When I was at FinCon (the financial media conference) last September I attended a speech by Chris Hogan, one of the professionals in Dave Ramsey’s speakers’ group.
I don’t know Chris, but have heard him on podcasts, liked what he had to say, and was excited to see him talk. It was a good presentation and I enjoyed it — one of my favorites from the week.
After his presentation he made an offer to get his new book, Everyday Millionaires
(not out then, but now out), at a discounted rate. People lined up like crazy.
It was interesting for me to see this as most publishers will give bloggers free books because they know that 1) the cost of a book is around $1 and 2) they can more than get their money’s worth from almost any blogger with a simple review post.
But whatever, if people wanted to pay for the book, who was I to stop them?
Reception with Chris
Before I arrived at FinCon I had received an invitation to attend a conference reception with Chris after his speech. So as others lined up to buy their books, I walked through the hotel and to the event.
It was in a bar area just outside the hotel (still on the property) and was packed with 75 people or so. It was loud and guests were drinking and eating appetizers.
About 30 minutes into the event Chris took the floor, thanked us for coming, introduced his team (5 to 10 people), and told us about the new book. It was short and sweet and pretty much what you’d expect.
After Chris finished, several members of his team fanned out to work the room.
The Millionaire Next Door
One of the team members came up to the group I was in and introduced himself.
He was around 30 or so, nicely dressed, and professional in appearance. He reminded me of me a couple decades ago.
As we were chatting he gave the group some details on Chris’s new book.
They had done an extensive research project interviewing 10,000 millionaires (the biggest study of millionaires ever completed) and the book was about their findings.
He informed us that there was an older book titled The Millionaire Next Door
but for their new book they had surveyed far more millionaires.
The way he “explained” this to us made it seem as if he thought we’d never heard of it.
I wanted to tell him that probably everyone in that room could cite chapter and verse from The Millionaire Next Door, but he was on a roll so I let it slide.
As you know, I’m a big fan of reading about millionaires. I interview them, I love The Millionaire Next Door (it made it into my top five money books), and I like the update to it, The Next Millionaire Next Door
(here’s my review). So I was very interested to read Chris’s work and see what he had to say.
I asked the young executive if they were giving out review copies of the book (these are copies given to media in advance so they can read the book and then post thoughts/reviews on it near the release date).
He said he didn’t know, but they did have gift bags for us. I could tell that when he said he “didn’t know” that what he meant was “no”.
Sure enough, when the gift bags were handed out they had two older books, but not a copy of the new one. The marketing guy in me died a bit. They had a room of 75 bloggers that probably reached MILLIONS of people. For $75 they could have gotten the word out about their book to that large audience. But they blew it.
Not one to be slowed down though, I emailed my contact on Chris’s team once I got home. I asked for a review copy and they sent me one. I took it on my October trip to DC and read it on the plane.
I’m only posting on it now since the book has finally been released to the public.
Everyday Millionaires
As you might imagine, this book is right up my alley. I highlighted much of it and on the flight back wrote an outline of what I wanted to cover on ESI Money.
Over the next week or so, I’ll be posting about the book. I’ll cover enough to hit the highlights but not so much as to ruin it for any of those who would like to read it.
If you want just the very top line, here are my thoughts:
- I loved the book. If you’re interested in knowing more about millionaires, it’s a great read.
- It’s very easy to read. I “read” (i.e. skimmed for content) on the flight, then re-read parts of it afterwards to decide what I wanted to share. It’s simple to pick up the key points as they summarize them at the end of each chapter and highlight key facts within the chapters.
- They did find differences from what we see here in the millionaire interviews. Our millionaires tend to have higher incomes and attained millionaire status earlier in life. But other than those, the similarities are remarkable.
- The findings are not revolutionary. We all know the basics of becoming wealthy are what they are and there’s not a lot of room for variation. Even a semi-well-read money nerd won’t find many new wealth principles here.
- That said, they did offer some unique findings, some of which I’ll share and some of which you can read about if you’re interested.
Overall, this wouldn’t crack my list of must-read money books but it would certainly be in the group right after these.
Three Common Myths
One unique thing about the book (in a way, I think we all “knew” these but the book “confirms” them) is their list of “the most common myths that are perpetuated in our society about the wealthy”.
They list these as:
- The wealthy didn’t earn and don’t deserve their money.
- The wealthy take big risks with their money.
- The wealthy have a leg up in education and careers.
It’s an interesting take on how the general public perceives the wealthy (which they use interchangeably with millionaires). I’m not sure if this is part of their survey (I’m guessing not) or just their thoughts based on dealing with the public’s perceptions about money.
Either way, I do think the list is correct. I have seen it time and time again when I get stories in the mainstream media — whether it’s about me or other wealthy individuals — people come out of the woodwork with one excuse or another why someone else is wealthy and they are not.
Let’s look at the myths one at a time, the beliefs that the book says leads to the myths, and my take on each one.
Didn’t Earn and Don’t Deserve
The first myth that “the wealthy didn’t earn and don’t deserve their money” is supported by two general beliefs:
- Wealthy people inherited all their money.
- Wealthy people are just lucky.
The book counters these beliefs with the following findings:
- Millionaires build wealth on their own without any inheritance. 79% received zero inheritance. Only 16% inherited more than $100k and only 3% more than $1 million.
- Millionaires believe anyone in America can become a millionaire with discipline and hard work. 76% of millionaires believe this to be true.
- Millionaires don’t all come from upper-class homes. 48% grew up middle class, 27% lower-middle class, and 4% lower class.
- Millionaires don’t rely on luck. They are 15 times more likely to say becoming a millionaire is about discipline over luck.
