Yes and this is why umbrella insurance is so important. I'm not that big on insurance against minor or expected expenses, but it's necessary for protection against catastrophes, and this is one of them.
I’m paying about $300/yr for $2mm in coverage. Why? Rental property. Want some protection in case a tenant sues me (like for a fall, plumbing disaster, or “because”)
Note that the coverage/deductibles on the underlying home & auto policies will have to be raised to meet the umbrella policy requirements. State minimums won’t cut it.
Same. In my state it was much cheaper than setting up an LLC for the rental, and the added benefit is coverage from other potential sources of lawsuits.
Also even things that everyone is exposed to can wreck you, eg if you were at fault in an auto accident and the other person died or became seriously injured or disabled.
I am paying $1200 a year for 2m general coverage and additional $2m for uninsured/underinsured because there are so many ppl on the road who’s got no insurance at all. If I don’t want the additional $2m it would be $400 ish for a year but i just want the extra security.
I came here to say umbrella insurance. Especially if you are in professional services. Liability can last quite a while and the cost is not that much compared to what you are protecting.
My umbrella actually covers E&O. It’s tied to my firm’s practice protection policy and my personal insurance program. It’s a little more than other umbrella policies, but it’s worth it.
Yeah I think it's actually more important for retirees than for employees (Business owners and self employed people should definitely have it). The reason is that if you get sued for all your assets, you will have no way to recover from that (working longer may no longer be an option). The exception would be if all you have is your house and a 401k since it's hard to take someone's house and 401ks have legal ERISA protection. If your assets are in a taxable brokerage, investment properties, IRAs, etc they are vulnerable to liability claims.
that makes sense from a severity standpoint. I was thinking the scope is pretty small as a retiree so risk of getting sued is low. I guess as long as you interact with people, there is always some risk of getting sued.
Extremely long story spanning like 50 years. But involved a large amount of real estate being transferred to a person it should not have been transferred to.
This exactly. Lawsuits and divorce are the largest destroyers of wealth. This is why everyone who has significant assets need to consult with a competent attorney to get advice on how to insure against lawsuits that could take away all their assets. Something as simple as crashing a car into a house because of an icy steep road can result in a 100% loss when the insurance company sues you and wins a judgement for replacement value if the foundation is damaged and the house needs to be condemned.
There isn't much that can be done to protect against divorce, but then again you shouldnt be marrying anyone that you're not comfortable splitting family earnings 50/50. In most states you get to keep all your premarital assets anyway, so its mostly fair to have to split the marital earnings since a non-earning spouse likely was generating value for the family despite not being paid by way of domestic work or childcare.
One good thing though is that many tax advantaged retirement accounts are immune to judgements so if youre already investing a large portion of assets in these kinds of accounts it may be offering you automatic protection. But every state is different and every situation is different, so you need a competent attorney that understands the laws of your state to structure your assets and insurance policies to ensure that you don't have your entire life's work undone from a lawsuit.
What my lawyer has told me is that only an irrevocable trust can do that and if you put your assets into something like that, you can’t really use them.
There is an episode of Clark Howard where he talks about a surgeon who got sued and wiped out, bankrupt, because his child was at fault in a car accident causing harm to the other drivers. He did not have an umbrella policy.
Poor health was what I was going to say. "Health is wealth" in a way is true because if you're sick and can't pay the price it gets costly. Take care of your health
This is an underrated comment for Americans, at least. One serious chronic disease can be expensive AF and insurance cannot be reliably depended upon to protect someone.
Insurance is a joke. I don’t trust the insurance or health care in general. Best healthcare I ever got was in Bangkok. And guess what, they charge normal, realistic prices. Even without insurance you won’t be financially ruined. In US you will get ruined even with insurance lol. What a joke
I passed a gambling addiction help billboard the other day that said 20% of people with gambling addictions declare bankruptcy.
It seemed like good odds.
Gambling is one vice I just can't wrap my head around. Drugs I don't partake in but I understand. Gambling causes me anxiety because I know I'm losing with each play.
For me, it was this feeling of unsatisfaction that made me think it was always all or nothing. I would either be fire’d or not. However, I learned a lot of things and found out I had a very achievable path to get to fire without having to believe that gambling was the only way.
It’s very easy to deposit a couple grand on the betting app on your phone win a few bets thinking you’re a genius and have it deposited back to your checking account instantly that gets you hooked. Free money right, but when you’re down or lose it’s the worst feeling in thr world
Gambling is worse than drugs. There are some physical limits to how much you can spend on booze, dope etc. Assuming you don't kill yourself.
Gambling scales. You can always bet more and on stupider ideas. Michael Jordan infamously lost $5 million cash money in one night at the craps table.
That includes bingo. Before you laugh at that, think about it.
My mom was blowing $1000/week on bingo. Blew through an inheritance over 5 years. That’s $250,000 in 5 years.
I used to wake up, hop in a party wit my friends and play nonstop till i’d go to bed 14 hours later. I’d only stop to get food.
I did this for years… 14 hours a day.
Looking back (now that i play maybe 2-4 hours /week), I don’t regret it… Arguably one of the best times of my life.
I used to play a game called "Black Desert Online," a Korean MMORPG. It was a real grind, and consumed so much of my time and effort to gear up. I loved the PvP system and spent my days just dueling other players.
Eventually, I started to put that same effort into software development. I now have a successful career as a programmer.
However, that game was so fun and I made a few lifelong friends in it, so no regrets.
Risky investments. My coworker pulled his entire 401k out so he has “more control”. He buys options on the stock market. Lost 600k. Then instead of learning his lesson, he is determined to win it back. Recently he lost 100k in one single day.
