Reading: The Millionaire Next Door
The real wealth is not superficial, easy to spot at all. Conspicuous wealth usually means borrowed wealth, not equity and cash in banks.
You wouldn’t recognise your neighbours as being a “millionaire” because they are not likely to dress very affluently, nor wear expensive watches, or drive luxury cars, or even get expensive haircuts. They pay cash for their modest cars, and live a frugal lifestyle.
Their money is used for investment and growth... they are investor entrepreneurs. And they don’t stand out from the crowd.
The studies conducted by the authors of The Millionaire Next Door: The Surprising Secrets of America's Wealthy included personal and focus group interviews with more than five hundred millionaires and surveys of more than eleven thousand high-net worth and/or high-income respondents.
Each participant in the study answered 249 questions.
Findings: THE SEVEN FACTORS
Who becomes wealthy? Usually the wealthy individual is a businessman who has lived in the same town for all of his adult life.
This person owns a small factory, a chain of stores, or a service company.
He has married once and remains married. He lives next door to people with a fraction of his wealth.
He is a compulsive saver and investor.
And he has made his money on his own.
Eighty percent of America’s millionaires are first-generation rich.
Affluent people typically follow a lifestyle conducive to accumulating money.
In the course of our investigations, we discovered seven common denominators among those who successfully build wealth.
1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.
Who are they?
Mid fifties, mostly male. About 80 percent of are first-generation affluent. They live on less than 7 percent of their wealth.
About one in five is retired. About two-thirds who are working are self-employed. These work between forty-five and fifty-five hours per week.
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.
Fewer than 25 percent ever received “an act of kindness” of $10,000 or more from their parents, grandparents, or other relatives.
Most have 20 percent or more of their wealth in publicly traded stocks, but they do not actively ‘trade’ their stocks. They buy the shares, then hold on for the long-term.
They are fairly well educated. Only about one in five are not college graduates. Many hold advanced degrees. Eighteen percent have master’s degrees, 8 percent law degrees, 6 percent medical degrees, and 6 percent Ph.D.s.
On average they invest nearly 20 percent of household realized income each year. Most of invest at least 15 percent.
And, interestingly, their partners are even more frugal than they are. Most people will never become wealthy in one generation if they are married to people who are wasteful. I’ve seen this first hand with professional men who work their butts off only to have their wives go through the money like water... unbelievable to see.
Millionaires operate with budgets, and they stick to them. They Manage the money...
Efficiency is one of the most important components of wealth accumulation.
Simply: People who become wealthy allocate their time, energy, and money in ways consistent with enhancing their net worth.
How is the wealth determined or calculated to conclude someone is a millionaire or not?
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten.
This, less any inherited wealth, is what your net worth should be.
Fewer than one in five millionaire business owners turns his business over to his children to own and operate. Why? Give credit to wealthy parents.
They know the odds of succeeding in business. They understand that most businesses are highly susceptible to competition, counter consumer trends, high overhead, and other uncontrollable variables.
So what do these millionaires advise their children to do? They encourage their children to become self-employed professionals, such as physicians, attorneys, engineers, architects, accountants, and dentists.
Why? As explained by one affluent business owner who had fled Europe because of the Holocaust why all his adult children were self-employed professionals. His response:
“They can take your business, but they can’t take your intellect!”
Summary: What have we discovered in all of our research?
Mainly, that building wealth takes discipline, sacrifice, and hard work. Common sense, but apparently not so common in most households!
CLICK HERE >> The Millionaire Next Door: The Surprising Secrets of America's Wealthy
Interesting, and filled with reports of common sense thriftiness in these millionaires ... that appears to not be so common in most households!
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