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So, You Want to be a Millionaire?

What do you think of when you hear the word millionaire? I bet your mind is filled with all the things that you would picture a millionaire owning, from luxury cars, mansions, and designer clothing to country club memberships and private schools.

If those items are what your mind has conjured up, you’d be dead wrong (except for the private schooling point). Here are the facts:

1. Millionaires know that most vehicles are depreciating assets and buy accordingly. According to Dave Ramsey, about 61% of the wealthiest people drive Hondas, Toyota, and Fords. I used to work with a lady who married into a very wealthy family—I’m talking generations of wealth, from the Northeast. She so badly wanted to buy a Jaguar, but her husband absolutely forbade it. Instead, she tooled around town in an old ‘woody’ station wagon. Flaunting your wealth was not on that family’s agenda.

2. Millionaires understand that curb appeal may be good for your ego, but not your wallet. While 90% of millionaires are homeowners, the average value of their homes is $320,000, say Dr. Thomas Stanley and William Danko (authors of The Millionaire Next Door). In contrast, when I ran banks in Florida, my bank was located in a very upscale golf resort neighborhood.

You would have thought that my banking customers belonged to the upper crust. And some of them did. But, while my bank’s parking lot on any given day was populated by Bentleys, Rolls Royces, and Lamborghinis, it wasn’t uncommon for my richest client to pull up in his beaten-up Chevrolet.

And it’s true, many of my customers lived in multi-million-dollar homes, but some of them couldn’t afford furniture, and stocked their homes with only the basic necessities—like a bed. But they sure looked good from the outside! Famed investor Warren Buffett (whose net worth is estimated at $84 billion) still lives in the house he bought in 1958 for $31,500 (that’s equal to about $250,000 in today’s dollars).

3. Millionaires know that nothing tastes as good as staying wealthy feels. Tom Corley, author of Rich Habits: The Daily Success Habits of Wealthy Individuals, reports that just 23% of rich people have memberships at country clubs. Most of my rich friends and clients don’t have country club memberships or regularly enjoy 7-course meals.

In fact, they don’t eat out that much. One of my favorite banking customers used to pull up in his old red pickup truck and take me to breakfast at Kmart once a month! Yet, he kept more than a million dollars in his non-interest-paying bank account, which was one of many accounts. And, oh, by the way, one of Warren Buffet’s favorite eateries is Gorat’s in Omaha, Nebraska, where you can still get a burger for $10.

4. Millionaires would rather stay rich than look rich. noted that clothing resale site ThredUp analyzed the demographics of its customer base and found 36% of its regular clients earned $250,000 to $1 million a year. My favorite banking customer always wore holey overalls. And one of the wealthiest men I have worked for used to buy his ties from the street vendors in New York City (before his CNBC interviews)!

5. Most Millionaires get there through wealth accumulation over time. Stanley and Danko report that the millionaires they surveyed (500 + 11,000 high-net worth and/or high-income respondents) earned average annual incomes of $131,000. Only 8% earned $500,000-$999,999 and 5% earned $1 million or more.

As for private schooling, only 17% of millionaires went to private schools, say Stanley and Danko, but 55% of their children are privately-educated.

The Road to Riches is not through the Lottery, or even an Inheritance
We are so used to conspicuous consumption, that we automatically think that if you look rich—with all the fancy accoutrements—you are. However, statistics show that it’s the folks who live fairly frugal, disciplined lives and who have money in the bank, investments, or in assets that make them money, who are the real rich.

There are some 18.6 million millionaires in the U.S.—about 5.7% of the population. And just 20% of them inherited their wealth. If you ask most Americans about their retirement plans, they’ll jokingly tell you, “winning the lottery.” It’s sad to say but more than a third of people in the U.S. really believe that! However, the odds of winning either the Powerball or Mega Millions are roughly 1 in 292.2 million and 1 in 302.5 million, respectively.

According to, the odds of winning the lottery are worse than the probability of your death due to one of these events:

  • Snakebite: 50 million to one
  • Plane crash: 11 million to one
  • Shark attack: 3.75 million to one
  • Falling out of bed: 2 million to one
  • Lightning strike: 1.2 million to one
  • Flesh-eating bacteria: 1 million to one

And, if by some incredible luck, you do win the lottery, watch out! The National Endowment for Financial Education reports that about 70% of people who win a lottery or receive a large windfall go bankrupt within a few years.