My thoughts:
- We’ve only had one or two of our Millionaire Interviews where the person has received a sizeable inheritance as part of their wealth. It’s just not that common. Sure, when some famous rich person passes on their wealth it hits the news and makes this seem more frequent, but in reality, it isn’t that common (just like the average millionaire isn’t a flashy person living in a 10k square foot house and driving one of seven $100k cars — which is also an outdated stereotype).
- As we get into the qualities that make people wealthy, discipline is something you’ll see over and over again. I’ve seen it mentioned in this book, the others listed above, and my interviews. It comes up over and over again. The fact is that you need to have discipline to become wealthy. We could even go as far as saying that it’s probably unlikely (or even impossible) to become wealthy without it. Unfortunately discipline is tough as Americans prefer their wealth to come fast and easy.
- I ask all my millionaire interviewees how they started their careers to emphasize a point — most of them begin pretty low on the economic totem pole and have had to work their way up. They don’t start out working as a vice president in their dad’s $1 billion corporation. They are of more modest means and work hard to grow their wealth. This was certainly the case for me as well. I was in that lower-middle class group and combined some good steps along with hard work to help my family move up.
- Luck is an interesting concept. I go with the notion that there are four kinds of luck, only one of which is bad luck you can’t influence (i.e. you’re hit by a truck). The rest you help along by either taking the right steps (some call this “making your own luck”) or trying to avoid trouble (i.e. don’t go into a dark alley at night). Of course there’s random good luck too, but you can’t count on that either. The point is you can certainly increase the odds of good luck finding you if you take the right steps. Our millionaire interviews show this over and over.
In the end the book concludes that millionaires do earn most of their money and work hard to get it. As such, they certainly deserve it.
Big Risks
Now let’s move on to the myth that “the wealthy take big risks with their money”.
The book says this myth is supported by these beliefs:
- Wealthy people make risky investments.
- Wealthy people take stupid risks to get rich quick.
Here’s the reality:
- Millionaires build their wealth through retirement plans. 79% of millionaires reached millionaire status through their employer-sponsored retirement plan.
- 97% of millionaires believe they control their own destinies.
- Millionaires understand it takes time. The average millionaire hit $1 million for the first time at 49. Only 5% got there in less than 10 years.
- Millionaires don’t take huge risks with their investments through get-rich-quick gimmicks and fad investments. Not one millionaire put “single stock” in their top three wealth-building factors.
- Millionaires don’t take out high-risk loans. 9 of 10 have never taken a business loan.
- Millionaires don’t borrow money from their friends. 80% haven’t.
My thoughts:
- Chris Hogan has a book about retirement and I’m guessing he’s big on employer-sponsored plans. I am too, to be honest. But 79% seems high. I have more than $1 million in retirement accounts, but I’m not sure I’d classify it as having made me “reach” millionaire status — I got there before I had $1 million in retirement funds.
- One thing that separates the wealthy from the not wealthy IMO is a desire/drive to take action and make things happen. I think this is why so many millionaires believe they control their own destinies.
- Time is a HUGE asset in becoming wealthy.
- We all know the first million is the hardest. While the book has the average age of millionaires reaching the milestone as 49, the millionaires on this site are much younger, with an average age of 41 when they reach $1 million.
- You don’t need to take risks when you save a ton over a long period of time — it grows steadily to do much of the work for you. I would say that most of the millionaires I’ve interviewed are the opposite of risky. They are generally pretty conservative investment-wise.
- The last two points above seem self-serving to fall in line with the “no debt” Dave Ramsey mantra. What about a mortgage? What about borrowing for a car? My guess is they left this out because it doesn’t reinforce their message of no debt. That said, I know debt is expensive and most of my millionaires avoid it to a great degree. I’m guessing the survey results didn’t show the same for the 10k millionaires, otherwise they would have made a stronger statement where debt is concerned.
In the end, millionaires are neither risky investors nor looking to get rich quick. They save and invest their money conservatively over time and get rich slowly.
Careers and Education
Finally we have the myth that “the wealthy have a leg up in education and careers”.
Supporting beliefs according to the book:
- Wealthy people have prestigious private-school educations.
- Wealthy people have high-paying jobs.
The truth:
- Millionaires go to college. 88% graduated with a bachelor’s degree versus 33% of the general population.
- Millionaires work for companies and not themselves. Only 18% own a business.
- Millionaires have regular jobs. Top three occupations are engineer, accountant, and teacher.
- Millionaires don’t attend fancy, exclusive universities. 79% didn’t.
- Millionaires don’t ace all their college classes. 48% had a B average or less.
- Millionaires don’t take out student loans. 68% never did.
- Millionaires don’t all have high-paying jobs. One-third never had a six-figure household income in a single working year. Only 31% averaged $100k household income a year and only 7% averaged $200k household income over the course of their career.
My thoughts:
- College is still a very good deal if done correctly. And by “done correctly” I mean the student doesn’t borrow a ton of money to get a degree that has no way of allowing them to afford paying back the money.
- This is why I focus so much writing on growing your career — because most will make it to wealth through their job and without a business.
- Teacher one of the top three occupations. Yep, you heard that right. Interesting that I have posts on becoming a millionaire teacher as well as how to get to $100k income as a teacher.
- Haha. No, most don’t go to the ritzy private schools. I went to a small liberal arts school for undergrad and a Big Ten school for my MBA.
- So if 48% had a B average or less, then 52% had a higher than B average. And probably a very high percentage had a “B average or better.” I think this is a case of trying to make the numbers say what you want them to say.
