house as collateral.
Maybe don’t use the explanation with an actual five-year-old.
Wifey and I are worth about $3.8M *”ON PAPER”*. That’s taking the valuation of everything we own, our house, our cars, our portfolio, our bank accounts, etc. If we have $25K in cash, I’d be so shocked I’d probably have a heart attack! *Wifey, a retired Accountant/CPA takes care of the money.*
When we need a larger amount of cash, we take out short term loans with our bank. *We’ve been doing business with these guys since we came home and opened a joint checking account with $25*! When the time is right, we sell off something and pay off the loan. Usually we wait for dividend time, sell off some shares of whatever is tanking and buy better stuff with the dividend. Wifey and Cathy, our broker, figure it all out. Once in a while they even let me know what they’re doing!?!
Of course it’s a little more complicated than that but this’ll give you an idea.
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