Observations on life

You too can be a millionaire… if you are willing 

If you are in the Sanders camp or consider yourself a progressive, you may have a “thing” for millionaires; those horrible people who have it all, somehow are hurting your chances for success and of course never pay their fair share. Before you display your anger or envy, it is a good idea to know who we are talking about. For many of you, it’s your neighbor. And yes in many ways they most certainly do pay their fair share and more.

img_0043While they are prudent spenders, savers and investors, they don’t earn anywhere near a million dollars a year … and their wealth fluctuates with the vagaries of the stock and real estate markets.

So, if you have bought into the political rhetoric, here is a picture of America’s millionaires. It presents a different story than you may expect. And it seems to me the (long) road to being a millionaire is open to almost all Americans who are willing to live life the way most millionaires do.


SOURCE: New York Times

Who is the prototypical American millionaire? What would he tell you about himself?(*)

* I am a fifty-seven-year-old male, married with three children. About 70 percent of us earn 80 percent or more of our household’s income.

* About one in five of us is retired. About two-thirds of us who are working are self-employed. Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires. Also, three out of four of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants.

* Many of the types of businesses we are in could be classified as dullnormal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.

* About half of our wives do not work outside the home. The number-one occupation for those wives who do work is teacher.

* Our household’s total annual realized (taxable) income is $131,000 (median, or 50th percentile), while our average income is $247,000. Note that those of us who have incomes in the $500,000 to $999,999 category (8 percent) and the $1 million or more category (5 percent) skew the average upward.

* We have an average household net worth of $3.7 million. Of course, some of our cohorts have accumulated much more. Nearly 6 percent have a net worth of over $10 million. Again, these people skew our average upward. The typical (median, or 50th percentile) millionaire household has a net worth of $1.6 million.

* On average, our total annual realized income is less than 7 percent of our wealth. In other words, we live on less than 7 percent of our wealth.

* Most of us (97 percent) are homeowners. We live in homes currently valued at an average of $320,000. About half of us have occupied the same home for more than twenty years. Thus, we have enjoyed significant increases in the value of our homes.

* Most of us have never felt at a disadvantage because we did not receive any inheritance. About 80 percent of us are first-generation affluent.

* We live well below our means. We wear inexpensive suits and drive American-made cars. Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles.

* Most of our wives are planners and meticulous budgeters. In fact, only 18 percent of us disagreed with the statement “Charity begins at home.” Most of us will tell you that our wives are a lot more conservative with money than we are.

* We have a “go-to-hell fund.” In other words, we have accumulated enough wealth to live without working for ten or more years. Thus, those of us with a net worth of $1.6 million could live comfortably for more than twelve years. Actually, we could live longer than that, since we save at least 15 percent of our earned income.

* We have more than six and one-half times the level of wealth of our nonmillionaire neighbors, but, in our neighborhood, these nonmillionaires outnumber us better than three to one. Could it be that they have chosen to trade wealth for acquiring high-status material possessions?

* As a group, we are fairly well educated. Only about one in five are not college graduates. Many of us hold advanced degrees. Eighteen percent have master’s degrees, 8 percent law degrees, 6 percent medical degrees, and 6 percent Ph.D.s.

* Only 17 percent of us or our spouses ever attended a private elementary or private high school. But 55 percent of our children are currently attending or have attended private schools.

* As a group, we believe that education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the educations of our offspring.

* About two-thirds of us work between forty-five and fifty-five hours per week.

* We are fastidious investors. On average, we invest nearly 20 percent of our household realized income each year. Most of us invest at least 15 percent. Seventy-nine percent of us have at least one account with a brokerage company. But we make our own investment decisions.

* We hold nearly 20 percent of our household’s wealth in transaction securities such as publicly traded stocks and mutual funds. But we rarely sell our equity investments. We hold even more in our pension plans. On average, 21 percent of our household’s wealth is in our private businesses.

* As a group, we feel that our daughters are financially handicapped in comparison to our sons. Men seem to make much more money even within the same occupational categories. That is why most of us would not hesitate to share some of our wealth with our daughters. Our sons, and men in general, have the deck of economic cards stacked in their favor. They should not need subsidies from their parents.

* What would be the ideal occupations for our sons and daughters? There are about 3.5 millionaire households like ours. Our numbers are growing much faster than the general population. Our kids should consider providing affluent people with some valuable service. Overall, our most trusted financial advisors are our accountants. Our attorneys are also very important. So we recommend accounting and law to our children. Tax advisors and estate-planning experts will be in big demand over the next fifteen years.


Categories: Observations on life

6 replies »

  1. Using an inflation calculator – To be able to buy what a million dollars bought in 1984 you would need $2,873,000 in 2014. So inflation has robed us all and the million dollars has lost 65% of its value. To include the value of your home in figuring your net worth is flawed. It is not a liquid asset and should not be included. Most people’s assets excluding their home, does not get them anywhere close to being a millionaire. It is time to stop doing this on paper millionaire math.
    Now if you have stocks, bonds and other liquid assets that equal over $1,000,000 consider yourself a millionaire. But, if you have $350,000 in liquid assets and a house that is worth $750,000, you are not a millionaire. Unless, you are going to sell your house and live in your car, which is not very practical.