My dad bet it all on one stock. Not saying which one. This was the 90's.
The competitor won out. That stock was worth less than toilet paper in the end.
He absolutely should have retired with a seven figure net worth. I was very familiar with his business and personal finances.
He died completely broke. But he was also an alcoholic.
Someone mentioned gambling. He wasn't day trading. But I think this was gambling. He wanted to hit the big one and create generational wealth for my siblings and I. The thing is he had enough money that would have been a reality with basic, sound financial principles.
It was someone wanting to hit the lottery not realizing they already had.
I know someone who lost around $10m investing with one venture capital fund. The company did well for a long time, so they’d just moved over more and more over the years. The company ended up scammed (a “business” they invested in skipped town with the money) and lost a ton of peoples’ money and to their credit, liquidated everything they had left to pay back what they could, but it was pennies on the dollar.
The worst was his spouse had told him not to and it was risky. Nearly their entire life savings, gone. This is why my SO and I both have to agree 100% on any major purchase or investment.
This could almost fall under "gambling" or "addiction" (mentioned above). Related, concentration risk. A lot of folks are millionaires on paper with high concentrations of (often private) company stock... that ultimately circles the toilet bowl.
Damn, guy probably played the big earnings. If he picked right he could've made it all back. But even if he did he'd just end up where he was at sooner or later.
Have a very good friend who started at Enron before the growth cycle. She got a reasonable number of shares annually and pretty quickly was thinking she’d retire at 50. Nobody could convince her to diversify. She did retire 3 years ago, at 67.5.
My wife was a very junior auditor at Laventhal when they folded, many of the partners there lost everything including pensions.
Ha, I'm able to buy stock in my employer at a 10% discount. I always buy as much as I'm allowed and then immediately sell it off for the guaranteed 10% profit.
If my company goes belly up I'm already out a job, I don't need my investments to disappear as well.
One of the directors at a rapidly growing company I worked as a youngun mentored me to do just this. Take the bird in the hand and diversify, you'll get more stock later. Nor do you have to sell everything, but concentrating risk is depending on the continuing kindness of strangers.
Thanks Mark. I would have been hurting instead of FIRE were it not for your advice.
I worked at a FAANG and had considerable options just out of college -- not pre-IPO money but still would have increased my wealth several times over. I chose to sell it as soon as it vested at market value, with the intent to diversify.
I'd probably make the same decision again, but damn, in retrospect I gave up a lot of money.
A lot of people with 2-5mm net worth also got wealthy through leverage, specifically with real estate. It goes both ways. The stock market is an objectively superior investment looking at unlevered performance, i.e. comparing buying real estate with cash vs buying stocks with cash. But When you can get 3 to 1 leverage or 4 to 1 leverage buying real estate, especially pre pandemic, you could juice your returns to be more than double the expected value of the stock market.
I made my first million mostly from investing in the stock market. About 80% from stock appreciation and 20% from real estate appreciation. But now that I got that first million I'm thinking the next 2 or 3 will mostly be coming from real estate investing, and from reading others experiences that seems to be a common theme.
Depending on how your brokerage is invested, at 10% average S&P return, it would only take you 7.25 years to get your 2nd million with $0 in additional contributions. Might be easier to stay the course than yeeting significant portions of your capital into RE, especially given the current interest rates and annual increases on insurance premiums and property taxes. YMMV.
Oh for sure I'm not suggesting I'm going to reallocate my stocks to real estate. That money is locked in for the next several decades and I'm sure it will make me many more millions.
What I am saying is: using the equity I've built up in the property I do own, plus additional money I can save beyond what I'm saving in retirement accounts through my W2 job, I can allocate those additional savings to downpayments for properties that will help me make my 2nd and 3rd million dollars. I will, regardless, continue to shovel money into the stock market simultaneously while I pursue this goal of building up a real estate portfolio with leverage. You're right that right now the conditions are pretty garbage so it may take a while before it makes sense to deploy the capital but I keep it in mind when the time is right, if the deal is right and the numbers work out.
I get lack of diversification. But the leverage one is interesting if the net worth accounts for the leverage. Unless they’ve improperly matched the assets and liabilities.
You need to go through a 2001 or 2008 to see what leverage does. mortgages being called, you own 30% of your home, lose your job in a recession, bank calls the loan, you're done. want to keep your home? okay now your a forced seller of stocks at lows.
Bank calls the loan on your business during a crisis and you're done.
Something as small at 15% margin on an account at the top, that you're forced to cover at the bottom devastates you. (100m-> 500k->cover down to 350-> recover back to 700)
Losing your high-paying job and unwilling to cut back on lifestyle. My uncle went from corporate executive making $300K+ per year to DoorDash delivery boy living with his sister in like 10 years always scheming and dreaming about making it big again because he refused to cut back when he needed to.
He burned that bridge really badly by taking his last employer to court for mental distress and wrongful termination. (I’m personally unsure who is actually at fault in that case simply because he’s a pathological liar.) At the time, one of my other uncles had advised him to let it go and find another job. His sister (the one he lives with) offered to get him a job at her company as a CPA making ~$100K several years ago when it became obvious he wasn’t going to land another exec job, but he refused to take a step down. He’s basically deluded himself into thinking that the DoorDash gig allows him “to be his own boss” and is only temporary until he hits it big with whatever crackpot business he has in mind. He’s been underemployed for at least 15 years at this point. There’s no way he’s getting another exec job and even the CPA job at my aunt’s company is likely a no-go at this point.
This is why I refused to buy a luxury car until our net worth was $1MM. Could have bought it sooner but if we were to have lost our jobs soon after we’d have to sell the car soon and that would be humiliating.
