THE LIFESTYLE OF THE TYPICAL AMERICAN MILLIONAIRE
Is a show about the typical American millionaire one the mass TV audience would enjoy? We doubt it. Why not? Let’s take a look at why not.
The camera zooms in on the typical millionaire household of Mr. Johnny Lucas. Like most millionaires, Johnny, fifty-seven, has been married to the same woman for most of his adult life. He holds an undergraduate degree from a local college. He is the owner of a small janitorial contracting firm that has thrived in the last few years. All of his workers now wear nicely tailored uniforms, including hats that bear his company’s logo.
To his neighbors, Johnny and his family appear to be nondescript, middle- class folks, but Johnny has a net worth of more than $2 million. In fact, in terms of wealth, Johnny’s household ranks in the top 10 percent of all the households in his “nice neighborhood.” Nationwide, his household is in the top 2 percent.
How will the TV audience respond to the description of Johnny’s wealth and the images of Johnny on the screen? First, viewers will likely be confused, because Johnny does not look like the millionaire most people envision. Second, they may be uncomfortable. Johnny’s traditional family values and his lifestyle of hard work, discipline, sacrifice, thrift, and sound investment habits might threaten the audience. What happens when you tell the average American adult that he needs to reduce his spending in order to build wealth for the future? He may perceive this as a threat to his way of life. It is likely that only Johnny and his cohorts would tune in to such a program. It would certainly bolster their views about life.
In spite of these concerns, let us assume that one of the major TV networks agrees to run at least a pilot program about the Johnnys of America. What will this program tell the viewing audience?
Here is Johnny Lucas, ladies and gentlemen. Mr. Lucas is a millionaire. I will ask Johnny some questions about his purchasing habits. These questions come from our TV audience.
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CUSTOM-MADE, OR OFF THE RACK
First, Johnny, Mr. J. G. from our audience wants to know: “What's the most you ever spent for a suit of clothing?”
Johnny closes his eyes for a moment. Obviously, he is deep in thought. The audience is silent. It is expecting him to say, “Somewhere between $1,000 and $6,000.” But our research indicates that the audience’s expectations are wrong. We predict that our prototypical millionaire would say:
The most I ever spent... the most I ever spent... including the suits I bought for myself and for my wife, June, and my sons, Buddy and Darryl, and my girls, Wyleen and Ginger ... the most I ever spent was $399. Boy, I remember that it’s the most I ever spent. It was for a very special occasion—our twenty-fifth wedding anniversary party.
How will the audience respond to Johnny’s statement? Probably with shock and disbelief. The audience’s expectations are not congruent with the reality of most American millionaires.
According to our most recent survey, the typical American millionaire reported that he (she) never spent more than $399 for a suit of clothing for himself or for anyone else. Note the figures given in Table 2-1. Fifty percent or more of the millionaires surveyed paid $399 or less for the most expensive suit they ever purchased. Only about one in ten paid $1,000 or more; only about one in one hundred paid $2,800 or more. Conversely, about one in four millionaires paid $285 or less, and one in ten paid $195 or less for his (her) most expensive suit.
TABLE 2-1 PRICES PAID BY MILLIONAIRES FOR CLOTHING AND ACCESSORIES
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SUIT OF CLOTHING
Most Ever Spent ; % That Paid This Amount or: Less; (More) .
$195 ; 10; (90)
$285 ; 25; (15)
$399 ; 50; (50)
$599 ; 75; (25)
$999 ; 90; (10)
$1400 ; 95; (5)
$2800 ; 99; (1)
PAIR OF SHOES
Most Ever Spent ; % That Paid This Amount or: Less; (More) .
$73 ; 10; (90)
$99 ; 25; (75)
$140 ; 50; (50)
$199 ; 75; (25)
$298 ; 90; (10)
$334 ; 95; (5)
$667 ; 99; (1)
WRISTWATCH
Most Ever Spent ; % That Paid This Amount or: Less (More) .
These figures are for all millionaires in our survey. Keep in mind that almost 14 percent of those surveyed told us they inherited their wealth. What happens when we break out inheritors and self-made millionaires? Self-made millionaires spend significantly less for suits, as well as for most other high-status items, than do those who have inherited their wealth. The typical (50th percentile) self-made millionaire paid about $360 for a suit, while the typical inheritor of wealth reported paying more than $600.