So, forget the lottery, and most of us also are not going to inherit millions. Even if your inheritance does make you rich, chances are—without changing your spending and investing habits—you won’t keep that money. A study at the University of Michigan noted that some 70% of wealthy families lose their wealth by the second generation, and 90% do so by the following generation.

But don’t let that scare you off. Most millionaires made their money the old-fashioned way—by working. And as I said above, on average, their paychecks were $131,000, but their average incomes (including investment dollars) was $247,000. They increase their income by saving and investing—instead of spending. After all, as Warren Buffett has been known to say, “If you buy things you do not need, soon you will have to sell things you need.” Think about that.

3 Paths to Financial Freedom
In last month’s issue of Financial Freedom, I discussed several steps to achieve Financial Freedom, including setting a budget, making saving and investing a priority, and reducing spending.

And that is exactly what everyday people who become millionaires do. They make their money work for them. They don’t just hide it under the mattress or let it wallow in bank accounts. The average 3-year certificate of deposit interest rate is 0.26% today. You’re never going to get rich by sticking your money in one of those!

There are really three primary paths to becoming rich:

  1. says that the average millionaire owns two investment properties. And those numbers are rising, as millennial millionaires are created. Those folks average three rental properties, according to
  2. The average millionaire, according to Stanley and Danko, invests 20% of their household realized income each year; and most invest at least 15%. More than 20% of their household wealth is held in transaction securities such as stocks and mutual funds.
  3. Many millionaires have or had steady jobs, but more than two-thirds of them are self-employed and 21% of their wealth is invested in their businesses. In my November issue of Financial Freedom, I offered tips on transitioning into your own business and included several resources to help you get started.

In each of these cases, the millionaires invested in assets that made them more money: the markets, real estate, and their own businesses.

Most folks make the mistake of thinking that their home is an investment. Now, many of you know that I own a real estate company, and far be it from me to discourage you from buying a home! But a look at historical prices should illustrate why you don’t want to put all your assets into a home. The U.S. Bureau of Labor Statistics (BLS) reports that U.S. home prices, since 1968, have increased at an annual 4.2% rate.

US National Home Price Index

Compare that to the S&P 500, which has returned an average 10.25% since 1968:

S&P 500

And that’s if you just invested in the S&P 500 Index. If you chose stocks wisely, you could have done much better. For example, just look at the returns of the 2020 Top Picks from my Wall Street’s Best Investment Newsletter. Every year, I ask my contributors to name their favorite stock of the year. For 2020, the entire universe of Top Picks averaged 180.19%! And the Top Five Picks averaged gains of 252.72%. That was in a year when the Dow Jones Industrial Average generated a 9.7% total return including dividends, the S&P 500 gained 18.4%, and the Nasdaq Composite’s rose 45%.

As for investment real estate, billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate. I don’t know if that is still true, but I do know that many fortunes have been made from investing in real estate—an asset that works for you. Today, investors own and rent out about 18.2 million one-unit homes. According to, residential rental properties returned an average of 10.6%, while commercial real estate returned an average 9.5%. Of course, that depends on the price you paid for the property, the amount of rent the property can garner, the area in which it is located, and how much you’ve had to invest in repairs and maintenance. But if you buy right, you can see some amazing returns!

When I was in my early 30s in Florida, I was friends with a young couple who lived very modestly, but had begun investing in rental properties right after they were married. Instead of a big wedding, their parents gave them a pot of ‘get started’ money. They were smart, made money off of rents, sold properties to buy more expensive investment parcels, and ended up retiring in their late 40s. That’s one method. Another is—if you have some skills—buying run-down properties, fixing them up, and flipping them for a profit. That is risky business, but if you buy during rough economic cycles when the housing market is in a downturn, you can pick up properties for a fraction of their true value.

As I said above, most millionaires are entrepreneurs. In the U.S., 99.9% of all businesses are small companies. That amounts to 30.2 million businesses with less than 100 employees. Unfortunately, about 20% of them fail within the first year, and 50% by the end of their fifth year. However, those that survive most often thrive. Robert T. Kiyosaki, author of Rich Dad, Poor Dad, says that to be a successful entrepreneur, you must master three processes:

  • Management of cash flow
  • Management of systems
  • Management of people

But know that if you fail the first time, the motto of self-made millionaires is “try, try again”. According to, the average millionaire has gone bankrupt 3.5 times.

