Last Updated:

How Do Millionaires Go Broke?

While millionaires have lots money and they seem to live a good life, sometimes they go broke. Just like the saying goes, the real winning is a journey and not a destination, it is the same case with millionaires. When you become a millionaire, you need to be even more frugal and conscious about your finances. Otherwise, you can easily slide into poverty.

Here, you are going to learn how millionaires go broke and how to avoid going broke if you are already a millionaire.

What Makes Millionaires Go Broke?

From time to time, millionaires go broke. The average millionaire goes broke 3.5 times. But why do millionaires go broke?

1. Failure to Budget

One of the main reasons why millionaires go broke is because of failure to budget. Everyone regardless of their wealth needs to budget. Budgeting helps you avoid overspending and also ensures that you plan your finances well.

Millionaires need to balance their wealth and their spending. They ought to spend on ventures that get create more wealth. But many of them make unnecessary purchases. At the end of it all, they end up going broke.

2. Loss of their Primary Income

Another reason why millionaires go broke is the loss of their primary income. Although millionaires have multiple streams of income, many of them have a primary source of income. In case they lose this primary source of income, the chances of them going broke are usually high. Mostly, the primary source of income is the one that helps them to fund other investments.

3. Bad Investments

Investments going bad can also make millionaires go broke. For instance, investing in the wrong stocks and shares can wipe out your wealth overnight. As such, millionaires need to be careful where they invest their money. It is, for this reason, millionaires spend their money on hiring professionals like accountants to help them make good financial decisions.

4. Failure to Create Multiple Streams of Income

The average millionaire has at least 3 streams of income. Among the common streams of income for millionaires include dividend income from stocks, earned income from the paycheck, and rental income from real estate. Other streams of income include profit income, interest income, dividend income, rental income, capital gains income and royalty income. 

5. Expensive Impulse Purchases

Many millionaires tend to overspend to impress people and show off their wealth. In the process, they end up overspending with impulse purchases like cars, expensive vacations, and branded clothes. By the time they realize it, they have already wasted a significant portion of their wealth. 

Also read: What do millionaires buy for fun?

What Percent of Millionaires Go Broke?

Three out of ten millionaires declare bankruptcy. This means 30% percent of millionaires go bankrupt. By the second generation, about 70% of wealthy families usually have lost their wealth. Some examples of millionaires that went broke include Mike Tyson, a boxing superstar. 

How Often Do Millionaires Go Broke?

Do millionaires go broke? Certainly, yes. The average millionaire goes broke 3.5 times in their lifetime. Even the richest millionaires went broke at some point in their life. A good example is Elon Musk who became a millionaire after selling PayPal to eBay for $180 million.

He then used the proceeds from the sale of PayPal to start SpaceX and invest in Tesla. He failed in his three attempts to launch his rockets, a move that almost made him go bankrupt. He had used almost all the money he had pocketed after selling PayPal and he had to borrow and sleep in his friends' spare bedrooms.

Summary of How Millionaires Go Broke

While the average millionaire goes broke 3.5 times in their lifetime, some millionaires go broke forever. Expensive purchases, failure to budget, loss of primary income, and bad investments are some of the reasons why millionaires go broke. Out of 10 millionaires, 3 millionaires declare bankruptcy, meaning that 30% of millionaires go broke.

Read More