15 Ways Rich People Go Broke

31 March 2019

Ever wondered how rich people go broke? Is it even possible?

You’ve all dreamed of becoming successful, of being so rich that every material problem you have can be solved by the sheer volume of money you throw at it.

Not gonna lie, it’s probably a great place to find yourself in.

But that’s a volatile space to find yourself in, especially if you’re not maintaining focus on growing and maintaining the wealth you’ve accumulated.

Believe it or not, there’s a fairly decent portion of Rich people who’ve lost the majority or almost all of their wealth after certain decisions or events.

In this article we’re gonna take a look at the events that could turn a rich person into a broke one.

If you don’t feel like reading you can enjoy this piece as a video here:

Here are 15 Ways Rich people go broke:

Number 1: Divorce
Shocker right? Divorce rates in the developed world are over 50%.

That means one in 1 couple is likely to separate. We know.. We know… when you’re just starting the marriage everything is all rainbows and sunshine, but people can grow in different directions.

You need to consider that there’s a financial aspect to this marital partnership you call a marriage. The moment you marry someone your finances get bundled together. You’re taking over their debt and they’re also entitled to half of everything you’ve worked your butt off to build.

That is unless you have a prenuptial agreement or more commonly called a PRENUP.

Divorce laws are basically theft from the rich and need to be adjusted soon. We want to make a dedicated video on this sometime in the future, because it’s such an important topic and most people don’t talk about it that much.

There are numerous examples out there, but just to drive our point across and understand the type of impact a divorce can have on someone. Recently Jeff Bezos, the founder of amazon decided to separate from his wife. He’s sacrificed almost all his life, taken on tremendous amounts of stress to build what is today the largest store in the world. All this work brought him a fortune of 140 billion dollars. Because he doesn’t have a prenup, she’s entitled to half of everything he own. That’s a 70 billion dollar affair. That’s more money than Sergey Brin, the founder of google has and 3 times more money than Elon Musk. Once the divorce is finalized his former wife will become the 5th richest person in the world.

You might say he can afford it, considering he’s worth so much, but think of yourself, let’s say in 10 years you build a great company and you’re worth 20 million dollars. Your partner will take 10 off the bat, your lawyer will take a bite, you’ll still have to pay child support of until both of your kids are 18 and the public trust in you falls completely. A messy divorce can crumble even the mightiest of entrepreneurs.

Number 2: Law Suites
When you’re rich, people sue the hell out of you, for almost anything. You’ll be paying money left and right for the dumbest of things.

But that’s where the danger lies. A class action lawsuit filed against your company for any form of wrongdoing can result in catastrophic financial loss.

Not only you if you lose you will have to pay large settlements, but you’re company probably has debt and if you’re a public company the stock market will react.

You can go from being worth millions to filing for bankruptcy in less than a year.

Number 3: Illness
Being sick in the West is incredibly expensive, especially if you don’t have really great health insurance.

The costs of treatment for some diseases can dry up almost anybody and it’s understandable, you’d spend any amount of a chance to live, but that’s not always the case.
Let me put things into perspective for you so you can understand just how expensive getting sick can be:

Last year, total medical costs for an individual with a blood disorder came to $5 million dollars.
In 2016, for example, total treatment costs for a patient with a severe swelling disorder were $6.7 million. And the list can go on.

Blood disorders & Cancer are the most expensive to treat right now.

Number 4: Government intervention
Governments can be tricky to deal with. A single legislative change could put your entire industry out of business. It’s always funny when new politicians promise they’ll bring back old jobs like coal mining, because it’s clear that not where the puck is going.

Not to mention that in other more corrupt countries, the government can literally take over your business and force you out of it. Just have a look at what happened to Pavel Durov in Russia.

If you want to have money in the future you might want to look what’s ahead of you instead of behind you.

Number 5: Death
This one’s pretty self explanatory don’t you think?! The moment you die, your money is no longer yours.

Accidental deaths can happen to anyone. A private Jet has an engine failure, a luxury yacht gets caught in dangerous weather, or some drunk crushes you while you’re driving your family to the Hamptons for the summer.

Death is tragic and even you need to be prepared for it. There are numerous examples in history where one death was the first domino in a chain reaction that lead to dynasties going bankrupt.

The best thing you can do is to be ready for this moment. Have your affairs in order, make sure there’s a strategy in place for your money and always above everything else, invest in your children. The more educated your children are about money, the better of a shot of make it last they have.

A while back we made a really valuable video called: 15 Lessons Rich Parents teach their children which you can check out below. It’s one of the most valuable videos on our channel!

