The Paper Millionaire



paper millionairesI was talking to a friend “Cindy” the other day, and she was lamenting about money troubles.  She said that she and her husband were paper millionaires but live paycheck to paycheck, even though they have completely paid off their home.  She referred to themselves as the brokest millionaires she knew.


Unfamiliar with term “paper millionaire”, I asked her to explain further.  Cindy said she had over a million dollars in assets, but most were illiquid assets that weren’t readily available.  Her definition of a true millionaire was someone that had at least $1 million in investable assets.


According to Phoenix Marketing International, there are 6.8 million households in the US with investable assets of $1 million or more in investable assets, with the ratio of millionaires to the general population remaining flat.  


Silicon Valley

paper millionaireWhen most people think of paper millionaires, they think of Silicon Valley employees who are waiting for their companies to finally IPO.  At that point, these employees can strike it rich with all the stock options that they have selected, instead of compensation.  


I’ve had multiple friends that have worked for companies that have IPO’d.  Sadly, they watched their stock options become virtually worthless when the stock cratered shortly after they joined.  Some compensation that was.


However, since Cindy doesn’t live in Silicon Valley, I was curious to hear how she was a paper millionaire.  I would have never thought that this friend, in my wildest dreams, would be a millionaire.  


Too Many Expenses?

finances-cash paper millionaireThat’s because her and her husband always complain about money and how expensive everything is around here.  They make over $200,000 combined in income.  They even moved farther out west so that they could live in a more affordable home.


I wasn’t sure what type of expenses were taking up such a large amount of their income if they didn’t have a mortgage anymore.  Her job had taken her overseas in years past, and her housing was completely covered out there.  Because of that, Cindy and her husband had allowed lifestyle inflation to creep in.  


So when they returned, they bought new cars and ate out regularly.  That still didn’t seem that outrageous to me.


Rental Properties

paper millionaireThen, she brought up issues she was facing with their rental properties.  While they were overseas, since they had accumulated a lot of money, they purchased three different rental properties back home.


I felt like the turntable record screeched to a halt.  She owned three rental properties and three mortgages.  Cindy and her husband had thought that they were buying at a low point since the market had fallen after the housing market bubble.


All three properties were in the same neighborhood.  They hadn’t seen the properties in person as they were overseas, but since they knew the neighborhood well, they felt confident.


1% Rule

I asked if they employed the 1% rule.  She looked at me like I had three heads.  It was clear that they hadn’t employed the rule, or much less heard of it.  Clearly, she hasn’t been reading the blog as closely as she claims.  🙂


Since the 1% Rule is not in effect for their rental properties, Cindy and her husband have to cover part of the mortgage and expenses for each property.


Keeping Renters

paper millionaireOn top of that, they haven’t been able to keep the units rented consistently.  When they bought the properties, they thought they knew the neighborhoods well.  It turns out that while they were away, that one of the neighborhoods got redistricted into a less-desirable high school.  In turn, families quickly sold their homes to move back into the better high school district.  As a result, the neighborhood lost some of the cache that it once had.  


So in turn, their rental properties instantly became less desirable.  For every month that went by without renters, their financial situation became more and more strained.


paper millionaireSince they were desperate, they took on a renter who they were not thrilled about at one of their properties.  They just couldn’t continue to carry the mortgage on their own.  Having your back up against the wall when making a financial decision is never a good thing.  


The tenant has been terrible, in her words.  While he always pays the rent on time thanks to an automated payment, they continually receive complaints about trash in the yard and lack of property maintenance.  To be honest, Cindy is afraid of what the inside of the house may look like at this point.


Regretting Decisions

paper millionaireShe has mentally prepared to fix the issues once the lease ends and then convince her husband to cut their losses and sell the house as quickly as possible.  


While building wealth through real estate may be an excellent method for many people, Cindy says it has become a burden for them.  In hindsight, she wishes she had done things differently.  While she loves being considered a paper millionaire, she says it’s not all that it’s cracked up to be.  


So readers, are you familiar with the term paper millionaire?  Do you think she made a mistake by buying too many properties too fast?  Share your thoughts below.

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Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.


  1. Wow, three rental properties in the same neighborhood. My first thought is that is nothing more than greed. I suppose it is difficult not to feel invincible when everything else is going your way.