- 32% took out student loans. That’s pretty good (low). Perhaps this is a way they got to wealth — they didn’t start $100k in the hole.
- Let’s look at the opposite income numbers. Two-thirds had at least one year making $100k or more as a household. 38% averaged $100k or more throughout their career. So while these numbers aren’t as high as what we see in most of my millionaire interviews, it does seem that millionaires earn more than average. Also their “Millionaires don’t all have high-paying jobs” statement is weak. “All” of anything in a survey is never the case (I still remember seeing market research in the early 90’s saying not “all” households used toilet paper).
So yes, millionaires go to college. But they don’t attend ultra-exclusive schools that set them up for life (like those schools guarantee success anyway). They don’t have outrageous incomes and many of them start at the lower end of the income scale and work themselves up.
Don’t Make Excuses
As a wrap up to the set of myths the book puts a big emphasis on not letting excuses stop people from becoming wealthy.
Their reasoning is as follows: Now that we’ve shown the folly of these myths, it’s up to each individual to stop believing them, realize they can become wealthy, and begin to take action.
They conclude this line of thinking by noting “millionaires don’t make excuses or believe their success depends on anyone else.”
As you might imagine, I love this sort of sentiment. 🙂
That’s it for this time. To read more, check out the five attributes most common to millionaires.
Interesting review. My book arrived Monday so haven’t had a chance to get deep into it.
Thank you. Interesting review, as always ——- you are quite the teacher. Nicely done!!
Great post, love the data. This surprised me – “Millionaires work for companies and not themselves. Only 18% own a business”
I would have thought there would be far more business owners. Perhaps many like me earned their wealth working for a company and then started a business after they were successful, like many pro athletes.
This surprised me too. Didn’t the first book say the opposite that a lot gained their wealth through owning a business?
I am curious why the new research is so different than the original “Millionaire Next Door” which said most millionaires are business owners. It is odd that the narrative changed. I wonder if it is related to the 10 year bull market and the number of folks who got there through equity grants. What other hypothesis do we have here?
…As a corporate citizen I know that is how I earned/achieved my club status so I am not disputing it…I actually always thought the entrepreneur stat seemed off to me.
I suspect it’s just a matter of inflation. The average starting salary coming out of college is considerably higher now (~$50K) vs ~$30K in 1996.
Many more dynamics at play to explain this potential shift to employees reaching millionaire status today than 20+ years ago where it was more heavily weighted towards business owners in mid 90s. I think a few of the factors are the bull market run, inflation (higher salaries as you note) as per Sarah Stanley Fallaw, author of The Next Millionaire Next Door, $1M in 1996 equates to about $1.5M today. Also, 401k (and similar employee sponsored retirement plans) became much more widely accepted and implemented since 1996. Many of today’s millionaires are 401k millionaires. It would be interesting to see stats of the 10,000 millionaires surveyed how their wealth breaks down: retirement plans, real estate, cash, business equity, etc. I have the book but have not yet read it. Maybe this data is there.
I think it might just be due to inflation. It’s easier now to make a million dollars from a salary at a company than it was 20 years ago. I think if you look at those worth 10 million or more now, you would find a larger proportion own or started businesses.
Agree. The Millionaire Next Door seemed to support the opposite that more millionaires were small business owners than employees. Interestingly, I meet all the 7 of the “truths” at the time I reached millionaire status. I reached it while working for an employer (later started a real estate investing business on the side). Also when I reached millionaire status, my income at the time was less than $100K (has since gone up).
I am always impressed that teachers are usually one of the top professions that make millionaire status. It is remarkable that a group that is usually considered underpaid by most can hit this level of wealth.
I love your point about the lost opportunity to publicize the new book to millions of readers just to save $75. Some people don’t realize, as Dave Ramsey points out, that they are stepping over dollars to pick up dimes.
That’s true for social workers, too! I have a friend who always prefaces our money talks with “and you’re just a social worker”!
Discipline, consistency, continual study, creativity, and planning mark the majority of decent to great teachers. Those traits often bleed over into what it takes to properly handle your finances without making critical errors so it doesn’t surprise me that they can become millionaires despite often having mediocre starting salaries.
If my parents had stayed married and my father was not so horrible with money I’m sure my parents would have made it. As it is my mother saved a considerable nest egg after they legally separated in their 50s. She is 89 now and has enough between her pension, her savings and her paid off for many years property to take care of her until she hits about 103! She moved into assisted living in March 2018 and it is such a relief (as her trustee) to know I don’t really have to worry.
Rich people don’t deserve it is just a lazy narrative and potentially dangerous. I have seen more & more class warfare and this is the general feeling many have now.
“Millionaires don’t attend fancy, exclusive universities. 79% didn’t.” That statement makes the point that millionaires do skew towards attending fancy, exclusive universities. The number of students in fancy universities is less than 21% of the total number of students attending university.
My assumption is that smart, hard-working, people tend to get into more exclusive schools AND are more likely follow the ESI principles to become millionaires. Certainly there’s a strong correlation, but not necessary causation.
Not scientific, but I attended a fancy, exclusive university (with scholarship + a truckload of student loans). Of the dozen or so guys in my freshman year dorm hallway, representing a random sample of kids from various parts of the country and different walks of life, all of whom I’ve kept up with, we’re all multi-millionaires. Would guess median is ~$10mm, we’re in our 50’s now. In at least one case, we’re talking +$100mm. And if I extend the circle just a little bit, there is at least one billionaire. I was probably the least likely to make it, given anchoring the bottom of the family economic scale in this group… and yet, here I am. So, I agree, at least in my observation, there is a very strong correlation, not just to getting to millionaire, but getting into the upper 7-figures and above.
