“The Millionaire Next Door”
The Surprising Secrets of America’s Wealth
By: Thomas J. Stanley, Ph.D. William D. Danko, Ph.D.
Why aren’t I as wealthy as I should be? Most people have it all wrong about how to become wealthy in America. It is seldom inheritance or advanced degrees or even intelligence that builds fortunes in this country.
Wealth is more often the result of hard work, diligent savings, planning and living below your means.
The authors Stanley and Danko have been studying the wealthy in this country for 20 years. Using their two decades’ worth of surveys, interviews, and data, they have complied a detailed picture of who the rich are and how they live that will change forever your perception of what being wealthy really means.
Many millionaires bargain shop for used cars, pay a tiny fraction of their wealth in income taxes and reject the big spending lifestyles most of us associate with the rich. In fact flashy millionaires glamorized by the media actually represent only a tiny minority of America’s rich.
Many people who live in expensive homes and drive luxury cars do not have much wealth. Many people who have a great deal of wealth do not live in upscale neighborhoods.
Wealth is not the same as income. If you make a good income each year and spend it all you are not getting wealthier. You are just living high. Wealth is what you accumulate.
Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and most of all self-discipline. Building wealth takes discipline, sacrifice, and hard work.
Do you really want to be financially independent?
Are you and your family willing to reorient your lifestyle to achieve this goal?
If you are willing to make the necessary trade-off of your time, energy, consumption habits, you can begin building wealth and achieve financial independence.
More than 80% of today’s millionaires have accumulated their wealth in one generation. They did it slowly, steadily, without signing a million-dollar contract with the Yankees, without winning the lottery, without becoming the next Mick Jagger. Windfalls make great headlines, but such occurrences are rare.
Nearly one-half of our wealth is owned by 3.5 % of our households. Most of these households are composed of people who earn moderate, even high incomes. More than 25 million households in the U.S. have annual incomes in excess of $50,00; more than 7 million have annual incomes over $100,000.(25/250= 10%) (7/250= 2.8%) But in spite of being good income earners, too many of these people have small levels of accumulated wealth. Many live from paycheck to paycheck.
The median (typical) household in America has a net worth of less than $15,000, excluding home equity. Factor out equity in cars, furniture and such and more often than not the household has ZERO net financial assets. How long could the average American live without a paycheck? Perhaps a month or two. Even the top quintile are not really wealthy. Their median household net worth is less than $150,000. Excluding home equity, the median falls to less than $60,000. What about our seniors? Without Social Security benefits, almost one-half of Americans over sixty-five live in poverty.
Portrait of a Millionaire- typical American Millionaire
• 1 in 5 is retired
• 2/3 are self employed (self-employed make less than 20% of workers)
• 3 out of 4 consider themselves entrepreneurs
• They live on less than 7% of their wealth well below their means
• They drive American made cars which they typically buy used and don’t lease
• Most wives are planners and meticulous budgeters
• They have a “go to hell” fund enough money to live comfortably on
• On average nearly 20% of household income is invested each year
• 20% of their wealth is in stocks or mutual funds
Most people define wealth as an abundance of material possessions. The wealthy define affluent differently. They do not define wealth in terms of consumption. Many people who have high consumption lifestyles have little or no investments. They get more pleasure from owning substantial amounts of investments than from a high consumption lifestyle.
How to determine where you stand
Multiply your age times your realized pretax annual household income from all sources. Divide by ten. This, less any inheritance is what your net worth should be.
Example Mr. O is 43 years old, makes $143,000 and investment income of $12,000. $155,000 X 41 = $6,355,000 divide by 10 = $635,500
Most Americans don’t have even the most conventional financial assets.
15% have Money Market Accounts
22% have CD’s
4.2% have Money Market Funds
3.4% have corporate or municipal bonds
25% have stocks & mutual funds
8.4% have rental property
18.1% have U.S. savings bonds
23% have IRA of Keogh
The Seven Common Denominators of the Wealthy
1. They live well below their means
2. They spend their time, energy and money efficiently, in ways conducive to build wealth
3. Financial independence is more important than displaying social status
4. Their parents did not provide financial help
5. Their adult children are self-sufficient.
6. They are good at targeting market opportunities. Timing
7. They choose the right business or occupation