    They should cut their losses and consider it a lesson learned. It isn’t worth your marriage to be in that kind of self-imposed financial situation.
    Grant recently posted…Working Out With AsthmaMy Profile

  2. I have not heard of a paper millionaire before this post but Miss “Cindy” sounds just like me, a year ago. My husband and I had an extra 100K and growing uninvested and we jumped into another foray of real estate because our first purchase has been an absolute gem. Thankfully as of yet, the neighborhood of our rental seems to be stable and well-loved by the locals but we did over leverage a bit (bidding war and unexpected repairs). Real estate can be rewarding or it can be very, very costly. I think we’re done with RE for now – I don’t want to be a paper millionaire.

    P.S. Oh my lord…three rentals in the same neighborhood? That’s literally eggs in the same basket. What RE agent did they work with that did not object to this?
    Lily recently posted…My Avocado Toast Spending Is Not The Problem, Mr. MillionaireMy Profile

    • Sounds like you made a wise investment even though it stretched you a little bit. Plus it sounds like you actually looked at the property before buying it 🙂

  3. Never heard the term paper millionaire if I had to guess I would think it was someone who had all their assets in stocks. Guess not. InterestING was having a coffee with a client yesterday and hes selling his rentals because he’s sick of it and one tenant makes the outside look like a junk yrd.
    Passivecanadianincome recently posted…Kiss- Keep It Simple SuperstarMy Profile

    • That’s always unfortunate when someone doesn’t treat the property like they should. I feel like it’s defeating in the end for all parties since one party loses a place to live and the either gives up on something they were so excited about early on.

  4. I have never heard the term paper millionaire but I too called myself the brokest millionaire in my latest net worth update.
    Our situation is not dissimilar to Cindy’s. We have 4 properties including where we live. Covering the mortgages is okay but adding in all of the bills and expenses kills our cash flow.
    It was easy enough for us to hold when we were DINKS, but add two kids into the equation and the costs of child care in Australia and we are going backwards fast.
    Capital growth has served us well, so we are actually planning to sell off 2 or potentially 3 of the places, buy a place mortgage free up the Coast and just keep the property that is cashflow positive.
    I also wish we had done things differently and I put not learning about the stock market and index funds up there with being one of my biggest financial mistakes.
    We have still done well but it’s time to cash in a little bit and find passive income options that put money in the bank.

    • Thanks for sharing Cath!!! It sounds like you are well positioned to take advantage of some of the capital appreciation from your properties. But I definitely agree I too wish I had learned about passive index funds much earlier in my life 🙂

  5. I’ve never heard of paper millionaire before but three rentals at the same time is quite an undertaking. I hope they’ll be able to get things sorted rather quickly.

    • I think they think of it as sunk costs now and are willing to throw good money after bad money. So it may take awhile for everything to straighten out 🙁

      • Oh I had to interject, the sunk cost mentality sounds just like my in laws. They brought a condo in 2008 -literally- a week before the first bank failed. They kept it for 10 years as a rental and still lost 100K+ on it after they sold earlier this year. Real estate is not child’s play *shivers*
        Lily recently posted…Effective But Semi-Illegal Ways To Pay Off Student LoansMy Profile

        • Oh my gosh that’s awful!!! Real estate is no joke and definitely something that I have been fortunate to avoid even when others were talking about how easy it was.

  6. I’ve definitely heard the term. It just goes to show you liquidity is just as important as net worth. Afterall bear sterns and other big now defunct wall,street firms had great net worth but no liquidity, look what happened to them. Heaven forbid that also happened to you.
    FullTimeFinance recently posted…International Business and FinanceMy Profile

  7. Let me put in my real estate investor hat. From what I see, there are a few issues that snowballed on her to make things worse.

    First, not doing enough research and not seeing the property before purchasing. It’s a huge investment, one has to personally scout it.

    Secondly, diversification is a huge thing. Buying three property in the same area is like putting all your eggs in one basket. In addition all your rental properties will compete with each other for renters.

    Third, cash flow for the properties. If you have one property with a negative cash flow, it’s manageable. When you have all properties with negative cash flow, you’re rolling the dice.