I heard that Fincon interview recently and had similar thoughts. It was interesting, but mostly reinforced what I’d already read in other places (including here.) The relatively low percentage of households earning less than $100k was definitely the most surprising to me.
I was pleased, but not entirely surprised, to hear that teachers were among the top professions. Educators have less professional pressure to spend for appearances (though the same marketing pressure we all face) and great retirement account options.
Thanks for the summary – the book is on my list.
I, too, just heard Chris Hogan with Paula Pant on her podcast this week. The whole time I was listening, I was thinking “This reinforces what I learn through ESI Money.” All very interesting. Thanks ESI for your unique insight.
I per-ordered this book and mine arrived this week. Will begin diving more into it next week. Nice review. I love millionaire studies like this. One of the things that surprises me is the data that most are not business owners. I believe the data from Millionaire Next Door showed otherwise, or I could be wrong. Regardless, it’s a big myth then that you have to work for yourself to become a millionaire. Just the discipline of being an employee and saving and investing consistently can get you across the line. Can’t wait to read the book.
I received the book too and glanced through few pages. One thing I noted was that 93% of the millionaires use discount coupons and shop in stores like JCP etc.
I have been doing that for a long time and some sneered at me. It doesn’t bother me now 🙂
Maybe not directly relevant to this thread entirely but I think it’s important to consider the time value of money when comparing millionaires today to those from say 1996- when Millionaire Next Door was written. Based on data from dollartimes.com $1M in 1996 is equivalent to ~$1.6M in today’s money.
Not that the approach to becoming wealthy is any different today but getting to $1.6M might be more work and discipline.
Although I listen to Dave Ramsey and have actually been to one of his live seminars, I don’t have much desire to read Chris Hogan’s book. I find the threads on this blog more entertaining and valuable.
I am curious to know if Chris Hogan himself is a self-made millionaire minus the money he’s made via book sales and Ramsey affiliation. When I research his background, it says he played college football, was a VP for a business, and holds insurance and banking certifications, which means nothing in terms of wealth accumulation. It doesn’t take away from the potential of this being a good read but typically I like to know the background of the author – are they one who’s actually done it or do they just preach it.
Same for me —— I’ve wondered the very same thing about Chris and all he’s done in the past ——- would love to see him interviewed by the ESI team ——-
Haha! I’ll reach out to his people and see what they say!
Please do!!!!! I’m serious—-
I predict he won’t reveal details of his past in such interview. He does a lot of podcasts but he doesn’t divulge details of himself. He’s a great speaker, writes good books from what I hear BUT most likely was not a self-made millionaire prior to becoming a Ramsey personality.
I’m curious as to the age demographics in this survey. As I note, through ESI’s MI interviews, many are quite young — at least IMO. We may have reached MI status sooner than I believe — however, for many years I have done a net worth worksheet, just for my own peace of mind — I never totaled it until a couple of years ago! It’s just been a comfort to see we were doing ok. Although the realities of healthcare loom before us and that is frightening still.
The one thing about millionaires is location. Living as I do in the suburbs of NYC, the cost of living is generally higher. While I, an engineer earn more than a friend I graduated with, he has a bigger home that cost less. He lives in the Carolinas. I think that is a factor. There are a lot of guys working for the NY transit system making more than I do, and they are bot management. Overtime and generous union contracts combined with many years of service help with that.
Anyway, it was easier for me to grow my net worth north of $500,000, and my wife as well due to the higher salaries in our area. The trick was saving it. Lifestyle inflation is a factor in high earners having lower net worths. A lot of high earners in my area lost homes when they lost jobs in the 2007 -2008 downtown. I was lucky in that I had a low salary when I was in the Air Force, and a then lifestyle inflated when I was still young and single. I settled down after a few years and have since lived within my means. In all fairness, my wife has always been a great saver. She was not a great investor. It wasn’t until she met me that I applied standard investment advice to her savings which were like 90% cash and bonds when she too was young and single. I made those changes with her near the bottom of the 2008 market, and this bull run has been good to us.
Nice book review! I think in some ways the Scale Interviews help to dispel these myths. You get to see a range of net worths as they are growing. You get to hear people talk about the discipline they are practicing and how they are working (struggling) to become millionaires and gain independence.
“We’ve only had one or two of our Millionaire Interviews where the person has received a sizeable inheritance as part of their wealth. It’s just not that common. Sure, when some famous rich person passes on their wealth it hits the news and makes this seem more frequent, but in reality, it isn’t that common (just like the average millionaire isn’t a flashy person living in a 10k square foot house and driving one of seven $100k cars — which is also an outdated stereotype).”
This would be confirmation bias. I would think that most people who come into significant wealth via an inheritance are unlikely to be people who read much in the way of personal finance blog given their life experience. Thus, they just aren’t your audience. So while they are a smaller percentage than self made millionaires, they are likely under-represented here.
If you read that comment above, it is made in support of their findings (which includes 10k millionaires and is not any sort of bias) that millionaires did not inherit their wealth.
In other words, their data finds that millionaires don’t inherit their wealth and my findings simply support that.
BTW, when I do my summaries using only my data, I generally note that the findings are only of blog readers and not scientific.