Self-Made Millionaires don’t Give Up after their First Failures
The stories of their failed businesses or hard-to-start ideas are legion:

  • Sir James Dyson created 5127 vacuum prototypes, all failures. It took him 15 years to perfect his product before taking the DCO1 to market in 1993.
  • Walt Disney’s first company, the Laugh-O-Gram Corporation, declared bankruptcy after just two years; he failed as an ambulance driver, an actor, was rejected by the Army, and MGM even turned Mickey Mouse down!
  • JK Rowling, the author of the Harry Potter series of books, was a welfare mom whose Potter manuscript was rejected by 12 major publishers.
  • Kentucky Fried Chicken’s Colonel Sanders didn’t strike it big until he was 62, and that was after 1,009 restaurants rejected his recipe!
  • Henry Ford, the father of the automobile, saw his first company go bust. Then he was forced to walk away from his second business, keeping only the rights to his name. And as we know, that was a good thing!

How to become a Millionaire
What do all of these folks have in common? Perseverance. They didn’t give up the first, second, or even the thousandth time! I’ve known lots of folks who started their own businesses. Many have failed a time or two or three. But they all had the perseverance gene. I once had neighbors who were very comfortably retired. They had failed at a grocery store and meat market, before deciding to open a hardware store. That last stab set them up for life. Their business grew into two stores which became national franchises.

And one other thing they did—they didn’t waste money. I’ve gone shopping with her, and have witnessed her debating about buying a beautiful $80 bowl, for more than an hour. And she didn’t buy it! It took them years to build their business into a profitable company that eventually made them millions, so they didn’t spend their money without a lot of consideration.

And that’s another factor that self-made millionaires have in common. They live below their means. My hairdresser is just 31 years old, and her husband is 34. They have twins, aged 9. He works for a governmental entity and she does hair from her home. Their home is paid off; their fifth wheel is free and clear, and they have no car payments. That’s pretty incredible in this age of spend, spend, spend!

I interviewed her to find out how they came by their great financial sense. She said they owed it to several factors/events:

  • First, they both came from homes in which their parents had good saving/investing habits. They both bought used cars from their parents, and kept them until they could go no longer. They don’t buy new cars.
  • Her husband had already been investing and had a brokerage account with about $13,000 in it when they wed. They continued investing and used a brokerage firm recommended by one of their parents. But they weren’t that happy with their absentee broker, who never had time for them.
  • Their church offered a Dave Ramsey money management class and they enrolled. And they followed his principles—the envelope system (designating envelopes for all their regular and variable expenses), the emergency fund, and saving and investing. They discovered that Ramsey has a list of local financial providers—brokers, insurance agents, lawyers, accountants, etc, on his website: So, they interviewed some new brokers, and signed up with one of them, who has been very attentive, and also extends himself to teaching them about investing. They made enough on that investment account over the next five years to pay off their house, buy their recreational vehicle, and allow her to set up her hair salon in their home (thereby making and saving more money).

This young couple is my favorite example of how you can build financial success, step by step.

The 7 Most Important Traits of Millionaires
And that is what self-made millionaires do. In their book, The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko share their research on the habits of millionaires, and how to become one. They first published the book in 1996, and have written many updates—as well as other books in the series—but these tenets hold just as true today as they did in 1996.

Here are the 7 key factors that these millionaires have in common:

  1. They live well below their means. They don’t buy expensive houses, luxurious clothes, or new cars.
  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 (allowances, inheritances, etc.).
  5. Their adult children are economically self-sufficient.
  6. They are proficient in targeting market opportunities.
  7. They chose the right occupations.

And they illustrate that the common thinking that wealth equals income is totally false.

6 Truths about the Road to Riches
That is also the subject of another of my favorite books, Rich Dad, Poor Dad, by Robert T. Kiyosaki. Kiyosaki built the book around his dad, a university professor who made a lot of money, but never had any extra. He lived for his next raise, and already had plans to spend it. Sound familiar?

