Congratulations! You are now one of the proud, few billionaires in the world. I dunno how you did it, maybe you started a tech company, maybe you inherited your wealth from dear, old dad, maybe you were just super lucky and won the lottery. Whatever happened, you now have a billion dollars. That’s $1,000,000,000.00 in cash, US dollars. Great, so what are you planning on doing with all that cash? That’s the trick, because I’ve been asking around and it turns out that most people can’t actually comprehend just how much money that is, because a billion dollars is truly an astounding amount of cash. I know the usual thing is to say silly things like, “Well, you could buy the nation of Luxembourg one and a half times,” or, “That’s enough to support a thirty-five thousand elephants for forty-nine years.” But, personally, I think that just confuses matters, so let’s break it down in terms that actually mean things to real people.
To that end I’m going to take a hypothetical billionaire and run them through the paces. Now, for illustrative purposes I’m going to simplify things, and I’m going to assume our billionaire is kind of an idiot with money. That means when I list an expense the average, real life, 1% is going to be paying less than our pretend billionaire, and when I list a cash gain it will be lower than the average, real life, billionaire is going to make. The hypothetical billionaire isn’t really evil, just not financially prudent.
1. Taxes
Like any good citizen our pretend, rich person realizes that a stable government is necessary to maintain the society they exist in, and governments need money to function. So, they’re more than happy to pay their fair share of taxes. A quick glance at federal and state taxes brackets shows that we can expect about a 50% tax rate, for a total of 500 million dollars. Yes, that is a lot of money, but our hypothetical billionaire is planning on retiring and never working another day in their life, so it’s a one time expense. – $500,000,000.00
Taxes – $500,000,000.00
Money left over – $500,000,000.00
2. The splurge
This expense is really more for the ‘suddenly coming into money’ group. Folks that are born into wealth, or those who have made it over a period of time tend to be slower paced with spending their cash. But, like I said, our hypothetical billionaire is bad with money, so they’re going to splurge. Cruises around the world, new house, fast cars, giant entertainment systems, etc. There’s actually too much to list here so I’m going to list a few of the really big costs and then bundle everything else into a lump sum.
– House – Since our pretend billionaire lives in California (as shown by their tax bracket) luxury mansions run from anywhere between $130,000,000.00 to 215,000,000.00. Odds are they want the best of the best, so we’ll go ahead and say the spend 150 million and bypass the whole bidding war. – $150,000,000.00
– Car – There is a host of stupidly expensive cars we could purchase. In this case I’m going to go with the Bugatti Veyron, because I’ve always wanted one, and that comes in at 3.4 million dollars. $3,400,000.00
– Vacations – Going to admit a bit of a loss on how to calculate this one. Typically my vacations involve staying at home, reading, and playing video games. But apparently you can get a cruise around the world for about 60 thousand dollars. If we assume our pretend friend wants to go on several of these vacations over the course of their lifetime, say 30 vacations, then we can get a total cost of 1.8 million dollars. – $1,800,000.00
– Other Random Stuff – At this point most people start listing really small items like furniture, game systems, art, kickstarters, or what have you. Individually none of these items is going to total more than a couple thousand dollars, which is actually too small to worry about calculating (think about that for a second. To a billionaire, $2000.00 is too little money to worry about including in your calculations). To that end, I’m just going to estimate 2 million dollars for random small stuff that’s less than 10K an item. – $2,000,000.00
Total Splurge Cost – $157,200,000.00
Money Left Over – 342,800,000.00
3. Living Expenses
Of course our pretend billionaire will want to maintain their lifestyle. People to help clean that enormous house, maintain that ridiculous car, all the best food and drink, not to mention all the standard costs like water, electricity, and what have you. In the United States, poverty level for a family of four is around 25 thousand dollars a year. Arguably, the poverty line is a bit too low nowadays to maintain a minimum standard of living (Which I define as not needing to worry about an unexpected expense endangering your ability to pay for rent, utilities, taxes, and medical expenses), so I’ll go ahead and round that up to 30 thousand dollars a year. Our billionaire wants to be a total badass, so they’re going to go ahead and spend 600 thousand dollars a year. That’s $600,000.00, enough to cover the expenses of 20 lower income families. And around 4x times what’s considered upper class by Pew polls (which is $156,000.00 a year). They are living richer than rich.
But, that’s per year, how long are they going to live? Well, the average life expectancy for an American is about 69 years, but rich people tend to live longer so we’ll go ahead and round that up to 75. If we say they got their money the minute they became an adult (age 18) they’re going to have to deal with living expenses for 57 years. Which is a total cost of 34.2 million dollars, in their lifetime.
Total Living Expenses over a lifetime – $34,200,000.00
Money Left Over – $308,600,000.00
4. Children and Education
Biological and societal imperatives dictate we should have children. They’re full of crap, but considering out billionaire really doesn’t have anything else going on, let’s go ahead and say they have two children. And because they’re so crap with money we’ll be calculating their child raising expenses in addition to their cost of living, as opposed bundled into their cost of living like most people.
Apparently raising a child at middle income costs about $233,610.00, not including college. However, our pretend billionaire is not middle class. They want the best for their kids, so we’ll go ahead and raise that to $750,000.00 per child, not including college. – $1,500,000.00
We are going to include college though, and not just any college, the best college available. A quick search shows that Harvard runs about 70 thousand dollars a semester (including tuition, meal plan, dorms, textbooks, and other fees). Two kids, each going to Harvard for 4 years (8 semesters) totals to about 1.12 million dollars. – $1,120,000.00
Total Cost of Children – $2,620,000.00
Money Left Over – $305,980,000.00
5. Legacy and Estate Planning
A bit of a misnomer here, our poor, dumb billionaire probably isn’t good enough with money to do proper estate planning. But they do love their kids and want them succeed in life. So they’re going to go ahead and give each of their kids some starting capital, just enough so they have a chance to see their dreams come true. But knowing that their kids do need to become self-made people, they’re not going to give their children too much, just a paltry 5 million dollars each (By the way, if you conservatively invest 2.5 million dollars you can retire comfortably drawing an income of $125,000 a year from your investments).
Total Cost of Legacy – $10,000,000.00
Money Left Over – $295,980,000.00
At this point I’m kind of out of things to spend money on. I’ve just gone through and paid for everything the average person has to deal with in their lifetime, in the most extravagant way possible, and I’m still left with over 295 million dollars.
Bear in mind, I estimated high for everything. Real, wealthy people are going to find ways to cut the cost of a lot of this stuff. We also assumed our billionaire buddy had no investments and no job, which means no additional income, which is pretty much impossible at that level of wealth. Real billionaires are constantly making more money, and they’re spending a lot less on their crap than our pretend friend.
Right now, I hope you have an understanding of just how much money a billion dollars is because here’s the thing about our society; we run on scarcity principle. We assume there’s a limited amount of resources to go around and if you wanna eat, you gotta work. The more you work you do (AKA ‘contribute to society’), the more resources you’re allowed. Which is fine, that’s a reasonable a system as any humans have come up with to date. But…does the average billionaire really contribute that much more to society compared to the average minimum wage worker? More importantly, does it benefit society to have even one person amass so many resources that the average person literally can’t comprehend their wealth, much less figure out how to spend it all; especially if that wealth is gained at the cost of millions being unable to afford housing, food, and healthcare? Even if you only have $10,000,000.00, you’re still got ten times the amount of money a minimum wage worker is going to make in their lifetime. Can you really say it’s, ‘fair’ to want more after that? Just something to think about.