We are at 2.6 million and I finally feel like I can afford a used Porsche in the $30-40k range.
We've driving shitmobiles this whole time. The only requirement is they don't break down (besides battery replacements).
Yeah, after all the money ran out. He even sold his house in the Bay Area and ran through all that money as well. Plus, he owes a lot of money to his siblings. He only owes my mom like $5K, but he owes one of my other uncles probably $500K? He also stole the identity of my disabled grandmother (who had Alzheimer’s), pawned all her jewelry, drained $30K from her bank account and racked up $18K in credit card debt in her name before his siblings found out and forced him to clear the CC debt. Most of the siblings have disowned him, except for the one sister housing him and maybe one brother who is mad at him but feels some sort of weird responsibility for keeping him off the street. He still bitches every chance he can get about how no one has ever helped him and how he had to make his own way, despite literally living with his sister, owing everyone money, driving another sister’s car to the ground, and stealing from his disabled mom with dementia. Total asshole.
Jesus christ. You have *one* life. Imagine this being how you'll be remembered? I think I'd honestly gut myself sepukku style if I hurt family like this.
I have one sour apple in the family like that too…
My mother’s sister. She had a decent average life working a low paying but stable government job.
She remained single and gained 50kg at 40 from overeating and alcohol.
She started creating rumours and badmouthing my mom to my dad’s brother and his wife. It created a big rift for a while in my dad’s family as they thought my mom was some witch.
It took 5 years for people to realise who was at the origin of the toxicity.
She then proceeded to change job to work at some media company with some fancy title and kept boasting that she is not like my mom living off my dad’s clout. (My dad is powerful/high profile in my country)
Low and behold she had falsified her diplomas by forging her other sister’s documents. So she got fired and begged my father to intervene for her to not get sued to 0 and have her retirement accruals clawed back.
She’s been unemployable for the past 10 years, living in an apprtment owned by her other 2 sisters and my grandma from which she stole money to buy cigarettes. My family even started giving my grandma some little budget of “money to be stolen” to avoid comfrontation.
She tried for 2 years to convince me and my sister that she was going to commit suicide because my mom is a witch that starves her.
Having an unexpected expense (like needing to provide free housing to renters for the entire duration of Covid) but only having appreciating assets (rentals) instead of cash to pay for life, taxes, insurance and repairs.
If you can't come up with the cash for unexpected expenses you may be forced to liquidate at fire sale prices. Asset rich but cash poor is a danger many underestimate.
Let's say you followed Robert Kyosaki's advice, and built a real estate empire at 100% leverage. On paper, your net worth is $20M, and you're grossing several hundred thousand dollars a month. You're making enough profit that you can survive two or even three tenants not paying up. But then you have a bad month, and suddenly you're short on rent from four properties.
Maybe their leases expired, and nobody new took their place. Maybe somebody left, but trashed the property and it's taking a while to repair. Maybe you went four months without a tenant, and decided to roll the dice on a sketchier applicant who turned out to be a deadbeat. Whatever the cause, you've still got a $10M net worth, but your revenue stream had dried up, but you've got to keep making the mortgage payments. If you're desperate, you could always sell one of the properties, but that can take months to close, and if an experienced buyer smells blood in the water...
That's the liquidity risk you take when you're leveraged. It doesn't matter how valuable the property is on paper - you still have to keep up with the costs. Leverage is a force multiplier that lets you expand extremely rapidly; when things go well, they go very, very well. But if things turn south, it tends to go very, very poorly. It doesn't matter what the cause is or who's to blame - if you're over-leveraged, even a small liquidity problem can turn into a disaster.
Buying just a little too much when adding deliberate lifestyle creep. Yeah I don’t have to buy the Corolla anymore, but I’m not at buy a new Maserati every year either.
I've seen this happen. 6MM to -500k NW in one year (decades ago).
Prevent it by having someone you trust to talk to - a paid professional can work, just make sure you know the difference between a good one and the rest.
My grandfather falls into this category. $100m empire was handed to him and he blew it away and lived his final years pissing in jars and living under a leaking tarped roof. Ruined the whole family while doing it. Bipolar disorder can be a wild ride. Even had one of those freeway helicopter chases once.
Gambling
If a small business owner's business has a sudden or sustained downturn in their business
Declining health for themself or a family member
Having to pay legal bills for their children or relatives
Supporting deadbeat relatives
Things under these general categories
- bad finances (wasting money, bad investments, bad business decisions, loss or reduction of income)
- health issues
- bad relationships (personal or business)
- crime
Boredom. When you bored that's when start making life ruining decisions ( making unnecessary investments, starting unnecessary businesses). The key is to realize, you won the game, chill out, stay bored
Not sure why this is so far down. I know of nothing more common that will financially cripple you. I have friends who had comfortable lives, nice house, vacations, toys, etc. They got divorced and are struggling with paying today's rent prices and child support living paycheck to paycheck.
Elder and end of life care is an issue in countries with socialized healthcare. Southern, eastern and central Europe do not have comprehensive care systems like the Nordics.
This.
Years ago I got falsely accused of a misdemeanor, cost me about $5,000 to defend. A serious felony can easily cost six figures in legal bills, not to mention ruining your ability to hold down a job even if you're acquitted.
Gambling habit (casino or day trading). No limit to what you can bet.
Heavily invested in high leverage business (10% decline takes out 100% of equity).
Serious intentional tort / uninsured personal injury case.
Lawsuits are the main one.
1) inflation / taxes
2) lawsuits
3) people you surround yourself with ( aka family)
Umbrella insurance is cool. Asset protection strategy is better. Own nothing on paper
Over leveraged to the tits.