I’ve met, worked with, and gotten to know quite a few millionaires (ranging from everyday millionaires to mega-millionaires) over the years – literally hundred’s – once you’re in that realm, you tend to work, socialize, and live within those circles (at least in my case). While I don’t know all the details about every one of them, it at least provides some observations for which I readily admit may be biased by my coastal big city-dwelling, MegaCorp, perspective. With those qualifications and caveats out of the way…
By and large, most of the millionaires I know have not relied directly on a cash inheritance to achieve their success – usually the success comes first and if there is an inheritance, it’s icing on the cake. But, that is not to say that they did not receive certain indirect benefits from parents and family, whether that be attending the best grade schools, fully paid-for college and grad education, networking to get that key internship or first job, help with down-payment on a house, help with starting up a new business or taking over a family business, living rent free in dad’s other house, etc.
Basically, the assistance received long before inheritance is far more meaningful than the inheritance itself – in most cases. That in no way is meant to begrudge anyone their success – by and large millionaires are the most productive people on the planet. But, let’s not kid ourselves either. Good fortune plays a very important role in success, whether its being born healthy and intelligent, or getting lots of parent help along the way, or just being born in an economically growing region with plenty of good jobs.
When these studies say that most millionaires did not “inherit” their wealth, I take it with a grain of salt. I feel like its waved around because it fits the narrative of earned wealth. Anyone could do it if you just follow these steps… true and not quite so true.
Many conversations I have had with millionaires that go something like… “I earned everything I have ever received, I never got any help from anyone, blah blah blah…” this coming from people who’s parents were doctors, lawyers, bankers, accountants, engineers, teachers, etc. [insert eye roll]
It’s no coincidence that coming from a stable, supportive, educated, economically advantaged family is going to increase one’s probability of economic success by orders of magnitude.
Have to take exception to this comment. When I say that I have earned everything that I have, I DO mean everything: my grandfather was a house painter (fifth grade education), my father was a steelworker. I was a bus commuter student to a public university in my home town right through graduate school. Paid for my own tuition, books, bus fare, etc by working as a painter, roofer, busboy, waiter, landscaper, boat washer, funeral home baby sitter (greeted mourners at funeral wakes). This was not unusual for the area I in which I grew up, which was an especially blue collar area in a largely blue collar city. If you weren’t a cop or a firefighter, you worked in the refinery or chemical plant or steel mill or car plant. Just the way it was. I agree that “coming from a stable, supportive, educated, economically advantaged family is going to increase one’s probability of economic success by orders of magnitude”. However, that was not me or anyone I knew, except for the ‘stable and supportive’ part. Loving too. But you know what? I wouldn’t have had it any other way.
I think the fact that a low percentage of millionaires had student loans is more of a generational variable. If the average age for millionaire status is 49, then those millionaires likely went to college before college expenses became so over-inflated. Both of my parents worked their way through college, but with college costs today, I was unable to do that even with some large scholarships. Not that it can’t be done (I know several who managed it), just that it’s significantly harder in today’s college environment. I suspect though, that many will still make it to millionaire status, it just might be delayed some because they start with a negative net worth due to student loans. 20-30 years from now i would predict that a higher percentage of millionaires will say that had student loans.
You should do an article on “What are the strangest things millionaires do to save money” etc… like reuse plastic cups etc…
Hahaha…may be coming.
My wife and I shopped at Goodwill and thrift stores for most of our kids clothes when they were young, up to and past our net worth million dollar mark. I still like stopping in such places now and then as once in a while you can find a steal.
We are doing exactly the same for our three under fivers?
Doing so we saved a fortune for their 529?
Assuming the set of millionaires being referenced are those in the low single digit net worth levels, then the conclusions cited in the article are very valid, IMO. Because I like speaking my mind, a couple of comments:
– I do think a significant subset of millionaires have an advantage whereas they were taught the value of discipline, good money management, investing in education, etc. at an early age. They were taught by parents and/or mentors that set good examples on how to achieve millions through ESI’s principles. Positive influences/examples at an early age is a very big advantage, IMO.
– Perhaps this isn’t common but I suspect inheritance will be a factor in producing next generation millionaires if my very limited span of peers/elders indicate. Parents in thier 80s/90s who follow ESI will likely still have millions upon their death. Their prudent ways through a lifetime of living this way will likely leave them with a legacy that will be given to their children, who are already in their 60s. Assuming those kids also follow the ESI way, they will already be single digit millionaires and will simply tack on that excess wealth to what they leave their kids. Not sure how the 3rd generation will fare as some parents tend to spoil their kids and I’ve read there have been some studies that that generation pisses away their wealth … oh well.
Interestingly, in my experience… ESI parents do not always have ESI children. There is no logic to it other than, people are born with their own personalities, capacities for learning, etc. Personality disorders and substance abuse also play a factor…. someone who has a drinking problem, a coke problem, a gambling problem, etc. is not going to emulate an ESI parent, and an inheritance will be wasted on them.
Don’t get me wrong, I am happy that my ESI in-laws imparted their ESI ways on my wife, who in turn taught me the ESI principals. Just saying that its not consistent across families… there is no predicting purely from parents.
This is unfortunately true. My sister and I are opposites on the issue in spite of both of our parents being ESI. I’m the saver, she is not.
Understand. Thanks for pushing me out of my own little echo chamber world.
Actually, I agree with much of what you stated. It is absolutely true that ESI parents will pass along some very significant inheritances and it will certainly provide a boost to those adult children nearing retirement. I was only making the point that ESI parents don’t always correlate to ESI kids – seems to usually end up being a mixed bag of Productive ESI’s and Lazy Spendthrifts.
One more point to consider is that eldercare and end of life costs can eat thru assets faster than you can say boo, especially nursing home care. Yes, I know everyone is planning to age in place, but sometimes this is simply not feasible and aging in place can also be costly when in-home assistance is needed. The costs are beyond shocking in a worst case situation. If you have nothing, govt pays. If you have some monies, they take it all.