    Hopefully, your friend can get rid of the worst property first and minimize her losses.
    Leo T. Ly @ recently posted…A Beginner’s Guide To Owning Rental PropertiesMy Profile

    • Thanks for sharing Leo!!! I definitely agree with each one of your points. They definitely jumped in without doing enough research and it’s causing them some trouble which they should have expected if they were really paying attention.

  8. Thank you for explaining the term. It’s my first time hearing “paper millionaire,” and I was intrigued.
    I think the definition of a millionaire, though accurate and reasonable, can create a false sense of security and causes someone to be careless with their money. The thought “Well, it’s expensive, but I can afford it because I’m a millionaire” can easily creep into their minds and dominate almost every decision that they make.
    Ms. Frugal Asian Finance recently posted…What I Got For Mother’s DayMy Profile

    • Thanks for sharing Ms. Frugal Asian Finance!!! I definitely think having the false impression that you’re a millionaire might lead you to take chances on things that you probably shouldn’t.

  9. I could sit here and call your friend an idiot, Rob, but that would be disingenuous of me. I have made tons of stupid financial decisions in my life. I commend them for taking the risk, but they definitely should’ve done their homework and not just invested sight unseen.

    For me, my wife and I came awfully close to taking on a shell in the Philly area we thought we could flip. We figured we could manage a crew of guys to do the work. When I say shell, I mean the place needed EVERYTHING. While I was a bit hesitant, I signed on the dotted line.

    From what I remember, we were outbid. And thank God! Looking back, I have no idea how that property turned out. But, I feel God saved us because we were so young and dumb. We were only a year or two out of college. Just stupid, stupid stuff.

    You’re a Dave Ramsey fan, right? So, what you’re friends have here is their “Stupid Tax.” Now, it doesn’t mean they’re truly stupid, but the decision was. If you have no experience in rental properties (and clearly they don’t if they never even heard of the 1% rule), they have no business going in sight unseen.

    Further, what Realtor allowed them to purchase these properties if he/she knew there was re-districting going on? Very unethical.
    That said, if they weren’t overseas and did their due diligence, they would know this stuff. In the end, it’s a failing moment, but it can benefit them for years to come if they don’t make the same mistake again.
    Dave @ Run The Money recently posted…Fitness Journey: How Jay Lost 50 Lbs. Running 10KsMy Profile

    • I think you hit the nail on the head. There is something to be said for paying the stupid tax. Sometimes experience is the best way to deal with things when people won’t listen 🙂

  10. Hah, she had me there. I’ve never heard the term, but actually look forward to being one! My wife had similar complaints but I reminded her we are saving 30% of our income, so while we do have access to “more” it’s just not being used.

    Also, I know myself, if it’s easily available, I’ll spend it. All the more reason I get it locked into retirement accounts first thing!
    Jack Catchem recently posted…Why American Cops Kill Americans: Its not Race or GunsMy Profile

    • Thanks for sharing Jack!!! That’s an impressive savings rate and sounds like you are doing all the right things for retirement. Plus you’re going to get that double dip in retirement!!!

  11. Real estate in a way is like investing. You need to diversity, so having all three properties in the same sub is not a very smart decision. Sounds like they didn’t have enough cash to back the rentals. If they are unable to get tenants for some reason then they are footing the bill out of their own pocket. That will put a strain on things. Might be time to just cut their losses or at least get rid of 1 property for the cash flow to put themselves in a better position financially.
    Dividend Daze recently posted…How to Decide Between Paying Off Student Loans Early Or Investing (Or Both)My Profile

  12. I have heard of the term paper millionaire before. Sounds like Cindy and her husband would have been better off just saving and investing the cash or at the very least doing a little more homework a real estate before buying three properties in the same neighborhood.

    What’s their plan now, sell all three or just the one?

    • I think their plan is to get rid of one to start and then slowly see where to go from there. I think selling three houses at once might be a little difficult but then again so is buying three 🙂

  13. It’s amazing to me how many people want to jump into real estate without spending a ton of time learning about it. It’s literally the biggest purchase you’ll ever make, which means you should probably spend a year or two devouring the info and knowing what the heck you’re getting yourself into. If you really just have an itch to try your hand out at landlording, then I’d say rent out a room on Airbnb. It’s much lower risk and a nice way to sort of get your feet wet.
    Financial Panther recently posted…I’m Back In Debt AgainMy Profile

  14. Successful rental real estate investors seem to have a system and a lot of discipline – and, often, a dose of luck with one of their first properties. It’s not for everyone.