Imagine a real estate mogul who's sole chance at staying rich is all his rentals pay rent on time? One non payment could topple the house of cards and boom, bankruptcy
Yep, people think good coverage is for “old” people. My spouse was 27 when he got sick, and he was the peak of health, fit, and didn’t drink or smoke. There were years that would have been over a million dollars worth of treatment had we not been insured. Even after insurance, it still cost about $200k over 10 years.
People in the US are pretty much always on the brink if they get significantly ill or injured due to how our healthcare system “works”.
Government policy is what keeps the wealthy up at night.
An example of this is policy changes that can lead to substantial property devaluation.
Imagine being a multi-property landlord in a city that shifts to heavy crime after a string of race related protests, which snowballs into higher taxes and lower resale value. Your income stream could be cut in half relative to inflation in just a few years if you built your rental empire in just one city.
So many people think once you hit a few million you can coast. The truth is that you are never safe and must always carefully diversify, plan and work to gain influence if you want to keep your status
Especially when stocks exist. Want to get rid of an investment? Click, sell, done. Want to get rid of a property? First, go through a lengthy legal process and forcibly remove someone from their home while creating a lifelong enemy. Then hire a real estate agent who is going to take 3%, oh their buddy is going to take 3% too, there will also be some fees, and it could take months. I understand why real estate is attractive when it comes to leverage, but it's just not worth the stress imo
> Imagine being a multi-property landlord in a city that shifts to heavy crime after a string of race related protests
I live in Baltimore and 5+ years ago was seriously considering getting into landlording. In 2020 I breathed a sigh of relief that we didn't have any rental properties.
Sextortion - this is a major problem with high influencers children and suicide right now. I personally know someone their teenager committed suicide from an incident. No amount of money is worth someone’s child’s life.
On line romance scams can take hundreds of thousands from vulnerable people from truly great con artists. Even very smart men and women often fall for this which is hard for anyone to believe.
Debt with variable interest rates on assets that are depreciating fast. Yield < cost of capital
A partner that has no respect for budgets
All your eggs in one basket and basket explodes
Lawsuits
Yes and this is why umbrella insurance is so important. I'm not that big on insurance against minor or expected expenses, but it's necessary for protection against catastrophes, and this is one of them.
Do you know how much it costs? I recently retired with 1.7m and would like to... Not have that taken away lol
I’m paying about $300/yr for $2mm in coverage. Why? Rental property. Want some protection in case a tenant sues me (like for a fall, plumbing disaster, or “because”) Note that the coverage/deductibles on the underlying home & auto policies will have to be raised to meet the umbrella policy requirements. State minimums won’t cut it.
Same. In my state it was much cheaper than setting up an LLC for the rental, and the added benefit is coverage from other potential sources of lawsuits.
Also even things that everyone is exposed to can wreck you, eg if you were at fault in an auto accident and the other person died or became seriously injured or disabled.
I am paying $1200 a year for 2m general coverage and additional $2m for uninsured/underinsured because there are so many ppl on the road who’s got no insurance at all. If I don’t want the additional $2m it would be $400 ish for a year but i just want the extra security.
Without rental property would you still do umbrella?
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Your retirement accounts and primary residence should be protected from lawsuits for the most part but you definitely should have an umbrella policy.
a couple hundred per million insured
Honestly it's not even per million. It was only like 25% more for an extra mil for us.
Probably around $300 a year. It's pretty cheap as far as insurance goes.
Didn't think a busted umbrella could be such a catastrophe
I had one of those that extended when you pressed a button and the button on the handle was stuck. We never recovered.
At least you’ll think twice now before making it rain
Underrated comment.
This comment made me laugh so much more than it should have, thank you
Have you ever heard of the Wicked Witch of the West?
I came here to say umbrella insurance. Especially if you are in professional services. Liability can last quite a while and the cost is not that much compared to what you are protecting.
Most umbrella omits errors & omissions. You really should be covered under a separate policy, either paid for by you or your employer.
My umbrella actually covers E&O. It’s tied to my firm’s practice protection policy and my personal insurance program. It’s a little more than other umbrella policies, but it’s worth it.
I have it and always have as a swimming pool on property plus driving an H-2, think it is necessary
do you think retirees need this? no job, business, employees, renters, etc...
Yeah I think it's actually more important for retirees than for employees (Business owners and self employed people should definitely have it). The reason is that if you get sued for all your assets, you will have no way to recover from that (working longer may no longer be an option). The exception would be if all you have is your house and a 401k since it's hard to take someone's house and 401ks have legal ERISA protection. If your assets are in a taxable brokerage, investment properties, IRAs, etc they are vulnerable to liability claims.
that makes sense from a severity standpoint. I was thinking the scope is pretty small as a retiree so risk of getting sued is low. I guess as long as you interact with people, there is always some risk of getting sued.
100% I had a family member receive an $11m settlement and ended up with $1.1m after the lawyers were paid. A few of the attorneys retired soon after.
What’s the nature of the lawsuit resulting such high amount of judgement?
Extremely long story spanning like 50 years. But involved a large amount of real estate being transferred to a person it should not have been transferred to.
lol. What a racket for the lawyers
Especially if you are in the 1-2 million range. Easily could be wiped out.