Would love to see articles on techniques millionaires shelter/protect assets so there is something left for next gen.
Painfully true . . . in fact, I’m the only surviving member of my original biological family with more than a shred of financial sense, if not exactly ESI. VERY strong on S and I, but I prefer time away and quality of life to the big hustle and it’s questionable non-financial payoffs. My father was very prudent and wise financially; paid cash for every house and car he owned, assisted his three sons with public university educations (all B.A.’s, one from WSU, the other two UW), then one of his nieces. Electrical Engineer, pension, actually profited from the divorce despite a total split down the middle. His ‘ex’, a decent wage-earner (nurse) but unstable mother squandered her share of the property thanks to sweetheart deals with some relations, then developed a gambling problem later in life, costing her somewhere around 200k. Oldest brother of mine, a functioning alcoholic; makes 50k or so a year, but also a gambling degenerate with virtually no savings to show for his many years. He’s been beaten up before, for his debts, spending other people’s rent money and so on. I stay the hell away from both, now living together in an over 55 apartment complex, not too far from another dirty casino of course. The middle brother, recently deceased, succumbed to alcoholism and other mental issues. Even my father, who quickly sold his portion of the property in five-acre tracts, post-divorce (80 acres to each), wisely investing instead (vs. gifting them, further subdividing, or heavy spending), did get a little bad advice . . . two fully-loaded hotshot mutual funds, actively-managed, both taking a bitter dive during the Great Recession, knocking his war chest from 1 million down to 800k, just before passing. If I only knew then what I know now . . . nevertheless, his three sons received approx. 190k each. My older brothers immediately bought properties (one a house, the other a condo) neither one could afford. Two years later, they had exactly nothing remaining of their inheritances, or their ‘investments,’ basically back to renting and wage slavery. Mine lasted five years . . . I survived the Great Recession without working a single minute, mostly not by choice. Different ambitions in this skull, obviously, but I recognized the severe danger I couldn’t fix regardless. Scary times . . . I look back now and think, wow, that inheritance saved my life, because I certainly WAS aggressively looking for work both during and shortly after the trough. By the time I managed to start working FT with copious benefits and perks, the 190k was gone, of course, barring a whole load of books and ‘toys’, antiques and collectibles, furniture, clothing, DVDs and CDs up the yin yang, all of which are still with me, down to the last item. A materialist, without apology, but the eleven years of steady work and investing have really paid off. Bought a sensible, foreclosed home about four years ago, so building equity. Traditional IRA gets maxxed out (7k), and then I just opened a Schwab brokerage account yesterday. Virgin Galactic ‘vanity’ stock, mostly for fun, then VTSAX. The IRA, strictly VGSTX, directly from Vanguard. Seven percent of gross plus a 5% match by my employer go into a 401(k), 100% vested, S&P 500 fund. Had it up to 28% (plus 5%) just a few months ago, but instability at work convinced me that I need major buffers via cash protection. Full steam ahead with yesterday’s paycheck, budgeted down to the last penny, fully allocated within 12 hours of receipt. How I roll now, but like I said, the only one in the family, at least living . . . financial sense doesn’t necessarily pass by osmosis or through observation, obviously; I strongly believe you have to see the light by your own eyes. That same ‘sight’ has kept me the hell away from marriage, joint finances, or having kids also; strictly LTR and DINK house play with the gf. Certainly not for everyone, but then who am I living for? Myself and her . . . no one else can be trusted.
Great post appreciate the review. I don’t have much insight on being a millionaire (not yet anyway, give me a few years ??) However the findings make sense- it all boils down to being intentional with everything, working, saving and investing. The tools/resources of today (index investments, 401ks, and things like the internet) let you learn and eventually participate in things that lead to wealth creation.
Excellent post!
Esi- I had a question for you and the community on a potential investment and I’m seeking advice from all of you .
I’m around 30 and my parents are in their mid 60’s.
Question is around collaboration with parents on a real estate investment in 300k range.
My father and I are close and he’s nearing his retirement age where he wlll quit work. He and I are thinking of investing in buying a rental property in cash.
The property would be in my name however my dad will contribute in the ratio of 2:1. So for a sample 300k investment, he pays 200k while I pay 100k. However, the proceeds and all profits of real estate rental unit will go to my parents until they recover their investment. Basically I won’t get a return till approx 13-15 years.
After they recover their initial investment, all profits of rental will be split 50-50 and not 2:1. Eventually and at some point, I’ll own the property completely.
What are your thoughts on this arrangement? Is it worth investing in something like this versus the stock market? Any modifications you’d suggest?
Thanks in advance!
Zero interest in any type of partnership of any kind for me. Solo acts for me only.
Going in business with your dad is good way to invite problems —— at this point in your life, step out on your own and start small —- use your time with your dad to seek advice and mentorship —— leave his and your money in two separate pots ——
I’m one of those 60 yr olds and I have 2 boys in their 30s —— they’ve wanted to do the same with me and although I have entertained this idea, I’ve simply pushed back and took a more simple role —- one as a loving advisor.
Both of my boys have had rental homes for almost five years and both have built a very nice nest egg —- NW is growing for both —-and, I’m still inviting them to my home for holidays because we didn’t mix and blend our money.
This is just my opinion and I’m sure there are plenty of success stories out there —— just not going to happen here.
Good luck —— just take your dad fishing and let him dream with you.
Not a whole lot of new information, though some of the dynamics between books has changed.
I did not inherit any money. I work my butt off for the salary I have earned.
I am an overly conservative investor (compounding and consistently increasing my savings are key).
