What We Can Learn From Millionaires
This summer I’ve become a bit obsessed with golf. I’m unfortunately not a scratch golfer, and I don’t get out and play all that much. But I’ve been borderline driving my wife, Brittany, crazy, because we’ll go to bed and she’ll ask, “What are you watching over there on your phone? You’re not watching super slow-mo swing videos, are you? Like Rory McIlroy or Tiger in his heyday?” I’ll reply, “No, no, no. Adam Scott. He has the purest swing of anyone on tour.” Then she’ll roll her eyes and say, “Man, I hope you eventually get really good at golf, because you’re not binging on Netflix or hanging out. You’re watching slow-mo YouTube videos.”
The reason I’m analyzing the best golfers in the world and their swings (and not the 20 handicapper down at the driving range), is because they’ve obviously figured it out. And the exact same is true when we look at how successful people have managed their money. This is why — just like I do with these YouTube videos — we should analyze what the wealthy do with their money. If they’ve got more than us, maybe they’ve figured something out we can apply.
Here are some interesting statistics about millionaires:
We’re not anywhere near 40% of the world’s population, but it’s pretty interesting that we make up almost 40% of all millionaires. There’s a reason why. I end every episode of Rethink Your Money saying we’re the wealthiest society in the history of planet Earth. So we should be making our money matter. Look at how much we have collectively. The industries that produce the most millionaires and billionaires within the United States are finance, technology, manufacturing, fashion and retail, and healthcare. About 33% of the nation’s millionaires are women, and the average millionaire is 57 years old.4 Nearly everyone raises their chance of becoming a millionaire by attending college, with 88% of current millionaires holding college diplomas and 52% earning master’s or doctorate degrees.5
Have you ever had the perception that most millionaires came from wealthy families or went to an Ivy League school? If you did, you’re mistaken. While those factors can certainly help, 79% of surveyed millionaires haven’t received an inheritance, and just 8% attended what we would consider prestigious private universities. In total, 88% of American millionaires are considered to be self-made.6
And the reason I point that out is this: why would we want to learn from the characteristics of rich Americans who only have wealth because of the family they were born into? But that’s not the case. And most millionaires aren’t driving flashy cars or making huge bets hoping that they get lucky — most millionaires are frugal and disciplined. I think of America’s most celebrated billionaire, Warren Buffet, who still famously lives in Omaha in the house that he bought 1958 for $31,500.
With that, here are eight lessons we can learn from the wealthiest Americans.
Lesson #1: Focus on equity.
It’s not all about income. Income certainly helps, but ownership is the ultimate path that brings the most wealth. You can get equity by owning a business or working at a company that provides you with ownership and the ability to buy in as a partner over time. And if neither of these are in the cards, the simplest way is to own stocks. You can be an owner of Apple, Amazon and/or Microsoft. You can be an owner of utility companies, big companies, small companies, domestic companies, international companies — and you’re able to then participate in the profits of those companies.
Lesson #2: Sell investments rarely.
The wealthy aren’t looking to time the market. They understand it’s time in the market that matters. The vast majority of what you hear from the financial media is nothing more than noise. When you own stocks and you’re a shareholder of the largest companies around the world, you’re in it for the long haul. And historically speaking, the short term is highly uncertain, but the market has continued up and to the right over long periods of time, earning about 10% a year for the last century. Don’t pay attention to — and certainly don’t act on — today’s headlines.
Lesson #3: Focus on long-term wealth.
The wealthy aren’t looking to get rich quick. They understand building wealth takes time. I love the famous quote, “It took me 30 years to be an overnight success.” The wealthy understand that.
Lesson #4: You aren’t smarter than the market.
The market’s unknowable, so even if you’re Albert Einstein you can’t forecast things that are inherently unpredictable.
Lesson #5: Spend your money and time on what you enjoy.
For you, that might be traveling, helping causes you care about or spending time with family members. Ultimately, you’d like to cut out expenses that really don’t bring you a whole lot of joy in order to focus on the things that are most meaningful.
Lesson #6: A high-paying job isn’t the greatest factor in wealth accumulation.
The greatest factor in wealth accumulation is actually the gap between your income and your expenses. A lot of people live paycheck to paycheck making really good money. It’s all about your savings rate, which, fortunately, is entirely within your control.
Lesson #7: Don’t be afraid of good debt.
Every financial planner would agree having 27% interest credit card debt is a fantastic way to have anxiety around your money and never get ahead. But good debt is called leverage, and this extends far beyond even the wealthy. Look at the largest corporations in the world. Even they use debt strategically to grow.
Lesson #8: Lean on experts.
The higher someone’s net worth, the more likely they are to have a financial advisor. It’s unlikely they’re going to use LegalZoom to print documents (no offense, LegalZoom). The wealthy lean on experts, and they have a plan in place.
Do you have a team of experts in your corner? Do you have a detailed, written, documented, comprehensive financial plan that accounts for your taxes and estate planning and is dynamic and able to be adjusted as your life and goals inevitably change? Wealthy people create a plan, review it and make adjustments to it as their circumstances change.
Starting a financial plan may seem like chore, but it doesn’t have to be. If you find you’re having a hard time taking the first step, a professional advisor can help. At Creative Planning, our advisory teams work with clients to develop personalized financial plans that take into consideration a wide range of factors, including their current financial situation, their goals for the future and any challenges they may face. If you’d like to begin the process of building your financial plan, please request a meeting.