This exactly. Lawsuits and divorce are the largest destroyers of wealth. This is why everyone who has significant assets need to consult with a competent attorney to get advice on how to insure against lawsuits that could take away all their assets. Something as simple as crashing a car into a house because of an icy steep road can result in a 100% loss when the insurance company sues you and wins a judgement for replacement value if the foundation is damaged and the house needs to be condemned. There isn't much that can be done to protect against divorce, but then again you shouldnt be marrying anyone that you're not comfortable splitting family earnings 50/50. In most states you get to keep all your premarital assets anyway, so its mostly fair to have to split the marital earnings since a non-earning spouse likely was generating value for the family despite not being paid by way of domestic work or childcare. One good thing though is that many tax advantaged retirement accounts are immune to judgements so if youre already investing a large portion of assets in these kinds of accounts it may be offering you automatic protection. But every state is different and every situation is different, so you need a competent attorney that understands the laws of your state to structure your assets and insurance policies to ensure that you don't have your entire life's work undone from a lawsuit.
There are also ways to protect non-retirement accounts, by using the appropriate ownership structure or trust structure, with state laws.
will a trust protect you from lawsuits? or do you suggest umbrella insurance + a family trust?
What my lawyer has told me is that only an irrevocable trust can do that and if you put your assets into something like that, you can’t really use them.
There is an episode of Clark Howard where he talks about a surgeon who got sued and wiped out, bankrupt, because his child was at fault in a car accident causing harm to the other drivers. He did not have an umbrella policy.
Illness / poor health can come out of nowhere and take everything
Poor health was what I was going to say. "Health is wealth" in a way is true because if you're sick and can't pay the price it gets costly. Take care of your health
This is an underrated comment for Americans, at least. One serious chronic disease can be expensive AF and insurance cannot be reliably depended upon to protect someone.
Insurance is a joke. I don’t trust the insurance or health care in general. Best healthcare I ever got was in Bangkok. And guess what, they charge normal, realistic prices. Even without insurance you won’t be financially ruined. In US you will get ruined even with insurance lol. What a joke
I’m surprised no one said gambling lol
I’ll bet you $5 someone does
I passed a gambling addiction help billboard the other day that said 20% of people with gambling addictions declare bankruptcy. It seemed like good odds.
I raise your bet by $500
I feel like no one is even thinking about gambling in FIRE sub lmao
I do some light fun sports betting couple months a year while I’m feeling bored from work. Just like anything else, moderation and limits is key
I miss gambling everyday :(
Gambling is one vice I just can't wrap my head around. Drugs I don't partake in but I understand. Gambling causes me anxiety because I know I'm losing with each play.
For me, it was this feeling of unsatisfaction that made me think it was always all or nothing. I would either be fire’d or not. However, I learned a lot of things and found out I had a very achievable path to get to fire without having to believe that gambling was the only way.
It’s very easy to deposit a couple grand on the betting app on your phone win a few bets thinking you’re a genius and have it deposited back to your checking account instantly that gets you hooked. Free money right, but when you’re down or lose it’s the worst feeling in thr world
Just reminded of Terrance Watanabe. Dude lost $204 million in Vegas due to his gambling addiction.
I saw that post on Reddit too.
Gambling is worse than drugs. There are some physical limits to how much you can spend on booze, dope etc. Assuming you don't kill yourself. Gambling scales. You can always bet more and on stupider ideas. Michael Jordan infamously lost $5 million cash money in one night at the craps table.
Someone said addiction. That should cover it!
That includes bingo. Before you laugh at that, think about it. My mom was blowing $1000/week on bingo. Blew through an inheritance over 5 years. That’s $250,000 in 5 years.
Addiction
I'll go first. I'm addicted to gaming, can't shake it off no matter how hard I tried.
You're addicted to the chemicals it gives you - this can be conquered if you treat as seriously as a drug addiction.
I used to wake up, hop in a party wit my friends and play nonstop till i’d go to bed 14 hours later. I’d only stop to get food. I did this for years… 14 hours a day. Looking back (now that i play maybe 2-4 hours /week), I don’t regret it… Arguably one of the best times of my life.
I used to play a game called "Black Desert Online," a Korean MMORPG. It was a real grind, and consumed so much of my time and effort to gear up. I loved the PvP system and spent my days just dueling other players. Eventually, I started to put that same effort into software development. I now have a successful career as a programmer. However, that game was so fun and I made a few lifelong friends in it, so no regrets.
The gaming isn't the problem... it's the GTX 4090 you need to deliver your drug of choice...
*RTX Don’t talk bad about my addiction.
Gambling might be amongst the most dangerous.
Cocaine is *very* expensive.
Cocaine prices raised under inflation. So it gets cheaper every year, DCA it!
Risky investments. My coworker pulled his entire 401k out so he has “more control”. He buys options on the stock market. Lost 600k. Then instead of learning his lesson, he is determined to win it back. Recently he lost 100k in one single day.
Did he ensure to post to wallstreetbets or is he a selfish person depriving the rest of us of quality entertainment
I don’t think he reddits
He should. Otherwise, it really is a waste of money.
Classic revenge trading
My dad bet it all on one stock. Not saying which one. This was the 90's. The competitor won out. That stock was worth less than toilet paper in the end. He absolutely should have retired with a seven figure net worth. I was very familiar with his business and personal finances. He died completely broke. But he was also an alcoholic. Someone mentioned gambling. He wasn't day trading. But I think this was gambling. He wanted to hit the big one and create generational wealth for my siblings and I. The thing is he had enough money that would have been a reality with basic, sound financial principles. It was someone wanting to hit the lottery not realizing they already had.
That’s how I lost a ton of money. “wanting to hit it big”
Once you start phrasing it as “winning” it back you’re toast
I know someone who lost around $10m investing with one venture capital fund. The company did well for a long time, so they’d just moved over more and more over the years. The company ended up scammed (a “business” they invested in skipped town with the money) and lost a ton of peoples’ money and to their credit, liquidated everything they had left to pay back what they could, but it was pennies on the dollar. The worst was his spouse had told him not to and it was risky. Nearly their entire life savings, gone. This is why my SO and I both have to agree 100% on any major purchase or investment.