How can the Johnnys of America get away with spending such modest amounts? Johnny does not need to wear expensive suits. He is not a successful attorney who must impress his clients. Nor does he ever have to impress a large audience of stockholders at an annual meeting, the financial press, or investment bankers. Johnny does not have to dress the part of a high-powered CEO who must constantly address a high-brow board of directors. Johnny does, however, need to impress his staff of janitors. How? By never giving them the impression that he is making so much money he can afford to have a tailor fit him for a suit priced in the low-to mid-four figures.
Most of the millionaires we have interviewed over the past twenty years have views similar to Johnny’s. Then who purchases all those expensive suits? Our survey has revealed an interesting relationship. For every millionaire who owns a $1,000 suit, there are at least six owners who have annual incomes in the $50,000 to $200,000 range but who are not millionaires. Their shopping habits certainly have something to do with the fact that they are not wealthy. Who are these people? Typically, they do not own their own businesses. They are more likely to be corporate middle managers (especially those who are part of a working couple), attorneys, sales and marketing professionals, and physicians.
Why would anyone suggest that you spend more than the typical millionaire for a suit?
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In a recently published article, an owner of very expensive suits touted that they were an excellent investment (Lawrence Minard, “You’re Looking Rather Prosperous, Sir,” Forbes, April 8, 1996, pp. 132-133). Mr. Minard asks and answers the question of questions about investing in suits:
Can custom-made suits be worth $2,000? Mine are. Fourteen years and 14 pounds later, they still look good.... Believe it or not I made an excellent investment (Minard, p. 132).
Mr. Minard tells his readers how he was initially guided to the custom tailor shops of London’s Savile Row by two senior-level executives whom he regarded as having “excellent taste” but were not “frivolous” in their buying habits:
They explained that to buy bespoke is to enter into a unique and personal relationship with your clothes (Minard, p. 132).
What is the meaning of bespoke? In middle-class American, it means custom-made. Johnny Lucas never bought a custom-made suit. Does he have a “unique and personal relationship” with his all-wool, top-of-the-line JC Penney suit? (Are you surprised to learn that some millionaires shop at Penney’s? Perhaps even more surprising, about 30.4 percent of the respondents who are millionaires hold JC Penney credit cards.) Penney’s private-brand Stafford Executive suits were recently given top scores for durability, cut, and fit by a leading consumer publication:
JC Penney ... now subject[s] garments to tough tests for color matching, fabric shrinkage, and pilling.... When it comes to quality control Penney’s is more demanding than any of the department stores (Teri Agins, “Why Cheap Clothes Are Getting More Respect,” The Wall Street Journal, Oct. 16, 1995, pp. B1, B3).
Keep in mind that moths, cigar ashes, and other hazards do not care how much you paid for your wool suit. They do not understand the full meaning of bespoke. They are not interested in the fact that a suit with the same label was also worn by Dickens, de Gaulle, and Churchill. Nor do they care if your suits ever generate dividends or capital gains. But they can certainly ruin your investment portfolio of suits.
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THEN CERTAINLY FOOTWEAR
Let us return to our proposed TV program. Mr. Lucas is still on stage. What type of shoes does Johnny Lucas purchase? The TV audience, if any are still tuned in, will again be surprised by his answer. Johnny, like most millionaires, does not buy high-priced footwear. About half the millionaires surveyed reported that they had never spent $140 or more for a pair of shoes. One in four had never spent more than $100. Only about one in ten had spent over $300. If not millionaires, then who is keeping the high-priced shoe manufacturers and dealers in business? Certainly some millionaires purchase expensive shoes. But for every millionaire in the “highest price paid” category of over $300, there are at least eight non millionaires.
But what does the popular press tell us? The press sensationalizes that very small proportion of Americans who purchase expensive shoes and related artifacts. Consider this news story about boxing promoter Don King, who spent two hours shopping for shoes in Atlanta. During that time, Mr. King purchased 110 pairs of shoes from one store, for which he paid $64,100, tax included. His purchase topped the previous sales record for the store, held by Magic Johnson, who spent $35,000 during one visit. Mr. King’s record purchase translates into an average of $582.73 per pair. How much did Mr. King pay for his most expensive pair? It was reported that a pair of alligator loafers cost him $850 (Jeff Schultz, “King Foots $64,100 Bill at Shoe Store,” Atlanta Journal-Constitution, June 4, 1995, p. 1).
