Millionaire Myths Busted
When I heard that Dave Ramsey, in coordination with Chris Hogan, were writing Everyday Millionaires, a new research study in the tradition of The Millionaire Next Door, I was excited and pre-ordered a copy. Now that I've had it to read for a couple of weeks, that excitement is justified. This is the largest study of millionaires ever conducted, and it blows all of the usual myths right out of the water. Given that I just wrote about the importance of taking action, this book is excellent on the matter.
Wealth does not mean high spending
Something that blew away the authors of The Millionaire Next Door was that virtually all of the millionaires and decamillionaires they brought in to interview did not like fine wine or expensive food, and quite a few wore jeans and worked in businesses like scrap metal dealing. In the most recent book, they found similar results: One-third of millionaires never earned over $100,000 in a single working year, and only 7% earned over $200,000 in a given working year. In other words, the proverbial Wall Street stock trader millionaire is a unicorn.
When I earned a PhD, I got a chance to run in some circles that included high earners, and I have seen this phenomenon firsthand. When you are a grad student, earning $20,000 a year, things like new cars or travel are not even a temptation. If your friend living 2,000 miles away is getting married, you send him a card. The car I drove at the time, I bought from a friend for $1 in exchange for letting her drive it until she left for another country (KBB value was $800). Everyone in grad school did that. Then you graduate and get that professional job, and the stupid PhDs (they are numerous) run out and buy a mortgage and a new car, both collateralized by that $100,000 a year job. The $3-5,000 trip to go see your friend's wedding goes from impossible to being a temptation. And to appear cultured among your professional friends you have to meet them at nicer restaurants. And next thing you know families with $250k or even $500k household incomes (doctors) are drowning in debt despite the big salaries.
Meanwhile, the winners, which according to Everyday Millionaires includes engineers, accountants, and teachers as the top 3 professions, put the lifestyle on hold. They buy cheaper cars (84% do not have a car payment), do not use credit cards (including points cards), and live on less than they make (95% of millionaires vs. 55% of the general population). After 20 years of doing this (it typically takes 20 years, only 5% take less than 10 years), a teacher who cooks at home and shops at Craigslist so she can put away $1,500 a month can blow out her doctor friend.
The bottom line here, is that wealth isn't based on the TV standard of pretentious spending. Its a trap. Wealth is measured in how free you are, and if it means driving cheaper cars, living in cheaper housing, and saving by cooking at home, then so be it. When you have zero payments, you are free.
What about inheritance?
This one shocked me: the study found that millionaires and non-millionaires inherit money at the same rate. Overall, this is 21% of either group. 79% of millionaires inherited nothing. In statistical terms, there is zero correlation between inheritance and wealth.
Most of those who did inherit something, already made their money, and had a situation where their parents' house was paid off and the children split up the proceeds from the estate sale. Actually inheriting millions is extremely rare, at 3%. And even then, I've met a couple of people who did inherit a large amount of money, not know how to handle it, and manage to lose it all. Not unlike people who win the lottery and lose it all. Those who don't, mention having parents who are diligent savers (85% of millionaires said their parents are "savers").
Passing on values is more important than passing on money.
Are there any secrets?
There is a stereotype about secret investment strategies, and recently a good friend of mine asked me about it as he wanted to "start investing." Here's one from the book:
Out of 10,000 millionaires, zero, let me repeat, ZERO said that single stocks (trading) or cryptocurrency were significant contributors to their wealth!
The secret is, there is no secret. In Dave Ramsey's Entreleadership, he interviews billionaires about their business and investment strategies, and every time the strategy is predictable and boring. If you earn and keep wealth honestly, usually you go earn income from a job or business, and then you put it into a mutual fund or real estate investment that will pay 7-10%. On the margins very wealthy people may put a little more into more exotic investments (some entrepreneurs like being angel investors, for example), but nobody goes all in on such things.
What it means for you
Earlier I wrote an article on taking action, as those who don't take action are at the mercy of those who do. I am entirely aware that legal plunder does happen, and you have a few politicians who become exceedingly wealthy on corruption. Such criminals can get away with it because we are too quick to blow every last penny on food and drink (I'm guilty), and spend too much time arguing with idiots on the Internet (guilty again) to get into a meaningful position to fight back. Again, we didn't act to build wealth in perhaps the easiest time in history to build wealth, and until we do we are at the mercy of those who did.
If you make the choice TODAY to get free from debt, the money not going to debt payments can be used both to help yourself, but also lift up others. At this time I help manage multiple grant and scholarship programs alongside my main job. Seeing the numbers firsthand, I can tell you that someone who starts giving 10% of their income will quickly become the person who funds research studies, starts an endowed scholarship, or helps the rare honest politician send out one more batch of letters that gets him the extra 7 votes needed to win elections (local/state elections often come that close). Indeed, when your friend gets something good going and asks you for a $250 or$500 donation, you really should be in a position to say "yes."
This book, Everyday Millionaires, will show you how. You can be free from debt slavery, and then you can be in a position to give and make great thigns happen.