How We Compare to the Millionaire Next Door

house-car-vintage-oldI recently read an article on the Millionaire Next Door written by Thomas Stanley and William Danko. The article speaks to the general population who thinks that millionaires own expensive clothes, watches, and other status artifacts. What is interesting is that they found out that this is not the case. And in that article, they listed what a prototypical American millionaire would tell about themselves

I thought it would be a fun exercise to see if my wife and I fit in the general profile of what a prototypical millionaire would be like. So, here it is:

THE MILLIONAIRE NEXT DOOR ME
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. I am 53. Married with children. Before my wife retired, we were earning almost the same 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. I want to work for 2 more years. I don’t own a business nor am I a highly-paid professional. I used to earn a decent income as an employee in the IT industry.
Many of the types of businesses we are in could be classified as dull normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors. I am employed in a non-profit organization. I am a former IT professional.
About half of our wives do not work outside the home. The number-one occupation for those wives who do work is teacher. My wife is retired. She used to work for a retail company as an analyst.
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. Our current household income is roughly $40K. In the height of our careers, we used to earn $110-$130K per year.
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. We have a net worth of roughly $2.1 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. We live on 3% 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. We own our own home with a current value of around $1 million. We have our current home for 11 years now.
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 never felt disadvantaged about not having inheritance nor being the middle child. Yes, we 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. I drive second-hand Japanese-made cars. They are well-built and lasts a long time. I never lease cars.
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. Yes, my wife is a lot tighter on spending than I am.
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. Yes, we have a “go-to-hell fund” of roughly 18 years worth.
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. My wife and I hold bachelor degrees.
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. I attended a private school while my wife attended public school when we were growing up.
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. Yes, education for us is extremely important.
About two-thirds of us work between forty-five and fifty-five hours per week. I work no more than 40 hours a week. We are typical 9-5 people.
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 invest 18% of our income annually – to maximize our RRSP room.
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. Most of our cash investments are in mutual funds. We own our home and are debt-free. We don’t own a business.
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. We only have one child. A daughter.
Overall, our most trusted financial advisors are our accountants. Our attorneys are also very important. So we recommend accounting and law to our children. Yes, we trust our financial advisor. We have a 20 year-relationship with him. He was instrumental in getting us to where we are today.
I am a tightwad. For sure, my wife and I are tightwads!
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