Note that only 1 percent of the millionaires in our survey paid $667 or more for a pair of shoes. Mr. King’s purchase of alligator shoes is rare even among millionaires. Nonetheless, the popular media enjoy touting abnormalities in buying behavior. As a consequence, our youth are told that buying expensive items is normal behavior for affluent people. They are led to believe that the wealthy have a high-consumption lifestyle. They learn that hyperspending is the main reward for becoming affluent in America.
Why does Johnny Lucas get ignored while Mr. King receives headlines? Because Johnny’s consumption habits are mundane. His rewards are more intangible than product-related: financial independence; discipline; and being an excellent family provider, a fine husband, and a father of well-disciplined children.
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Is there any life remaining for our proposed TV program about America’s typical millionaire? Can Johnny Lucas still rally and bring back the audience he lost?
Johnny Lucas, the affluent business owner, is very punctual. He is never late for meetings and arrives at work each weekday at 6:30 A.M. How does he do this? It must be his wristwatch. Could it be that Johnny wears an expensive watch? By now you have probably guessed the answer. And once again, the audience is disappointed. Fully one-half of the millionaires surveyed never in their lives spent more than $235 for a wristwatch. About one in ten never paid more than $47, while about one in four spent $100 or less.
Certainly some millionaires purchase expensive watches. But they are in the minority. Even among millionaires, only 25 percent of those surveyed paid $1,125 or more. About one in ten paid $3,800 or more. About one in one hundred paid $15,000 or more.
Johnny would, we are sure, apologize to the TV audience for his mundane taste in clothing and jewelry. But we are sure that he would also define his position by reporting the following:
I live in a fine home ... but have no mortgage. All my children’s college accounts were more than fully funded before they even began attending college.
Unfortunately, Johnny’s story, including his apology, will never get into news syndication.
Why are so few people in America affluent? Even most households with six- figure annual incomes are not affluent. These people have a different orientation than does Johnny Lucas. They believe in spending tomorrow’s cash today. They are debt-prone and are on earn-and-consume treadmills. To many of them, those who do not display abundant material possessions are not successful. To them, nondisplay-oriented people like Johnny Lucas are their inferiors.
Johnny Lucas is not likely to be held in high regard by many of his neighbors. On a social status scale, he is below average. But on what criteria?
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In his neighbors’ eyes, Johnny has low occupational status. He is an owner of a small business. What happens when he occasionally comes home in one of his janitorial vans? The van stays in his driveway until he leaves the next morning. What are his neighbors to think? They do not know that Johnny is financially independent. They don’t give him points for being married and never divorced, fully funding his children’s college tuition, employing several dozen people, having integrity, being frugal, paying off his mortgage, and so forth. No, many of his neighbors would prefer that Johnny move out of the neighborhood. Why? Perhaps it’s because he and his family don’t look affluent, dress like the affluent, drive the vehicles of the affluent, or work in high-status positions.
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PLAYING GREAT DEFENSE
The affluent tend to answer “yes” to three questions we include in our surveys:
1. Were your parents very frugal?
2. Are you frugal?
3. Is your spouse more frugal than you are?
This last question is highly significant. Not only are the most prodigious accumulators of wealth frugal, their spouses tend to be even more frugal. Consider the typical affluent household. Nearly 95 percent of millionaire households are composed of married couples. In 70 percent of these households, the male contributes at least 80 percent of the income. Most of these men play great offense in the game called income generation. Great offense in economic terms means that a household generates an income significantly higher than the norm, which in America is an annual realized income of approximately $33,000. Most of these households also play great defense; that is, they are frugal when it comes to spending for consumer goods and services. One frugal high-income producer within the married-couple category, however, does not automatically translate into a high level of net worth. Something else must be present. A self-made millionaire stated it best when he told us:
I can’t get my wife to spend any money!
Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth if one of its members is a hyperconsumer. This is especially true when one or both are trying to build a successful business. Few people can sustain profligate spending habits and simultaneously build wealth.
ODE TO HIS FRUGAL WIFE
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How did the wife of a millionaire respond when her husband gave her $8 million worth of stock in the company he recently took public? According to her husband of thirty-one years, she said, “I appreciate this, I really do.” Then she smiled, never changing her position at the kitchen table, where she continued to cut out twenty-five-and fifty-cents-off food coupons from the week’s supply of newspapers. Nothing is so important as to interrupt her Saturday-morning chores. “She just does today like she always has done, even when all we owned was a kitchen table.... It’s how come we’re well-off today. Made a lot of trade-offs ... sacrifices early in our marriage.”