    I think there are many horror stories from rental real estate, but we don’t hear too many of them. I wish they were profiled more so people can see there is a dark side, and it’s not as “passive” as one may hope. Thanks for sharing this story – this is not yet a disaster, but it’s headed that way, and it’s a good cautionary tale for all.
    Paul recently posted…Go To College. You Won’t Regret It.My Profile

    • Thanks for sharing Paul!!! I definitely agree that there is a narrative that real estate is an easy passive way of making money. I don’t think they realize all the work involved.

  15. Like a paper tiger she seems rich but has no teeth.
    I bought a property unseen once as well and it turned out like Cindy. I lost money. Thankfully it wasn’t too much, but was a headache for nothing.
    Thankfully my other two rentals that I did a lot more research and maintenance on myself have been winning investments. There are a lot of doctors that are paper millionaires as well, trying to keep a lifestyle that they can barely afford. Hopefully you helped her out with some sound financial knowledge Rob. 🙂
    High Income Parents recently posted…160 Strategies to Conquer College ExpensesMy Profile

    • Thanks for sharing High Income Parents!!! I think people sometimes get a little too excited and read the press clippings of how easy things are. But it’s a ton of work and you have to do things right otherwise you can get burned bad.

  16. Diversification is the key no matter what you’re investing in. I hope Cindy and husband can turn this around. I guess the good news is, with a $200K shovel, they should be able too quickly now that they’ve realized they’ve made an error.

  17. As some other comments say, real estate can be great. But it takes a lot of research, discipline, and really the right kind of person. There is a lot of leverage to be used, but that leverage also has some pretty big risk. I applaud those who take the time and do it well. I have learned, I am not one of them.

    • Thanks for sharing Tepid Tamale!!! There are times that I feel impatient as I’d love to jump in. But for whatever reason things have not fallen into a range that makes sense for us. At first I was frustrated but the more and more I think about it, I think about what a blessing it’s been to not jump in and make a mistake.

  18. Amazing, it’s clear that they fell into the trap many of us do and not do the appropriate research when trying to get into a new investment. 3 rental properties and they are cash flow negative, far from optimal.

    Thanks for sharing MSM
    Erik @ The Mastermind Within recently posted…Content Inc.My Profile

    • Thanks for stopping by Erik!!! It’s unfortunate the predicament that they are in but unfortunately that’s what happens when you don’t do your research.

  19. I can’t say I’ve heard it before but sounded similar to 401k millionaire. Where they have a networth of about a million but not in all accessable cash.
    I’m not at all shocked about the story. It isn’t much different from people going into debt for the sake of getting ahead.
    They just had more money than they knew what to do with. The difference is knowing to figure out the right thing to do with it than rushing into something
    Budget on a Stick recently posted…How I gave up my Tesla dreamMy Profile

    • Thanks for sharing Budget on a Stick!!! I’d love to be a 401k millionaire but I’d feel a bit like a trust fund baby with an age lock down that knows the money is there but can’t use it. I’m sure that’s got to be frustrating at times.

  20. I always assumed that paper millionaires were those who’s stocks had appreciated to make them millionaires but they hadn’t sold yet. As for the real estate, I hear people overseas investing in US real estate but rare vice versa. I wouldn’t say investing long distance is necessarily bad since I did that myself but you really have to do your research. Also, having it cash flow is of the utmost importance. Did she think that area would have amazing appreciation?

    • I think they believed that the market would bounce back faster and stronger which unfortunately it didn’t. I think they expected the real estate purchases to mimic the stock market returns of today.

  21. As a real estate investor myself, I definitely know that it is too easy to get underwater or overleveraged. I definitely was more naïve when I started and made some mistakes, but I am a much better investor now. And because of that, I have four properties paid in full (including the one we live in). If I had stayed on my original plan of RE investing, I would have a lot of mortgages, and very little cash flow.
    Primal Prosperity recently posted…Guest Post on 1500 Days: What Flying Airplanes Taught Me About FIREMy Profile

    • Wow that’s incredible impressive Primal Prosperity!!! 4 properties all paid for is incredible. Sounds like you definitely have done things right!!!

