A viral post by Kevin Xu, CEO and founder of Alpha AI, has sparked a heated conversation about what it really means to be “rich.” Despite having a net worth of $10.9 million, Xu claimed to be 'broke' and his reasoning offers a valuable lesson in personal finance.
Millions in Retirement — But Almost No Cash
Xu clarified that $9.8 million of his wealth sits in a 401(k), a retirement savings account designed for long-term investment growth. However, when it comes to cash on hand, he has:
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$3,000 in checking
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$296 in savings
That means less than $3,300 in liquid cash the money he can spend right now.
The Financial Principle:
Xu's situation perfectly illustrates the difference between:
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Net Worth (Wealth): The total value of all your assets (including investments, retirement funds, property, and cash) minus any liabilities (debts). Xu's $10.9 million net worth makes him a millionaire.
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Liquidity (Cash Flow): How easily and quickly an asset can be converted into cash without affecting its market price. The cash in his checking and savings accounts is his liquid cash.
Why He Says He’s “Broke”
Xu argues that his wealth is not truly spendable because accessing retirement funds before age 59.5 comes with:
So, dipping into his 401(k) for something like a vacation or a major expense would be financially reckless.
The Internet Reacts; Admiration or Irony?
The online response has been split. The reaction online has been divided between those who understand and agree with his frugal, long-term financial discipline, and those who find the situation ironic or an unnecessary hardship given his overall wealth.
Why He Claimed to Be "Broke":
The core of his argument, captured in his phrase "Few understand," rests on the fact that his millions are illiquid due to the nature of a 401(k):
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Penalty for Early Withdrawal: A 401(k) is structured to prevent early withdrawal. Accessing the $9.8 million before the typical retirement age (usually 59.5) would incur significant penalties, including income tax on the withdrawal and an additional 10% early withdrawal penalty (with certain exceptions).
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Purpose of the Fund: The money is intentionally locked away to guarantee financial security decades into the future. Dipping into it for a vacation would be financially shortsighted and costly.
In practical terms, a person with $9.8 million locked away and only $3,296 in accessible cash is "broke" in the sense of being cash-poor and unable to afford a major discretionary purchase like a vacation without incurring penalties or taking on debt.