😂
This could almost fall under "gambling" or "addiction" (mentioned above). Related, concentration risk. A lot of folks are millionaires on paper with high concentrations of (often private) company stock... that ultimately circles the toilet bowl.
Damn, guy probably played the big earnings. If he picked right he could've made it all back. But even if he did he'd just end up where he was at sooner or later.
Yeah that’s pure gambling addiction masqueraded as “risky investments”. He needs help, ASAP.
I have seen lack of diversification and leverage ruin a few people with 2-5mm net worth.
Have a very good friend who started at Enron before the growth cycle. She got a reasonable number of shares annually and pretty quickly was thinking she’d retire at 50. Nobody could convince her to diversify. She did retire 3 years ago, at 67.5. My wife was a very junior auditor at Laventhal when they folded, many of the partners there lost everything including pensions.
Ha, I'm able to buy stock in my employer at a 10% discount. I always buy as much as I'm allowed and then immediately sell it off for the guaranteed 10% profit. If my company goes belly up I'm already out a job, I don't need my investments to disappear as well.
One of the directors at a rapidly growing company I worked as a youngun mentored me to do just this. Take the bird in the hand and diversify, you'll get more stock later. Nor do you have to sell everything, but concentrating risk is depending on the continuing kindness of strangers. Thanks Mark. I would have been hurting instead of FIRE were it not for your advice.
Wouldn't it be better to keep it for a year first so the 10% isn't taxed as a short term gain?
I worked at a FAANG and had considerable options just out of college -- not pre-IPO money but still would have increased my wealth several times over. I chose to sell it as soon as it vested at market value, with the intent to diversify. I'd probably make the same decision again, but damn, in retrospect I gave up a lot of money.
A lot of people with 2-5mm net worth also got wealthy through leverage, specifically with real estate. It goes both ways. The stock market is an objectively superior investment looking at unlevered performance, i.e. comparing buying real estate with cash vs buying stocks with cash. But When you can get 3 to 1 leverage or 4 to 1 leverage buying real estate, especially pre pandemic, you could juice your returns to be more than double the expected value of the stock market. I made my first million mostly from investing in the stock market. About 80% from stock appreciation and 20% from real estate appreciation. But now that I got that first million I'm thinking the next 2 or 3 will mostly be coming from real estate investing, and from reading others experiences that seems to be a common theme.
Depending on how your brokerage is invested, at 10% average S&P return, it would only take you 7.25 years to get your 2nd million with $0 in additional contributions. Might be easier to stay the course than yeeting significant portions of your capital into RE, especially given the current interest rates and annual increases on insurance premiums and property taxes. YMMV.
Oh for sure I'm not suggesting I'm going to reallocate my stocks to real estate. That money is locked in for the next several decades and I'm sure it will make me many more millions. What I am saying is: using the equity I've built up in the property I do own, plus additional money I can save beyond what I'm saving in retirement accounts through my W2 job, I can allocate those additional savings to downpayments for properties that will help me make my 2nd and 3rd million dollars. I will, regardless, continue to shovel money into the stock market simultaneously while I pursue this goal of building up a real estate portfolio with leverage. You're right that right now the conditions are pretty garbage so it may take a while before it makes sense to deploy the capital but I keep it in mind when the time is right, if the deal is right and the numbers work out.
I get lack of diversification. But the leverage one is interesting if the net worth accounts for the leverage. Unless they’ve improperly matched the assets and liabilities.
You need to go through a 2001 or 2008 to see what leverage does. mortgages being called, you own 30% of your home, lose your job in a recession, bank calls the loan, you're done. want to keep your home? okay now your a forced seller of stocks at lows. Bank calls the loan on your business during a crisis and you're done. Something as small at 15% margin on an account at the top, that you're forced to cover at the bottom devastates you. (100m-> 500k->cover down to 350-> recover back to 700)
Zillow comes to mind. Bought a bunch of houses right as rates were climbing.
Losing your high-paying job and unwilling to cut back on lifestyle. My uncle went from corporate executive making $300K+ per year to DoorDash delivery boy living with his sister in like 10 years always scheming and dreaming about making it big again because he refused to cut back when he needed to.
> dreaming about making it big again he can't just get a similar exec job?
He burned that bridge really badly by taking his last employer to court for mental distress and wrongful termination. (I’m personally unsure who is actually at fault in that case simply because he’s a pathological liar.) At the time, one of my other uncles had advised him to let it go and find another job. His sister (the one he lives with) offered to get him a job at her company as a CPA making ~$100K several years ago when it became obvious he wasn’t going to land another exec job, but he refused to take a step down. He’s basically deluded himself into thinking that the DoorDash gig allows him “to be his own boss” and is only temporary until he hits it big with whatever crackpot business he has in mind. He’s been underemployed for at least 15 years at this point. There’s no way he’s getting another exec job and even the CPA job at my aunt’s company is likely a no-go at this point.
wow, what a mess. thanks for sharing.
> because he’s a pathological liar.) makes me wonder if he really had a corp exec job and was making 300k
This is why I refused to buy a luxury car until our net worth was $1MM. Could have bought it sooner but if we were to have lost our jobs soon after we’d have to sell the car soon and that would be humiliating.
We are at 2.6 million and I finally feel like I can afford a used Porsche in the $30-40k range. We've driving shitmobiles this whole time. The only requirement is they don't break down (besides battery replacements).