I attended a public university and was a low B student.
I never read any of the Millionaire books.
I take personal responsibility for everything I do.
No magic formula.
Great post. Love this. “The Millionaire Next Door” is one of my all-time favorites.
Seems to me that the bottom line is this: Millionaires save a big fraction of their income. Reminds me of the FIRE articles on the savings rate being the only thing that matters. Save more, retire earlier. Love it.
Great stuff.
DeForest
Thanks for the review ESI.
One thing I find interesting; I saw “wealthy” and “millionaire” interchanged freely throughout above. Our society seems to have the impression that having a million dollars means you’re rich or wealthy.
My wife (teacher!) and I are technically retired millionaires (nest egg ~$1.2million) but we feel far from wealthy (at least our image/definition of it). Not that I’m complaining!… we live well and want for very little.
I realize it’s a matter of semantics and definition but consider this… while we are lucky to have pensions that make up almost half of our spending, a couple that has a million dollar nest egg should really only be drawing down ~$40k per year. We would not consider ourselves wealthy or even comfortable trying to live on that. I doubt anyone in that situation would consider themselves wealthy or rich in any way.
There’s nothing easy about amassing a million dollars. It takes all the tenets of ESI over many years; all of which we practiced on our way to retirement. However, it may be time to stop considering someone that has a million dollars as having “made it”. It simply doesn’t carry you very far these days.
This is a good comment. Until I reached $3M net worth, I never really felt ‘wealthy’. Even now I still shop at Wal Mart and Target, cut coupons when I can, check clearance racks. Why not? It helped me get there. I’ve read many articles where many say $3M is the new millionaire level due to inflation. This would be a good question to ask self made millionaires – at what level of net worth did you feel “wealthy”?
To me, wealthy is when you no longer “have” to work as the income from your assets/wealth covers your living expenses plus some.
I will say that I’ve read this comment and agree with it – the first million is the hardest.
Yes. Inflation has devalued the millionaires of today compared to just a couple decades ago. No doubt. I’m not quite at $3M yet but for my lifestyle I’d say that’s a good number for me too… be there soon enough I hope.
Good luck with your journey to $3 mill. That potentially gives you a $120k a year draw. That allows for a pretty high standard of living esp. with little to no debt.
Could be a fun blog/poll/question to see what folk’s definition of wealthy is… what do you think ESI ??
I’d like to see this poll too. I’ll start. Mine is $3M net worth PLUS a paid off home in the place I want to live out my dying days. This is the BOTTOM threshold for me. I use a 3.2% SWR ($8k/mo.) which was derived based on a couple of online Monte Carlo market simulation calculators. Already there but still don’t feel that wealthy and am still working.
I doubt there would be much consensus on the definition of wealthy.
A few years ago, a retired NYC school teacher pal sent around an email rant about how the “wealthy” (obviously not referring to himself) should pay more taxes. This same person and his wife are retired teachers with pensions (figure ~$2mm capitalized value) who own and live in a brownstone worth at least $3mm (purchased for ~$50K back in the 1970’s, DIY restoration, no mortgage), which also generates about $30K in annual rental income. And knowing how insanely frugal this guy is, I wouldn’t be surprised if there was at least a $1mm savings nest egg. So, who are these “rich” people he’s ranting about when his NW is probably +$6mm?
Of course, he’s ranting about the high-income lawyers, bankers, and techies who have invaded his neighborhood – people who mortgage themselves to death to acquire $5mm townhouses and send their kids to grade schools that cost as much as private universities.
But, I’m thinking, this guy is “wealthier” than most of his yuppy neighbors… retired in his 50’s and didn’t have to kill himself working 80 hours a week in some endless soul-less MegaCorp gig. My pal doesn’t think he’s “rich” because rich is always the next guy who seems to have a bit more.
It’s all perspective.
Personally, I didn’t begin to feel “wealthy” until I broke $5mm NW and that is when I realized, I did not actually need to work if I really didn’t want to and could still have a pretty nice lifestyle. But, I know a lot of people with a lot more than I have, so it doesn’t feel “very” rich.
So, yet again, its all perspective.
P.S. My pet peeve when it comes to defining “rich” or “wealthy” is when people with pensions don’t capitalize their value in talking about NW. IMO, a defined pension benefit is a hugely valuable asset, often worth at least $1mm once fully earned & vested.
Further to this existential question of when does one start to feel wealthy…
My personal experience was that it goes beyond simply reaching a NW figure.
I began to realize the power of wealth is in the resources it gives access to.
For example, realizing I could come up with $1mm cash in a matter of days was a bit of a revelation. So, if I see a worthy investment oppty I have ways to take advantage of it.
Realizing I could get laid off from my job and be like… ok whatever folks… now that feels rich.
Realizing I have a valuable network of wealthy friends and acquaintances that I can leverage for advice, contacts, jobs, capital raising, and charitable fundraising has been very beneficial and empowering, and has allowed me to help others – connecting them to potential employment or start-up capital.
Realizing that I have the means to help younger and/or less fortunate friends/family at critical junctures in their lives feels good – though have to be very careful to avoid creating dependencies.
Knowing that I have the means to tackle just about any potential personal or family crisis, helps me to sleep better at night.
And then there are the little (and sometimes big) luxuries, like cars, vacation homes, etc. I don’t always fly first class, but I love knowing that I could well afford to.
Having options and choices is perhaps the greatest benefit of wealth.
Money doesn’t fix all the potholes, but it certainly cushions the ride.