  22. I’ve never heard about this particular term, but living Silicon Valley I’ve heard a lot of other terms for the Valley’s millionaires one of them is “a slaiveonairer” which I really like.
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  23. Ouch, as an investor one better take into account this old farmer’s wisdom: ‘the master’s eye makes the horse fat’. As novice real estate investors buying form overseas is a big no no (I think you need to be a very experienced investor to buy something sight unseen).

    Biggest issue is it has them worried and has an impact on their happiness. So here is hoping they can indeed sell the houses and get rid of those mortgages. Hopefully with minimal losses.

    The positive is that once this anker is gone and with their income + no mortgage, financial freedom is still very much reachable! My only worry would be that once this drag on their finance is lifted they will indulge in more lifestyle inflation once again.
    financialfreedomsloth recently posted…Frugal purchase – washing machineMy Profile

    • Thanks for sharing Financial Freedom Sloth!!! I love the farmer’s wisdom 🙂 I definitely agree that they would probably be better off selling and regrouping at this point. But for some it’s hard to admit when they’ve made a mistake. Hopefully they’ll work through this quickly and not drag their feet…

  24. I’ve not heard the term before and I’m still a bit confused by ‘Cindy’s’ explanation. Was she not subtracting their liabilities from their assets?
    Anyway sounds like she needs to read your blog a lot more carefully!

  25. Not sure If i had ever heard of the paper millionaire term. What is so true is it really matters where you hold your wealth. Equity in a home is different than a 401k which is different than a brokerage account, etc.This is also a good example of the importance of managing expenses and the POWER of having a high income and low expenses. The “double comma” net worth or just assets being held doesn’t really mean much if you don’t have access to a majority of the money. On the rental property question. That is interesting. A long time ago, i almost purchased a rental property out of state. Yikes. Looking back, it was a really smart decision NOT to buy a rental home, at least for me. Now, with my primary home almost paid for, I have had thoughts about buying a rental once my home is paid for, but think the risk of maintenance costs and simply the time it would take to manage will keep me away.
    ReachingTheCrest recently posted…Why You Should Plan to Retire Early – Even if You Never DoMy Profile

    • Thanks for sharing Reaching The Crest!!! I have definitely thought about buying properties out of the area but I’ve never felt comfortable not being close to the property and vetting the renters in person.

  26. Hi MSM,

    Great to read – like others, I view paper millionaire as someone who has assets worth more than 1M, but not necessarily in cash – so could be housing, stocks etc. Is she a paper millionaire after the debts are taken away?
    It shows the downside of property investment and not doing your research – I wouldn’t dream of buying a place if I hadn’t been there and seen it, researched etc. let alone buying somewhere on spec from abroad!
    I hope she reads your blog much more carefully, and they look to rectify the situation quickly!

    FIREin’ London recently posted…Go T’ Pub ISA – The Numbers…My Profile

  27. Interesting!!! I know someone who ended up with bad rental properties too. Three of them too. Part of the prob, IMHO, is that he relied on state-funded rent payments (renting only to welfare recipients who had to pay about $50 out of the monthly rent) to guarantee rent payments. But every single one of them trashed the house and it had to be practically gutted and re-done when they moved out. When you’re not paying for something out of your own pocket, it can be easy to not appreciate it. Real estate investing can be great, but you’ve really got to educate yourself on how to be educated about it before you dive in. I hope selling the properties makes things easier for Cindy and her family!
    Laurie @thefrugalfarmer recently posted…9 Pieces of Financial Advice for High School GraduatesMy Profile

    • Thanks for sharing Laurie!!! That’s really too bad about your friend getting their place trashed. It really makes you wonder what people are thinking when they do stuff like that.