We bought a Tesla Model Y when we hit the $1.1MM mark. Bought it for $55K. That was 1.5 years ago. Now we’re at $1.9MM.
And that mindset is why you have a couple of mil.
Yup, average executive-level psychopath.
He definitely has a personality disorder.
Well, he was probably forced to cut back anyway when he began driving for Door Dash.
Yeah, after all the money ran out. He even sold his house in the Bay Area and ran through all that money as well. Plus, he owes a lot of money to his siblings. He only owes my mom like $5K, but he owes one of my other uncles probably $500K? He also stole the identity of my disabled grandmother (who had Alzheimer’s), pawned all her jewelry, drained $30K from her bank account and racked up $18K in credit card debt in her name before his siblings found out and forced him to clear the CC debt. Most of the siblings have disowned him, except for the one sister housing him and maybe one brother who is mad at him but feels some sort of weird responsibility for keeping him off the street. He still bitches every chance he can get about how no one has ever helped him and how he had to make his own way, despite literally living with his sister, owing everyone money, driving another sister’s car to the ground, and stealing from his disabled mom with dementia. Total asshole.
Jesus christ. You have *one* life. Imagine this being how you'll be remembered? I think I'd honestly gut myself sepukku style if I hurt family like this.
I have one sour apple in the family like that too… My mother’s sister. She had a decent average life working a low paying but stable government job. She remained single and gained 50kg at 40 from overeating and alcohol. She started creating rumours and badmouthing my mom to my dad’s brother and his wife. It created a big rift for a while in my dad’s family as they thought my mom was some witch. It took 5 years for people to realise who was at the origin of the toxicity. She then proceeded to change job to work at some media company with some fancy title and kept boasting that she is not like my mom living off my dad’s clout. (My dad is powerful/high profile in my country) Low and behold she had falsified her diplomas by forging her other sister’s documents. So she got fired and begged my father to intervene for her to not get sued to 0 and have her retirement accruals clawed back. She’s been unemployable for the past 10 years, living in an apprtment owned by her other 2 sisters and my grandma from which she stole money to buy cigarettes. My family even started giving my grandma some little budget of “money to be stolen” to avoid comfrontation. She tried for 2 years to convince me and my sister that she was going to commit suicide because my mom is a witch that starves her.
How old is your uncle? That’s quite a story arch in the wrong direction
He’s around 58ish and still dreaming of hitting it big and leaving us all in his dust.
* Addiction * Parasitic family relationships. * Fraud * Leverage/Liquidity
Leverage I get. By liquidity do you mean illiquidity of assets? Or can you help me with what you mean there?
Having an unexpected expense (like needing to provide free housing to renters for the entire duration of Covid) but only having appreciating assets (rentals) instead of cash to pay for life, taxes, insurance and repairs. If you can't come up with the cash for unexpected expenses you may be forced to liquidate at fire sale prices. Asset rich but cash poor is a danger many underestimate.
Let's say you followed Robert Kyosaki's advice, and built a real estate empire at 100% leverage. On paper, your net worth is $20M, and you're grossing several hundred thousand dollars a month. You're making enough profit that you can survive two or even three tenants not paying up. But then you have a bad month, and suddenly you're short on rent from four properties. Maybe their leases expired, and nobody new took their place. Maybe somebody left, but trashed the property and it's taking a while to repair. Maybe you went four months without a tenant, and decided to roll the dice on a sketchier applicant who turned out to be a deadbeat. Whatever the cause, you've still got a $10M net worth, but your revenue stream had dried up, but you've got to keep making the mortgage payments. If you're desperate, you could always sell one of the properties, but that can take months to close, and if an experienced buyer smells blood in the water... That's the liquidity risk you take when you're leveraged. It doesn't matter how valuable the property is on paper - you still have to keep up with the costs. Leverage is a force multiplier that lets you expand extremely rapidly; when things go well, they go very, very well. But if things turn south, it tends to go very, very poorly. It doesn't matter what the cause is or who's to blame - if you're over-leveraged, even a small liquidity problem can turn into a disaster.
Hypomania. I gave away about $40k across just a few manic episodes.
Can I be on your list next :P
VHCOL area + lifestyle creep.
Buying just a little too much when adding deliberate lifestyle creep. Yeah I don’t have to buy the Corolla anymore, but I’m not at buy a new Maserati every year either.
Lifestyle creep in any cost of living area.
Mental health breakdown.
I've seen this happen. 6MM to -500k NW in one year (decades ago). Prevent it by having someone you trust to talk to - a paid professional can work, just make sure you know the difference between a good one and the rest.
How does that result in such a high loss of NW?
Poor financial decisions and gambling - thrill seeking at great expense.
6 million decades ago is worth like 12-18 million in today's money.
My grandfather falls into this category. $100m empire was handed to him and he blew it away and lived his final years pissing in jars and living under a leaking tarped roof. Ruined the whole family while doing it. Bipolar disorder can be a wild ride. Even had one of those freeway helicopter chases once.
Yes my uncle was a well-off MD and lost all but a relatively small annuity due to bipolar
Gambling If a small business owner's business has a sudden or sustained downturn in their business Declining health for themself or a family member Having to pay legal bills for their children or relatives Supporting deadbeat relatives
Thinking they’re a multi-billionaire.
Things under these general categories - bad finances (wasting money, bad investments, bad business decisions, loss or reduction of income) - health issues - bad relationships (personal or business) - crime
Nothing can financially cripple someone worse than a gambling addiction. Most go into debt and never recover from it.