MMiguel- I agree with you except for a tiny bit at the end. I don’t think that NW alone can be used as a mechanism for determining what you need to retire… or that a pension is has an real equivalent NW value. But I see what you were saying wrt your example NYC teacher!
Pensions often times go away when you die- so capitalizing that for NW isn’t usually accurate IMO…. that being said cash flow is very important and that’s what you get from a pension.
Maybe this is why everyone debates whether or not NW should include your primary home or not (although you could use a reverse mortgage for generating cash flow). I personally see NW as including primary home/all assets but I know what part of my NW contributes to cash flow and what doesn’t. Like I would never include any SS payments capitalized as part of my NW but I assume it will contribute to my cash flow when I retire.
Good food for thought… you totally got me on the social security point (that you would not capitalize and include in NW). Clearly, as you stated, NW is not a great retirement planning tool, its just a measuring stick.
I do look at my pensioner friends and family though as synthetic “millionaires” even if they don’t have a dime in the bank and it bugs the heck out of me when they complain about “the rich” because I will never have a 100% guarantied income stream (other than S.S.) unless of course I buy it (e.g. annuity).
I think its time for me to find a job with a nice pension.
I like that! “Synthetic Millionaires”.
I hear ya 100%. I have a good friend that graduated from the same college as I- both of us were in engineering. Our careers took separate paths.
I worked in the private sector all my life- he worked for the federal govt. Overall I made more but he has nice “benefits”. He has a 401K match that was amazing, he has a pension, he gets same healthcare when he retires (cheap too), and he’s hourly and can’t work more than 40 hours/week. His pension gives him 1% of his highest paying years, per year worked. So let’s say he get 35-40% which will like be over $50K/year. That’s equivalent to about $1M+ I’d need to generate that cash/year. He gets full SS when he retires too. Lots of other nice perks as well. As you know there are much better pensions out there as well paying up to 80%!!!
Bottom line his NW isn’t the same but cash flow might be close. I guess the benefit I have is if I don’t burn all my money I can leave more to my kids and/or charity… pensions don’t do that. ;). But yeah- I’d like to have a pension too! Just for a little extra security/cash flow!
Excellent thread guys, both Daves and Miguel. Very informative, and totally related to the topic, in disecting, and analyzing said discussion through various lenses and scenarios. Thank you guys. I learned a lot from your comments.
Thanks Dean J,
One other major advantage to pension income/assets I forgot to mention is the way in which it is completely sheltered from any type of litigation or personal liability. In other words, you can get sued and/or hit with judgements that could wipe out your NW, liability insurance aside. Pensions, however, are untouchable. Having restructured a number of failed businesses in a past career, I can say that from experience… would always find the top exec’s had padded their pension plans very nicely… completely beyond the long arm of the law no matter what else they were guilty of. That plus they would always transfer assets to wife and buy very expensive homes in Florida… check it out, Florida has some very special homestead protections… but now I’m diverging.
I’ll add it to my list!
I think summarizing results to your MI interview questions regarding target net worth would be a good start and a teaser to get more input. I’ve informally polled some of my peers and have seen a range and the comments above indicate the same. What would be most interesting is the justifications of their target.
I love these everyday millionaire articles. I was so proud to see engineers as the No. 1 profession for millionaires. I myself am a 44 year old engineer approaching $2.0M net worth. Best thing my parents gave me was an education (tuitons are much cheaper in Canada). Graduating without any debt is a huge leg up (I stayed at home and started paying rent when I graduated – moved out 6 months later). That allowed me to start saving $1200 per year in my RRSP from day one.
As someone who has a NW in the north of $5+MM, I think I can reasonably opine on some of the keys to getting there.
1. Company savings plans ( 401k’s and the like). Anyone who does not, at a minimum, contribute at least up to the company match level is screwing over their future. I cannot tell you how many employees I have managed over the years that just make one excuse after another as to why they cant or wont participate. Every time I hear them say, ” I don’t make enough to contribute” while holding a double half-caf, mocha-shmoka chestnut grande from the local Starbucks, I cringe. I guarantee this much. If you do not contribute as aggressively as humanly possible, no amount of blogs, podcasts, books,. stock tips, lottery tickets ( another excuse for why dimwits don’t participate in savings plans), etc. will save you from living hand to mouth. If you are 25 and figure –eh, why put away money that I have to wait 35 years to access, you will be very surpised how quickly those years pass. Congress allowed the 401k loophole -that is what is actually began as–because they knew that social security plus a reduction in the number of retirees that would be covered by defined benefit plans in the future spelled big trouble and so allowed for these plans to grow from $2000 per year max to $25,000 + ( for the over 50s) plus the match that is now more common than not. An absolute no-brainer
2.. Using debt wisely: I went to state schools and graduated with zero debt. Although I married into student loan debt, my future wife had gone to an elite graduate school to study law. At the time, such graduates were in high demand–her starting base salary was equal to the total amount that she had borrowed–in today’s numbers, that would be over $150k, and as such, the debt was seen not so much as a burden but as an investment with a high ROI. Unless you can be reasonably sure that you can graduate and enter the workforce with such prospects, I would say to stick with the public universities. In any case, don’t spend 4 years getting wasted–use the time to broaden your horizons, and by all means, don’t piss away the summers doing nothing.
A mortgage to by a home is fine. But resist buying your home because you think it is an investment. Too many people think that they can time the real estate market only to find out that they have bitten off too much and become slaves to their houses. If you are sure you will be in one place for at least 7 years, you will usually be fine as this gives you time for volatile markets to smooth out. Any shorter timelines and you are playing with fire
3. Time. You cant do this in 6 months, unless your Uncle Jed Clampett drops dead and leaves you an oil field.