Number 6: Financial Crisis
Those were the days… We remember like it was yesterday, checking the news and seeing new high scores in terms of real estate. People were buying land and buildings left and right with the hopes to flip it to someone else you wanted in on the action. 2007 was a weird year, can we agree on that?

Then it happened.

People who were worth billions, were now barely millionaires while those who were millionaires were struggling to find a job.

Real-estate developers were crushed. One day you’re worth 90 million and the next day you’re 20 million in debt and the bank wants its money today, because the bank is struggling as well.

Financial crisis are market corrections. It’s there to separate the real from the pretenders. Most quick rich guys go broke at this point. Over 80% of those who went broke during the financial crisis never recover.

That said, there’s a small portion of the rich population who’s just waiting for these pretenders to get burned. It’s by understanding how the market works that you don’t fall prey to these situations. Financial crisis are one of the best moments to invest. While everybody else is retiring and licking their wounds, the real sharks come out to eat. That’s when you start buying aggressively. While the pretenders were purchasing property at a premium in 2006, the true rich were getting a 60-70% discount on the same property in 2008.

If you want to learn how to leverage these type of events in your favor, we can’t think of a better book to cover the basics than UNSHAKABLE by Tony Robbins. It’s the perfect guide to understand how the richest of the rich make money no matter what the markets are doing. We believe the book is so valuable that we’re going to give it away for free as an audiobook. Just go to alux.com/freebook and sign up. The great folks at audible made this deal possible for our community.

Number 7: Getting Scammed
Believe it or not, but no matter how smart you think you are, you are still prone to being scammed.

Richard Branson says people are constantly trying to scam money out of him and 2 years ago someone actually got 2 million dollars from one of Richard’s friends. The conman pretended to be Richard and asked his friend for a quick 2 million dollar loan, in the aftermath of hurricane Irma which hit his island. What’s 2 million between friends right? The money was immediately gone.

You might not realize this, but people will go to great extends to get their hands on your hard earned capital.
We could sit down and talk about scams all day. One of our favorites is Nigerian scammer Emmanuel Nwude once sold a fake airport to a major international bank for $242 million, and the scam wasn’t discovered until 3 years later.

History is filled with stories like this one.

Number 8: Crypto
Uhhh.. can you feel the tension in the room. Only the word crypto can bring some people to tears.

We remember the climb in 2017. Casually chatting between friends about how volatile this phenomenon was and how amateur investors are gonna get burned. We remember reading titles about middle class americans taking a second mortgage on their house to buy Bitcoin at 15,000 dollars per coin.

That’s the moment when we realized that this bubble is gonna burst soon and took a step back.

Imagine taking your life’s work and gambling it on something you don’t fully understand in the hopes that you’ll get rich overnight, exposing yourself to unrecoverable debt..

Rule of thumb:

If your uneducated cousin is “investing” in this new thing then it’s already too late.

We’re still intrigued and excited by the potential of blockchain and decentralization, but to be honest it’s unlikely that your coins will ever be worth 20k again.

Number 9: Failed Businesses
How many times have you heard of people winning large amount of money or coming into inheritances and just a few years later their back to being broke.

What most people don’t understand it that you’ve got a limited numbers of failures you can accommodate, after which you’re back to where you started.

Just because you now have money it doesn’t mean that it’s easy to maintain, especially if you’re not financially educated.

Money draws the leeches out!

Although investing in your childhood friend’s sock-sharing business startup might sound like a good idea, it isn’t. The game of Business is really hard and if you were bad with money before you had it, it won’t be long until you don’t.

Number 10: Retirement
Here’s a controversial topic for the upper-middle class of america. Hear us out. Let’s say you’re worth 1 Million dollars. You’re a millionaire! You’re living the dream! You have the big milly saved up for retirement.

Let’s say you retire with a cool 1 million at the age of 65. Depending on where you live, that money might run out before you do.

Here are the 5 states where your dollar will last the shortest:

1. Hawaii: 11 years, 8 months, 20 days
2. California: 15 years, 5 months, 27 days
3. New York: 16 years, 3 months, 22 days
4. Alaska: 16 years, 8 months, 6 days
5. Maryland: 16 years, 8 months, 29 days

And here are the 5 states states where your dollar will last the longest:

1. Mississippi: 25 years, 11 months, 30 days
2. Oklahoma: 24 years, 8 months, 24 days
3. Michigan: 24 years, 7 months, 14 days
4. Arkansas: 24 years, 7 months, 4 days
5. Alabama: 24 years, 7 months, 4 days

The downside is, you’d have to live in Mississippi.