His second ‘dad’ belonged to his friend, Mike, and that dad was a serial entrepreneur. He taught both his son and Kiyosaki all about making—and holding onto—money. In my mind, this quote says a lot about keeping your money: “An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first.” He notes that his wife didn’t get her Mercedes until they had met a goal of accumulating several rental properties that generated enough money to pay for the car.

Kiyosaki lists his 6 Big Ideas for becoming rich:

  1. The rich don’t work for money. They make their money work for them.
  2. The importance of financial literacy. You must know the difference between assets and liabilities. The rich buy assets and the poor buy liabilities that they think are assets (for example, your own home).
  3. Mind your own business. Know the difference between your profession and your business, and understand that your business revolves around your assets—not your liabilities—column. So, start buying assets.
  4. The history of taxes and the power of corporations explains why your business is better off as a corporation, tax-wise. He summarizes: Business owners with corporations earn money, spend, and pay taxes. Employees who work for corporations earn money, pay taxes, and spend. You see the difference? Corporations allow you to write-off certain expenses.
  5. The rich invent money, Kiyosaki says, “it’s not the smart who get ahead; it’s the bold.” Rich people take calculated risks and grab opportunities as they appear.
  6. Work to learn—don’t work for money. “Financial intelligence is a synergy of accounting, investing, marketing, and law. Combine these four technical skills and making money with money is easier than most people would believe.”

Kiyosaki says, “The best thing about money is that it works 24 hours a day and can work for generations.”

Yet, Kiyosaki admits that the reasons that many people may desire to be rich, but just don’t get there are really pretty simple:

  • Fear
  • Cynicism
  • Laziness
  • Bad habits
  • Arrogance

He notes, “For most people, the reason they don’t win financially is because the pain of losing money is far greater than the joy of being rich.”

I think he’s absolutely right! Fear is a big motivator and also a de-motivator. Listen, everyone is afraid. But those who take the leap to riches analyze the pros and cons, and jump into the opportunity.

As for the other three, laziness, bad habits, and arrogance, that requires abilities beyond mine to fix. I can just tell you that no success comes without hard work and good habits.

Determine your Wealth!
Lastly, I’m going to leave you with a calculation to determine if your wealth is building as fast as it should. I know I was disappointed when I worked this out for myself. Like most of you, I’ve had my share of bad spending habits too, but I’ve made myself a promise to reinvent my financial strategy.

This calculation is from Stanley and Danko.

You all probably understand that Net worth = Assets – Liabilities

The authors want to answer this questions: How wealthy should you be?

A person’s income and age are strong determinants of how much that person should be worth, which is what we have always learned. And generally, the higher your income, the bigger your net worth is expected to be. If you are older, you should also have accumulated a bigger net worth, as you’ve had many income-producing years. But that’s not always the case, is it?

This is the Millionaire next door formula:
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.

For example, Mr. Duncan is forty-one years old and makes $143,000 a year.

He would multiply $143,000 and has investments that earn another $12,000, for a total of $155,000. Times that by 41 = $6,355,000.

Dividing by ten, his net worth should be $635,500.

PAWs versus UAWs
Stanley and Duncan say that if you are in the top quartile for wealth accumulation, you are a PAW, or prodigious accumulator of wealth.

If you fall in the bottom, you are labeled as a UAW, or under accumulator of wealth.

PAWs typically have a minimum of 4x the wealth accumulated by UAWs.

Their rule says that to be well-positioned in the PAW category, you should be worth twice the level of wealth expected.

So, Mr. Duncan’s net worth/wealth should be equal to two times the expected value or more for his income/age cohort, or:

$635,500 x 2 = $1,271,000.

If his level of wealth is one-half ($317,750) or less than expected for all those in his income/age category, then he would be classified as a UAW.

Summing it Up
I hope you aren’t too depressed after that!

But, seriously, it is possible for regular folks to become millionaires. You may just have to adjust your thinking to living a frugal lifestyle, instead of a conspicuous consumption routine, taking the extra money and saving, and investing it. Make small sacrifices today so that you truly create financial freedom for you and your family. The younger you are, the more wealth you can accumulate.

Imagine being 65 (or younger) and saying to yourself—I don’t have to work any longer. My net worth—without any more earning years—will last me the rest of my lifetime. Isn’t that true financial freedom?