    • You may not sell your house today or tomorrow, but for many people it will be a valuable asset when they retire because they can downsize or move to a lower cost area. So I think it fair to consider the home part of net worth. If it were not for many grandchildren close by we could sell our home, move south and raise our standard of living considerably. Just on property taxes alone I could get a raise of at least $10,000.


      • Many people do not want to down size or move, because they enjoy where they live. My home will be sold when my wife and I no longer need it. I may deed it to my children for it to be sold after our deaths or move into the nursing home. A home should only be counted after it is sold, not before, it is just a holder of future value until then.


    • Not sure what inflation measure you used, but, if you use the CPI (the price of stuff you buy), inflation has been only about 2.4% over the 30 year period cited. So, not $2.8MM, but maybe $2.1MM.

      More importantly, my personal experience is that other than health care, all of the other products and services I use have, overall, once adjusted for inflation, a lower cost than in 1984 – in terms of cars (my 1980 Mazda 626 cost me $9,000, significantly more, in inflation adjusted terms, for a comparable car today – such as a Hyundai Sonata), gasoline (I paid $1.78 a gallon which is dramatically less, once adjusted for inflation, than the $1.29 I paid in 1984, while living in Texas – and, of course, I get much better gas mileage today), my laptop costs less than the IBM PC-XT we ordered at work in 1985 – in dollars, let alone inflation adjusted, productivity adjusted dollars. Today, I still pay less for groceries, in inflation adjusted dollars, compared to what I paid 30 years ago – yes, steak is $8 a pound, but not only is that less, in inflation adjusted dollars compared to the $4 a pound I paid in the early 1980’s, I eat less as well – I’ve adjusted my market basket of goods.

      So, yes, in inflation-adjusted terms, as I mentioned below, a million dollars won’t buy today what it would have bought in 1984; and, a million dollars in 2046 won’t buy what a million dollars will buy today. But, if you are still with us in 30 years (my genetics say I will be long gone), which group do you want to be in – the 10% – 30% of American households with $1MM in net worth (in a home, investments, etc.) or the other 70% – 90% of households?


  2. That’s from a 20 year old book – I daresay, we’ve seen some change since then, plus the addition of a couple of new options to the above “middleclass millionaire” methodology.

    First. Today, as a wage earner, you still get to decide when to spend your take home pay. You can decide to spend it as you earn it (spend all take home pay), banks/credit card companies will allow you to spend it before you earn it (go into debt), or you can follow the above method, live beneath your means, and allow it to accumulate and spend much later in life.

    Second. A million dollars isn’t what it once was. One imperfect guesstimate of inflation is the Consumer Price Index. Going back 30 years, 1984 – 2014, the average annual increase in the CPI was 2.7%. So, the value of $1MM, the purchasing power, has been halved over the past 30 years. Today, approximately one in 15 households have $1+MM in household wealth. See: http://nypost.com/2014/06/11/number-of-millionaire-households-in-us-rises-again/ The “typical” millionaire is between age 55 – 64. So, if you want to be a “typical” millionaire, you probably need(ed) to establish appropriate financial habits prior to reaching age 30 (who knew?).

    Third. A million dollars 30 years from now won’t be what it is today. Assuming continuation of a rate of inflation of 2.5%, a million dollars in 2046 will be worth half of what it is worth today. Assuming we see comparable growth in the number of households with $1MM, in 30 years, perhaps 1 in 8 households will have $1MM in accumulated wealth.

    If you are planning on being alive 30 years from now, which group do you want to be in – the group with $1+MM (whatever it will buy) or the other 85+% of Americans who are in debt, have no assets or have assets less than $1MM?

    In terms of achieving millionaire status, sure, accountants and attorneys offer promise. These days, you can find many unemployed accountants and starving, ambulance chasing attorneys. So, other occupations, systems, applications, etc. hold some promise.

    But, it is less about the occupation and more about the attitude. It is your call. If you are old like me, fast approaching Medicare eligibility, share the story with your children, grandchildren, nieces and nephews, and maybe, the kid next door. She will appreciate your interest in her future financial well being.


    • I used the Bureau of Labor Statistics Inflation calculator. But I do not think the government numbers are true for everyone. I am 60 and if I make it another 30 years I will most likely be in a nursing home, so I will not care if I have 1 million or not. I have never made more than 35K per year, many years a lot less. So I never even thought I would come close to 1 million. From age 62 when I start my SS if I live to 85 I should have $345,000 (may buy what $175,000 buys in 2016) plus interest in investment accounts. I saved nothing my entire working career, never had any to save. I will be able to save $15,000 per year, because I am now able to live well in MT on $19,000 per year military pension, with zero debt and low cost of living.


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