Since the goal of most readers of this website is to achieve millionaire status, I thought it would be nice to remind the Moose world who the millionaires are and how they get there.
If you want to be rich, it makes sense to understand what the rich do! Thankfully Dr. Thomas Stanley, of The Millionaire Next Door fame, tells us in no uncertain terms. He's a university professor who has researched, interviewed, and collected data from thousands of millionaires in America. Although his books are older, they could not be more relevant and are worth a read.
The biggest factors that Stanley nails over and over is regarding the ordinary lifestyles of true millionaires. They're generally plain, hard-working, married people who spend frugally, buy quality durable goods and keep them forever, live in modest houses, and do cheap things in their free time.
When most non-millionaire people think millionaire, they think TV millionaire. Like the Real Housewives of TV-ville crap. Jet set vacations all over the world in first class. Possibly a yacht. Random and regular shopping sprees dropping thousands without question. Hard-working men who are never in the picture. Women who "run businesses" but never seem to be working. A massive house with Jacuzzi tubs, in-ground pools, outdoor kitchens, marble bathrooms, amazing views, and everything new and shiny. At least one vacation home that's equally jaw-dropping. Several European luxury cars. Lots of Botox with strategically placed silicone. Frequent lunches and dinners in high-end restaurants. Bar nights with bottle service.
There's really only one word that sums up these views: Bullshit!
First though, it's important to distinguish two very different forms of wealth. The first is an illusion: Income Statement Affluence. The second, real wealth, is Balance Sheet Affluence. These terms are borrowed from Dr. Stanley.
The Income Affluent are much more likely to live Real Housewives type lives. These tend to be people who earn lots of money, but have a net worth which is severely lacking relative to their incomes.
They spend just about everything they make (or more in some cases), they are often swimming in debt, and they want everyone to believe they are rich.
It's typically not hard to identify these types. Income Affluent's are high income individuals: doctors, lawyers, business owners, business executives, public service managers, and high performance salespersons. They go on pricey vacations, they drive nice vehicles, and they live in big houses.
High incomes combined with too much TV fiction plus a dose of "keeping up with the Jones" is a contagious phenomenon. It's especially intoxicating when you earn lots of money because it's easy to kick the savings can down the road when you make a couple hundred grand a year.
If you are earning $250,000 a year as a doctor, why save now? It's easy to scrape together a few million for retirement once you get into your 50s. You just spent years slogging through med school and living poor, your coworkers all drive Audi's, your old high school buddies expect you to live the part of a doctor, so what's the harm in having fun?
Well this is exactly why you see doctors shuffling around hospitals in their late 60s and into their 70s. It's why lawyers never seem to retire even though job satisfaction in the legal profession is low. It's why salespeople with all the toys and nice houses suddenly drop off the map after a divorce or industry downturn.
It's also why you see houses in high-end neighbourhoods (especially newer areas) placed for sale with prices cratering every recession. Isn't it strange that "rich people" sell houses at a discount?
Income Affluence is an illusion of wealth on a grand scale. But it's also pervasive and it's only getting worse. Debt fueled spending in Canada has soared to heights never seen before. It's not just the Income Affluent, it's also the average income earners who get sucked in and want to live like the Income Affluent.
Balance Sheet Affluent
Real millionaires are people who have a net worth greater than $1 million – the Balance Sheet Affluent. This is regardless of income. Everyone in Canada, yes everyone, has the potential to be a millionaire.
It's just a matter of discipline, time, and putting your money to work for you. Easier said than done? If as a household you only earn $35,000 a year, you can be a millionaire by age 65 by putting away 15% of your income each year. Of course it might not make sense to save that much at this income level... but it is still possible.
Basically everyone in Canada has the opportunity to earn more than this. Many skilled trades pay at least $25-30/hr ($50,000+ annually). Many sales positions offer the same to a motivated salesperson. Likewise for mid-level public service positions. Retail management, ditto. Seeing an opportunity and building a new business is always a viable option.
Sure, the more you earn the more likely you are to become a millionaire quickly, but high income is only one factor. The point is people don't become millionaires by spending all their money on stuff like the TV "millionaires". They become millionaires because they don't spend lavishly. They save and invest and get rich over time.
This chart here shows what your minimum Net Worth should be relative to your income and year's worked. Time is the path to millionaireism!
The millionaires recorded by Dr. Stanley in 2000 had an average net worth of $9.2 million! They had an average income of $750,000. But despite high incomes and a high net-worth, Stanley's millionaires tend to live in homes worth $1.3 million for which they paid just $550,000. They stay in the same home for decades! Very few spend more than $41,000 for a vehicle or $4,500 for an engagement ring.
Dr. Stanley targeted millionaires in neighbourhoods with high concentrations of millionaires, but this doesn't reflect the national average.
The average millionaire household in the U.S. is worth $3 million and earns just $150,000 a year. Their wealth is mostly self-generated with just 20% receiving a meaningful inheritance. They live in a house worth less than $300,000. They drive domestic vehicles like Ford, GMC, and Cadillac. They shop at Costco, Walmart, Home Depot, and Target. They do a shopping list before heading to the store to limit their buying and increase speed. They don't buy things on loan, including vehicles. They spend time entertaining family and friends at home instead of patronizing fancy restaurants and clubs.
Millionaires also tend to be married to the same person for decades. They identify factors like honesty, self discipline, relationship building, calculated risk taking, and supportive spouses as key factors for wealth. Good grades and attending a high-ranked college are not important.
The most likely way to become a millionaire is to start your own business in a niche, profitable industry segment. Approximately one-third of millionaires are business owners! Business owners are easily the most likely to become deca-millionaires (net worth of $10 million or more).
Thanks to higher taxes and a less business friendly government and regulatory system, it is bit harder to become a millionaire in Canada than the U.S.. While nearly 7% of U.S. households are millionaires, just 3.1% of Canadian households are millionaires. Nearly half of millionaires in Canada are first-generation Canadians. Approximately one-third of millionaire households in Canada are driven by female-sourced income. Gender, colour, and language are no longer significant barriers to wealth.
The best place in Canada to become a millionaire is in Alberta. Albertans have higher than average incomes, net worth's, and portions of their net worth in financial assets when compared to the rest of Canada. Not surprisingly, Alberta has lower taxes than other provinces relative to household income.
Like Dr. Stanley found, becoming a millionaire is not impossible. It takes honesty, discipline, and smart risk taking. When you combine these factors with time and a supportive family or community environment, it is within reach of anyone!
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