In our 15 Things To Do If You Get Rich All of a Sudden video, we introduced you to the 5% rule, a method that can help your money last and grow through your retirement.

Number 11: Natural Disasters
Hurricanes, fires, floods… these can crumble everything you’ve worked so hard to build. The amount of monetary value lost in the aftermath of these type of events is outrageous.

It is estimated that Hurricane Harvey had total costs of $125 billion—second only to Hurricane Katrina in the period of record, which had an approximate cost of $161 billion.

The cumulative cost of the 16 separate billion-dollar weather events in the U.S. in 2017 was $306.2 billion and that’s US alone, if you start looking at the damage done world wide, the number is over a trillion.

So much wealth can be wiped out in just a short time span.

Number 12: Too many kids
People don’t realize just how expensive raising children can be, especially in the developed world.

You might wanna sit down for this.

Raising a single child born in 2015 until he’s gonna reach the age of 18 years old will cost the middle-class parents 233,000 dollars in the US. If you’re below middle class, it’s still gonna cost you around 170 thousand, while the rich spend north of 380 thousand according to a report by the USDA.

Approximately 20% of that amount goes into food alone & these amounts don’t factor in student debt and going to university.

You never realize just how expensive having a child is, until you live in the developed world.

Number 13: Kidnappings
The fact that there’s an entire industry related to Kidnappings & Ransom Insurance should ring a bell to how big this phenomenon is.

Employees get kidnapped, relatives get kidnapped and even pets.

People will do anything to get some of your money.

Somali piracy is a $1.7 billion a year problem.

Over 70% of kidnappings never go reported and a large portion of them never get resolved, resulting in the death of the kidnapped person.

World-wide this is a multi-billion dollar business of snatching people. Statistically speaking, taking 2014 as reference, 35 percent of kidnaps were conducted in Asia, followed by Africa at 30 percent, the Americas with 21 percent, Middle East with 12 percent and Europe/Russia with 2 percent.
Nigeria was the No. 1 country for kidnap incidents that year.

The amount of money asked in exchange for someone’s freedom usually exceeds what the family can pay. The average asking price for an American is $20 million dollars and you’ll be shocked how many times the ransom is negotiated down to 7 or 8 million and paid to the kidnappers.

Watch out for your pets as well. Last year, 60 dogs were stolen per week in the UK, with the goal of asking money for the return or resell.

Number 14: Blackmail
Hand in hand with kidnappings is blackmail. Extortion is a very lucrative business and nobody is safe from it.

At the beginning of this piece we mentioned Jeff Bezos. Recently, he went public that the national enquirer was trying to blackmail him. They have obtained private conversations between him and his mistress and were threatening to go public with the nudes.

We live in a culture that normalized sexting to a point where it can be weaponized against you. People use their exes nudes for revenge and more and more people fall victims of entrapment and then extortion.

Imagine you’re getting some action on the side and that person betrays your trust and documents your performance threatening to send the videos to your partner. A divorce would cost you millions and you will probably lose your children as well. So you go along with the payment, only to receive the same threats next month. Blackmail is sort of a premium subscription service to not completely f*ck up your life.

These days, people rely on your internet connection to do so, that’s why internet privacy is such a big deal. They are mining as much of your data as possible for either identity theft or blackmail if they get something good. That’s why we recommend VPNs. They hide your online activity and are super easy to use. We reached out to the company we use, NordVPN and secured the best deal on the market for our community. If you go to alux.com/vpn you can get 3 years of VPN services for the price of one. If you’re an aluxer and just want to try it, you can get 30 days trial to make up your mind free of charge. Don’t make it easy on these guys.

Number 15: Spend it all
Lastly on our list of how rich people go broke is by spending more than they earn. Hard to believe isn’t it?

You can see this around professional athletes. They get a big contract, blow it all away and then end up with nothing.

The numbers show that 78% of National Football League (NFL) players are either bankrupt or are under financial stress within two years of retirement. These folks go from earning 7 figures a year to bankruptcy.

How does this happen? They’re wasteful in their spending. They purchase liabilities instead of assets mostly. They also get ripped off by people who are taking advantage of their position and their lack of financial literacy.

One of our favorite examples is Shaquille O’Neal. It took him 48 hours to blow through his first 1 million dollar check before realizing he’s already in debt. We’re big fans of Shaq, because he understood that he needs to get educated if he wants to survive this cliche and so he did. Now he’s one of the most prolific investors, he’s worth over 400 million dollars, most of it made after he retired from the NBA. Be like Shaq!

We’re sure that in your life you know somebody who once had a lot of money and then they went broke. How did it happen? We look forward to reading your stories in the comments down below!