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March 16 - March 17, 2021
Not at any time during the past thirty years have I found that the typical millionaire had more than 30 percent of his wealth invested in publicly traded stocks. More often it is in the low-to-mid-20-percent range.
Seiko (number one among millionaires).
Even most multimillionaires in America don’t live in expensive homes.
The large majority was keenly interested in being financially independent.
Countless millionaires have told me that the journey to wealth is much more satisfying than the destination.
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, not what you spend.
Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.
Eighty percent of America’s millionaires are first-generation rich.
seven common denominators among those who successfully build wealth. They live well below their means. They allocate their time, energy, and money efficiently, in ways conducive to building wealth. They believe that financial independence is more important than displaying high social status. Their parents did not provide economic outpatient care. Their adult children are economically self-sufficient. They are proficient in targeting market opportunities. They chose the right occupation.
Big Hat No Cattle
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.
What would be the ideal occupations for our sons and daughters? There are about 3.5 million 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.
Conversely, those people whom we define as being wealthy get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.
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.
Given your age and income, how does your net worth match up? Where do you stand along the wealth continuum? If you are in the top quartile for wealth accumulation, you are a PAW, or prodigious accumulator of wealth. If you are in the bottom quartile, you are a UAW, or under accumulator of wealth. Are you a PAW, a UAW, or just an AAW (average accumulator of wealth)?
We have developed another simple rule. To be well positioned in the PAW category, you should be worth twice the level of wealth expected.
No, Victor wants his children to have a better life. He encourages them to spend many years in college. Victor wants his children to become physicians, lawyers, accountants, executives, and so on. But in so encouraging them, Victor essentially discourages his children from becoming entrepreneurs. He unknowingly encourages them to postpone their entry into the labor market. And, of course, he encourages them to reject his lifestyle of thrift and a self-imposed environment of scarcity.
Being frugal is the cornerstone of wealth-building. Yet far too often the big spenders are promoted and sensationalized by the popular press. We
Most millionaires never earn one-tenth of $5 million in a year. Most never become millionaires until they are fifty years of age or older.
All too often young people are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.”
stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.
They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.
More than half of the nonbudgeters invest first and spend the balance of their income. Many call this the “pay yourself first” strategy.
QUESTION 4: DO YOU SPEND A LOT OF TIME PLANNING YOUR FINANCIAL FUTURE? For every 100 millionaires who answer “no,” there are 192 who answer “yes.”
On average, millionaires spend significantly more hours per month studying and planning their future investment decisions, as well as managing their current investments, than high-income nonmillionaires.
To build wealth, minimize your realized (taxable) income and maximize your unrealized income (wealth/capital appreciation without a cash flow).
Perot… minimizes his tax bill by investing heavily in tax-free municipals, tax-sheltered real estate, and stocks with unrealized gains (Tom Walker, “Perot’s Tax Rate Is Lower Than Most, Magazine Says,” Atlanta Journal-Constitution, Dec. 30, 1993, p. 1).
It’s easier to accumulate wealth if you don’t live in a high-status neighborhood.
If you’re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income.
THEY ALLOCATE THEIR TIME, ENERGY, AND MONEY EFFICIENTLY, IN WAYS CONDUCIVE TO BUILDING WEALTH.
PAWs allocate nearly twice the number of hours per month to planning their financial investments as UAWs do.
In fact, among all major high-income-producing occupations, physicians have a significantly low propensity to accumulate substantial wealth. For every one doctor in the PAW group, there are two in the UAW category. Why are doctors lagging behind on the wealth scale? There are several reasons. Foremost among them is the correlation between wealth and education. This relationship may surprise some people. For all high-income earners (those earning at least $100,000 annually), the relationship between education and wealth accumulation is negative. High-income PAWs are significantly less likely
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Doctors and other well-educated professionals get a very late start in the earnings race. It is difficult to accumulate wealth when one is in school. The longer one stays in school, the longer one postpones producing an income and building wealth.
Begin earning and investing early in your adult life.
Doctors often allocate large amounts of their time to serving patients. They rarely work fewer than ten hours a day, thus expending most of their time, energy, and intellect on patients. In so doing, they tend to neglect their economic well-being. Some doctors figure that working hard translates into a large income and that, therefore, there is no need to design a household budget. Some ask why they should waste time planning a domestic budget and investments when there is so much income to be made. Many high-income-producing UAWs feel this way.
Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.
Even when I was eleven years old, I saved my first $50 from working in a grocery store. It’s just like today… only today the number of zeros change…. More zeros, but it’s the same rule, same discipline.
The parents funded their children’s college educations as well as their graduate school and law school tuition and fees. They also provided them with funds to purchase homes and for related expenditures. The Norths paid for these expenditures out of investments that they set aside for their children.
How much is the Souths’ $30,000 clothing purchase that they made last year worth today? How much will the $7,000 vacation they recently took be worth tomorrow? How much value is there remaining from the more than $40,000 they spent last year for country club-related expenses? Add to these gourmet restaurant patronage, maid services, tutors, lawn care/landscaping services, decorating consultants, insurance, and more.
Dr. North and PAWs in general, on the other hand, allocate their spare time to activities that they hope will enhance their wealth
Dr. South is penny-wise, pound-foolish when purchasing motor vehicles. But he has convinced himself that he is a prudent buyer. After all, he spends much time and energy trying to buy cars at or near dealer cost. But perhaps dealer cost was too high a price to pay. It is difficult to accumulate wealth if you spend much of your time, energy, and money for a so-called dealer cost price on an extremely expensive motor vehicle.
Dr. North proudly informed us that he purchased his most recent automobile six years ago. We anticipate your question: Do you mean he has not purchased a new automobile in six years? Not only has Dr. North not purchased a new automobile in six years, but the one he purchased six years ago was a three-year-old Mercedes-Benz 300 that he bought for $35,000.
UAWs worry more than PAWs.
UAWs tend to produce children who eventually become UAWs themselves. What is expected of children who are exposed to a household environment predicated upon very high consumption, few—if any—economic constraints, little planning or budgeting, no discipline, and pandering to every product-related desire?
having adult children who think his wealth is their income. having to support his adult children financially.
Having adult children who are UAWs greatly reduces the probability that their parents will ever become wealthy!
Planning is typically found to be a strong habit among people who have a demonstrated propensity to accumulate wealth. Planning and wealth accumulation are significant correlates even among investors with modest incomes.
middle-income PAWs spend an average of only 8.4 hours per month planning their investments. This translates to about 100.8 hours per year. Given that there are 8,760 hours in a year, PAWs allocate approximately 1.2 percent of their time planning their investments.
Nearly all (95 percent) of the millionaires we surveyed own stocks; most have 20 percent or more of their wealth in publicly traded stocks. Yet you would be wrong to assume that these millionaires actively trade their stocks. Most don’t follow the ups and downs of the market day by day. Most don’t call their stock brokers each morning to ask how the London market did. Most don’t trade stocks in response to daily headlines in the financial media.
Overall, only about 9 percent of the millionaires we have interviewed hold their investments for less than one year.