  28. I think so. I know someone who seems pretty well off (has a lot of properties getting rental income I suppose). But he always seems busy and pre-occupied and on his phone or laptop. You have to be worried about cash flow a little but too especially if a rental management company is not involved and a tenant abruptly breaks a lease or has to go.
    SMM recently posted…Simple Fund Analysis – Vanguard Small Cap Value ETF (VBR)My Profile

    • Thanks for sharing SMM!!! Sounds like your friend is doing well and is super busy!!! I have to admit when I’m well off I wouldn’t mind scaling back a little bit 🙂

  29. That’s exactly how I would have characterized it for myself. I’d only consider myself a paper millionaire if the assets were all in real estate and other illiquid assets. I won’t consider us millionaires until we each have $1M in liquid and investable assets either 🙂

    I think 3 houses in one neighborhood only sounds good (easy distances if you do your own repairs, you aren’t driving all over town to do your regular inspections) until you realize that means all of them would be subject to the same risks – redistricting, floods, earthquakes, etc. I’d personally pick a point to cut my losses because three properties where the expenses aren’t covered means you’re bleeding money and that’s completely the opposite of the reason you got into real estate, isn’t it?

    My own rental didn’t meet the 1% rule but I’ve always had the expenses covered, even with a property manager. If I see that going in the wrong direction, I’d cut it loose pretty quickly. When I started, I had planned to buy one rental per year but backed off on that plan to let the expenses of the first rental settle down. In retrospect, that was better for risk mitigation even if the prices were better two years ago.
    Revanche @ A Gai Shan Life recently posted…Just a little (link) love: baby octopus swimming editionMy Profile

    • Thanks for sharing Revache!!! I would have loved to buy a property a year but for whatever reason I couldn’t find properties that made sense. So I’ve held off but if things were to change I’d definitely jump in!!!

  30. “Paper Millionaire” usually refers to people who have a net worth greater than $1 million on their account statement but have encumbrances on their assets (usually income taxes) that significantly reduce the value if they were taken into consideration. If you bought one share of a stock for $1/share. Five years later, that stock trades for $1,000,000 per share. That person is a paper millionaire because he broker statement shows assets totaling $1,000,000 but if that person tried to access the million, s/he would owe capital gains tax on $999,999.
    In the Silicon Valley example, the encumbrance is that the employee typically cannot exercise their stock option for some period of time after the IPO.
    For these reasons, some people adjust their net worth estimation by estimated taxes owed if they were to liquidate today or would discount restricted stock options in their calculation.
    As for Cindy, you write “Her definition of a true millionaire was someone that had at least $1 million in investable assets.” I don’t agree with that either. You hear the term “net worth” but I never hear about “gross worth.” What good does $1 million in investable assets do if you also have $3 million in liabilities?

    You don’t mention how much mortgage debt Cindy & her husband are carrying on her properties. The problem with illiquid assets is that the value of the asset is hard to estimate. Did Cindy discount her rental property values in her “paper millionaire” calculation when they were redistricted?

    • Thanks for stopping by Dan!!! Cindy didn’t mention how much debt she was carrying on the homes so I’m not sure if she truly understands the terms and I chose not to pry much further. No sense in trying to convince her that she may not be the millionaire that she thinks she may be. I figure I’ll let someone else educate her on that.

  31. I’ve never heard about the term paper millionaire, but after reading your article I understand the concept. However, does it apply if the mortgages aren’t paid off?

    Having 3 mortgages at the same times sounds insane. We’re afraid to apply for one without making a substantial down payment, let alone take on such high financial risk!

    I definitely think this was a mistake. Of course, pointing it out over and over again won’t make Cindy feel better about it, if she’s reading your blog. I hope she and her husband find a way to get out of this financial mess as fast as possible.
    Adriana @MoneyJourney recently posted…Living frugally on a low retirement incomeMy Profile

    • Now that I think about it I have no idea what the banks were thinking lending that much money especially after the mortgage melt down. Clearly somebody wasn’t paying attention…

  32. Very interesting! I heard the term before but never really stopped to think about it. We should probably modify that saying “It’s not what you spend, it’s what you keep” to “It’s not what you spend, it’s what you keep and have access to!”
    Mrs. Groovy recently posted…Let the Trash Talking BeginMy Profile

  33. MSM –

    Ooph… quite a few things wrong – lifestyle inflation, overseas & buying properties one cannot see at home, ill diversification of rentals (i.e. the SAME neighborhood). 3 lessons they have easily learned: Keep your living expenses low, do your due diligence, diversify – not only asset classes, but geography. Done and done! Thanks for sharing the article!


    • Thanks for stopping by Lanny!!! There are definitely a lot of take aways from this couple 🙂 Definitely shows what happens when you’re aggressive in investments!!!

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