typical millionaire

The Portrait of a Millionaire

by mike on June 20, 2010

If you want something that others have, then study how they got it and go about doing it.  It really is that simple.  In “The Millionaire Next Door”, authors Thomas J Stanley and William D Danko study millionaires and determine common denominators that made them successful.  The crazy thing is that it is not the things you would think would make them successful.  In the first chapter titled “Meet The Millionaire Next Door”, the authors paint a picture of who the average millionaire is.  Let’s take a look at some of their findings in order for us to learn how they became wealthy so that we can attain that as well (assuming that is a goal for you).

Here is the problem.  If I asked you to pick out a millionaire from a group of 3 people, you would probably get it wrong.  You would pick the one who was wearing the finest suit, wearing an expensive watch and who drove the nicest car.  The problem is that, statistically speaking, you would be dead wrong.  The irony is the one looks the least like a millionaire is most likely the one who is.  It is the one who appears to be an average Joe.  He and his wife probably live right next to you in your middle-class neighborhood.  The authors looked at a ton of stats to determine what the average millionaire looks like.  For brevity reasons, I will discuss my favorite five:

1.)  He is a fifty-seven year old male, married with three children.

This tells me that it takes time to accumulate wealth.  It is not something that just happens overnight.  So many people chase the get-rich-quick method of becoming a millionaire and it rarely, if ever, works.  Also, having several children is normal.  I had to laugh at that a bit knowing how much money children cost!  However, I do know that we are less likely to waste money on eating out or going to bars because we have children.  Also, for me, having a family to provide for motivates me to produce more.  So, maybe those two factors have something to do with it.

2.)  Two-thirds of working millionaires (non-retired) are self-employed.

Being entrepreneur-minded, I love this one.  It takes out of the equation the fact that you have to go to medical school or law school to become wealthy.  The study showed that ¾ of the self-employed millionaires were entrepreneurs, with the remaining being doctors and accountants.  I would guess that part of this whole reason is that people who are self-employed have a passion for what they are doing.  That passion causes them to be very good at what they do, so people pay them well to do it.  They produce results.  What is it you love to do?  Is there a way for you to turn that into an income stream or a business?

3.)    50% of wives do not work outside the home.

The #1 occupation for those wives who do work is teacher.  This is just interesting to me since my wife does not work outside the home.  I do often wonder, financially speaking, why so many households find it necessary for both spouses to work.  I won’t debate many of the other reasons, but money is the most often cited to me as to why moms don’t stay home.  I know of many moms who say they would love to stay home, they just can’t financially.  I would argue that this is rarely the case.  I would challenge you that if that is what you want, make it happen.  Sell your house (as we did), drive older cars (as we do), do whatever it takes to make it happen if that is what you want.  It doesn’t have to mean you can’t build wealth over time.  Most studies show that the wife’s salary is often consumed by daycare, nicer clothes, more eating out, etc.  Just something to think about if that is what you want.

4.)  80% are first-generation affluent.

In other words, they did not receive an inheritance.  The parents of most wealthy people were not wealthy.  So, the idea of the silver spoon is debunked.  Becoming wealthy is achieved from hard work and diligence, not from a trust fund.  Nothing irritates me more than someone complaining about someone who is wealthy.  “Well, if I had it as easy as them, I would be wealthy too”.  This stat blasts that whiny belief out of the park.  Stop whining, and go do something to produce some wealth.

5.)  He lives well below his means and drives American-made cars, with a small minority driving a current year model.

My clients probably get tired of me talking about living below your means.  It is so simple, yet so few people do it.  If they did, there would be much less personal debt in our country.  It also pains me to meet with someone who has a $50,000 a year income, but drive a $30,000 vehicle and a $15,000 vehicle.  It honestly just makes me sad because I know about this characteristic of millionaires.  They don’t buy new cars, they drive nice several-year-old cars that are paid for.  It is impossible to build wealth when you are spending $700 of your $3,000 take home pay on vehicles.  The main reason is because vehicles go DOWN in value.  You are sinking a huge portion of your income into something that is losing money.  To me, it’s just not worth it.  The excitement of what the future could be is all the motivation I need not to get car fever.

Let’s finish up by asking: are you wealthy? How do you know what the definition of wealthy is?  You probably are thinking of someone who has lots of “stuff”.  Not true.  A True indicator of wealth is if your net worth is more than what it should be based on your age and income.  By net worth, I mean everything you own (house, vehicles, 401ks, IRAs, cash, etc) minus everything you owe (mortgage, car loans, credit cards, unsecured loans, student loans, etc).  Here is how to determine if your net worth is what it should be according to the authors:

Multiply your age times your pre-tax yearly income from all sources divided by ten.

So, if you are 35 years old and have a $40,000 income, your net worth should be $140,000.  Check it against your net worth and find out if you are truly wealthy or not.  If not, then make a plan to become wealthy.  Wealth, by itself, is not the end all, be all.  But, the amazing things you can do for others when you have wealth is pretty cool to think about.  The next time we will look at frugality as a means of accumulating wealth.

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