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SmartMoney Magazine by Daren Fonda (Author Archive)
10 Things Millionaires Won't Tell You
1. "You may think I'm rich, but I don't."
A million dollars may sound like a fortune to most people, and folks with that much cash can't complain — they're richer than 90 percent of U.S. households and earn $366,000 a year, on average, putting them in the top 1 percent of taxpayers. But the club isn't so exclusive anymore. Some 10 million households have a net worth above $1 million, excluding home equity, almost double the number in 2002. Moreover, a recent survey by Fidelity found just 8 percent of millionaires think they're "very" or "extremely" wealthy, while 19 percent don't feel rich at all. "They're worried about health care, retirement and how they'll sustain their lifestyle," says Gail Graham, a wealth-management executive at Fidelity.Indeed, many millionaires still don't have enough for exclusive luxuries, like membership at an elite golf club, which can top $300,000 a year. While $1 million was a tidy sum three decades ago, you'd need $3.6 million for the same purchasing power today. And half of all millionaires have a net worth of $2.5 million or less, according to research firm TNS. So what does it take to feel truly rich? The magic number is $23 million, according to Fidelity.
2. "I shop at Wal-Mart..."
They may not buy the 99-cent paper towels, but millionaires know what it is to be frugal. About 80 percent say they spend with a middle-class mind-set, according to a 2007 survey of high-net-worth individuals, published by American Express Publishing and the Harrison Group. That means buying luxury items on sale, hunting for bargains — even clipping coupons.Don Crane, a small-business owner in Santa Rosa, Calif., certainly sees the value of everyday saving. "We can afford just about anything," he says, adding that his net worth is over $1 million. But he and his wife both grew up on farms in the Midwest — where nothing was wasted — and his wife clips coupons to this day. In fact, most millionaires come from middle-class households, and roughly 70 percent have been wealthy for less than 15 years, according to the AmEx/Harrison survey. That said, there are plenty of millionaires who never check a price tag. "I've always wanted to live above my means because it inspired me to work harder," says Robert Kiyosaki, author of the 1997 best seller Rich Dad, Poor Dad. An entrepreneur worth millions, Kiyosaki says he doesn't even know what his house would go for today.
3. "...but I didn't get rich by skimping on lattes."
So how do you join the millionaires' club? You could buy stocks or real estate, play the slots in Vegas — or take the most common path: running your own business. That's how half of all millionaires made their money, according to the AmEx/Harrison survey. About a third had a professional practice or worked in the corporate world; only 3 percent inherited their wealth.Regardless of how they built their nest egg, virtually all millionaires "make judicious use of debt," says Russ Alan Prince, coauthor of "The Middle-Class Millionaire." They'll take out loans to build their business, avoid high-interest credit card debt and leverage their home equity to finance purchases if their cash flow doesn't cut it. Nor is their wealth tied up in their homes. Home equity represents just 11 percent of millionaires' total assets, according to TNS. "People who are serious about building wealth always want to have a mortgage," says Jim Bell, president of Bell Investment Advisors. His home is probably worth $1.5 million, he adds, but he owes $900,000 on it. "I'm in no hurry to pay it off," he says. "It's one of the few tax deductions I get."
4. "I have a concierge for everything."
That hot restaurant may be booked for months — at least when Joe Nobody calls to make reservations. But many top eateries set aside tables for celebrities and A-list clientele, and that's where the personal concierge comes in. Working for retainers that range anywhere from $25 an hour to six figures a year, these modern-day butlers have the inside track on chic restaurants, spa reservations, even an early tee time at the golf club. And good concierges will scour the planet for whatever their clients want — whether it's holy water blessed personally by the Pope, rare Mexican tequila or artisanal sausages found only in northern Spain. "For some people, the cost doesn't matter," says Yamileth Delgado, who runs Marquise Concierge and who once found those sausages for a client — 40 pounds of chorizo that went for $1,000.Concierge services now extend to medical attention as well. At the high end: For roughly $2,000 to $4,000 a month, clients can get 24-hour access to a primary-care physician who makes house calls and can facilitate admission to a hospital "without long waits in the emergency room," as one New York City service puts it.
5. "You don't get rich by being nice."
John D. Rockefeller threatened rivals with bankruptcy if they didn't sell out to his company, Standard Oil. Bill Gates was ruthless in building Microsoft into the world's largest software firm (remember Netscape?). Indeed, many millionaires privately admit they're "bastards in business," says Prince. "They aren't nice guys." Of course, the wealthy don't exactly look in the mirror and see Gordon Gekko either. Most millionaires share the values of their moderate-income parents, says Lewis Schiff, a private wealth consultant and Prince's coauthor: "Spending time with family really matters to them." Just 12 percent say that what they want most to be remembered for is their legacy in business, according to the AmEx/Harrison study.Millionaires are also seemingly undaunted by failure. Crane, for example, now runs a successful company that screens tenants for landlords. But his first business venture, a real estate partnership, went bankrupt, costing him $20,000 — more than his house was worth at the time. "It was the most depressing time in my life, but it was the best lesson I ever learned," he says.
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[...]SmartMoney Magazine Spills the Beans Did you know most millionaires in the U.S. didn't inherit their wealth, didn't win the lottery, didn't play professional sports, didn't make it big in the stock market, and -- contrary to the late-night infomercials[...]
I guess I should be clearer on my position on mortgages. A general rule is you should put your money where it gives you the highest safe return. In my case until interest rates got down to the 6 % range, I was always going to get a sure return of whatever mortgage interest payment I avoided by paying extra, so I was making at the start 19% return and then less as the mortgage rate went down. You won't get rich by being in debt. When I was further along in my mortgage payments, I already had my first million and I was investing to the maximum in company 401K's, investing in the market on a monthly basis, and already had a very good cash reserve. I also was in the position from being a retired Military Officer of collecting a steady pension from the age of 42 that was indexed to the cost of living. So for me paying off my house rapidly was a no brainer, as I knew I did not have a better surer return for those extra payments and I did not want a mortgage in retirement. I do not believe in...(Read more of this comment)
To JamieL:
I know quite a few people in the NOLA and Port Arthur, TX areas who just might argue with you on the merits of paying down the mortgage, and particularly in trying to pay it down faster with extra principal payments and/or 15-year mortgage. They are either still living in FEMA trailers stemming from Katrina Rita (in 2005), or in homes but still trying to recover financially. Sure, 3 or 6 months emergency fund is nice, but when disaster strikes, it's not going to do the trick. They have ALL said they wish they would have listened to me and NOT been so focused on paying down the mortgage. They realize now they would have had access to liquid capital...THEIR liquid capital, not their FORMER capital that they gave to the bank, then had to qualify for and BORROW WITH INTEREST.
Also, the notion that 'I'll just tap my equity if I need the money' sounds great, especially during a market like we saw ~2002-2006. But gosh, are we learning (re-learning) that hom...(Read more of this comment)
To: tomsmith2
I agree with you that it is important not to put yourself in the position of becoming 'house poor.' One must always keep a sufficient reserve of cash on hand to deal with emergencies. I would consider three to six months of expenses to be reasonable. And, I agree that the benefits of long term investments for retirement are such that it makes sense to continue to contribute even while paying a mortgage. Aside from these two conditions the faster one pays off a mortgage (or the bigger the down payment you can make) the better. Doing so reduces your risk and increases your future cash flow.
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I read an article in Monetary Intelligence Magazine all about the Millionaire next door. The magazine often has articles relating to this topic. www.monetaryintel.com