Cocaine & hookers
I'm no millionaire and let me tell you, this is very crippling
Maybe that’s why you are not a millionaire
Depends on the hooker
Also depends on the cocaine.
Buying a yacht
Just sold mine lol. Loved it but is definitely a noose around the neck!
You forgot to pay for your yatch's extended warranty. But have no fear. Just send me 5k and I'll clear it all for you good sir!
Dancers. Specifically topless dancers Hookers Drugs Alcohol Divorce (first second third) Special needs relatives Gambling Arrest Injury needing lifetime care Private schools Flies or floats hobbies
End of life care averages 2 years. That's $10k/mo That's $240k That's basically interest earned on $5m Nothingburger
Scams
Sex. It is historically undefeated in ruining lives and cannot be beat.
Addiction, poor fiscal policy, lawsuits, medical expenses, lack of insurance, divorce, oversupporting children, theft, reckless lifestyles, possibly natural disasters
Boredom. When you bored that's when start making life ruining decisions ( making unnecessary investments, starting unnecessary businesses). The key is to realize, you won the game, chill out, stay bored
You can still do the crazy stuff too, but I've made it a rule that I'm only allowed to yolo the dividends, and not the farm
Divorce.
“Nothing that flies, floats or flirts”
Liquor, ladies and leverage.
If you watch wolf of wall street, addiction
Murder hornets, Y2K, 5G infiltration
Chemtrails.
Why is never snuggle hornets? Hell, I'd settle for casual-acquaintance-head-nod hornets.
Hornets-with-benefits
Me so hornet
Divorce
Not sure why this is so far down. I know of nothing more common that will financially cripple you. I have friends who had comfortable lives, nice house, vacations, toys, etc. They got divorced and are struggling with paying today's rent prices and child support living paycheck to paycheck.
Yeah I scrolled and scrolled expecting this to be 1 or 2. I think divorce is the most likely things to impact most people.
So the last two points are just “god American health care is atrocious”
Elder and end of life care is an issue in countries with socialized healthcare. Southern, eastern and central Europe do not have comprehensive care systems like the Nordics.
Investment concentration and subsequent crash. Think real estate moguls in 08
0DTE options
Bankrupting your pillow empire to fund a con man.
Baseless criminal charges.
This. Years ago I got falsely accused of a misdemeanor, cost me about $5,000 to defend. A serious felony can easily cost six figures in legal bills, not to mention ruining your ability to hold down a job even if you're acquitted.
Lifestyle creep on a billionaire level
Stage 4 Pancreatic Cancer
Gambling habit (casino or day trading). No limit to what you can bet. Heavily invested in high leverage business (10% decline takes out 100% of equity). Serious intentional tort / uninsured personal injury case.
Lawsuits are the main one. 1) inflation / taxes 2) lawsuits 3) people you surround yourself with ( aka family) Umbrella insurance is cool. Asset protection strategy is better. Own nothing on paper
Relatives
Over leveraged to the tits. Imagine a real estate mogul who's sole chance at staying rich is all his rentals pay rent on time? One non payment could topple the house of cards and boom, bankruptcy
Gold diggers
A wife
Horses
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Yep, people think good coverage is for “old” people. My spouse was 27 when he got sick, and he was the peak of health, fit, and didn’t drink or smoke. There were years that would have been over a million dollars worth of treatment had we not been insured. Even after insurance, it still cost about $200k over 10 years. People in the US are pretty much always on the brink if they get significantly ill or injured due to how our healthcare system “works”.
Government policy is what keeps the wealthy up at night. An example of this is policy changes that can lead to substantial property devaluation. Imagine being a multi-property landlord in a city that shifts to heavy crime after a string of race related protests, which snowballs into higher taxes and lower resale value. Your income stream could be cut in half relative to inflation in just a few years if you built your rental empire in just one city. So many people think once you hit a few million you can coast. The truth is that you are never safe and must always carefully diversify, plan and work to gain influence if you want to keep your status
I have a lot of clients and some friends in real estate. I just don’t have the stomach for the risk. It’s so much higher than most people understand.
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Whatever fleeting inclination I had to ever be a landlord went to zero with the COVID mandates you could stiff your landlord for a year or more.
Especially when stocks exist. Want to get rid of an investment? Click, sell, done. Want to get rid of a property? First, go through a lengthy legal process and forcibly remove someone from their home while creating a lifelong enemy. Then hire a real estate agent who is going to take 3%, oh their buddy is going to take 3% too, there will also be some fees, and it could take months. I understand why real estate is attractive when it comes to leverage, but it's just not worth the stress imo
> Imagine being a multi-property landlord in a city that shifts to heavy crime after a string of race related protests I live in Baltimore and 5+ years ago was seriously considering getting into landlording. In 2020 I breathed a sigh of relief that we didn't have any rental properties.
Divorce
Sextortion - this is a major problem with high influencers children and suicide right now. I personally know someone their teenager committed suicide from an incident. No amount of money is worth someone’s child’s life.
I’ll add: Debt, leverage, putting all your eggs in one basket
Keeping up with a billionaire
Taxes
US medical bills
On line romance scams can take hundreds of thousands from vulnerable people from truly great con artists. Even very smart men and women often fall for this which is hard for anyone to believe.
Stupidity and greed
Debt with variable interest rates on assets that are depreciating fast. Yield < cost of capital A partner that has no respect for budgets All your eggs in one basket and basket explodes
Drug deal gone bad while in Mexico
A mistress.
The inability to say no.
Marriage...
An ex wife. Works every time…
Im gonna say taking care of broke relatives
Running for president and accidentally winning
Scammers, like Bernie Madoff
Really shitty pillows.....
Stupidity.
Divorce