Why aren’t you wealthy, you ask? Well, let’s examine your lifestyle. Is it one of great offense? Are you in the $70,000, $100,000, $200,000 income category? Congratulations, you play wonderful offense. But how is it that you keep losing the game called wealth accumulation?
Be honest with yourself. Could it be that you play terrible defense? Most high-income eamers are in the same situation, but not most millionaires. Millionaires play both quality offense and quality defense. And quite often their great defense helps them outscore /outaccumulate those who outearn/ have superior offenses. The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning. We have discovered that several occupational groups contain large numbers of budgeters and planners.
AFFLUENT AUCTIONEERS
Our latest survey of auctioneers found that more than 35 percent of them are millionaires. This percentage is slightly higher than the proportion of millionaire households living in America’s finest urban and suburban neighborhoods.
Auctioneers have been on our list of highly productive types since we conducted our first study of occupations in 1983, when they ranked sixth among those with realized annual incomes of more than $100,000. But their income alone was not what caught our attention. Given the same level of income, who accumulates more wealth—an auctioneer residing in small-town America or someone who lives in a high-status urban or suburban neighborhood? As you can guess, it is the typical auctioneer.
Auctioneers are more frugal than their high-income-producing counterparts in prestige areas; they have lower overhead both for household and business expenditures. To some extent, these data are explained by the lower cost of living and doing business in small towns. Yet even when cost of living is taken into account, auctioneers are more prone to accumulate wealth. Consider the following:
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◆ On average, millionaire auctioneers are about fifty years of age, six to eight years younger than their urban/suburban counterparts.
◆ The average millionaire auctioneer spends only 61 percent of the amount urban/suburban millionaires allocate for housing.
◆ Urban/suburban millionaires are more than three times more likely than millionaire auctioneers to own luxury foreign automobiles.
◆ Auctioneers hold a higher proportion of their wealth in appreciating assets than do other high-income producers, and they invest in categories in which they have expertise.
◆ Auctioneers have experience with bankruptcy. They are aware that consumer goods often generate few cents on the dollar. One auctioneer explained why she was so frugal:
When I was quite young, I watched a woman crying ... sitting on a chair in her front yard. All the while, bidders were walking away with everything she once owned. I’ll never forget that woman.
Let’s ask the typical American self-made millionaire about her defense. We will refer to her as Mrs. Jane Rule. Mrs. Rule and her husband own a small business, an auctioneering/appraising company. They also invest in several of the categories of items they appraise. Mr. Rule is the visible manager of their business. He gets much of the credit for its success. After all, he speaks very well and very quickly. But it’s actually Mrs. Rule who is the true force, the real leader, of this enterprise. It’s her planning, designing, budgeting, bill collecting, and marketing that made this auctioneering company successful.
Why are Mr. and Mrs. Rule millionaires today? Because Mrs. Rule plays tremendous defense! She is responsible for budgeting and spending for both her household and their business. Is anyone in your household responsible for budgeting? All too often the answer is “not really.” All too often people allow their income to define their budgets. When we tell our audiences about the budgeting and planning habits of the affluent, someone always asks a predictable question :
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Why would someone who is a millionaire need to budget? Our answer is always the same:
They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.
Sometimes we are forced to add analogies to make our point. We ask, for example:
Have you ever noticed those people whom you see jogging day after day? They are the ones who seem not to need to jog. But that’s why they are fit. Those who are wealthy work at staying financially fit. But those who are not financially fit do little to change their status.
Most people want to be physically fit. And the majority know what is required to achieve this. But despite that knowledge, most people never become well conditioned physically. Why not? Because they don’t have the discipline to just do it. They don’t budget their time to just do it. It is like becoming wealthy in America. Oh, you want to all right, but you play lousy financial defense. You don’t have the discipline to control your spending. You don’t take the time to budget or plan. Note that under accumulators of wealth (UAW) spend three times as much time exercising per month as they do planning their investment strategies.
Mrs. Rule is different. She’s like most millionaires. She’s disciplined. She takes time to plan and budget. This translates into wealth. Mrs. Rule’s household income varies from year to year. (It is typical for auctioneers to have ups and downs in their cash flow. Often downturns in our nation’s economy translate into increased demand for auctioneering services.) Over the past five years her annual income averaged around $90,000. But her net worth keeps increasing. Today Mrs. Rule has a net worth of more than $2 million. In our survey, she answered “yes” to four questions about planning and budgeting.
Do you wish to become affluent and stay affluent? Can you answer “yes” candidly and honestly to four simple questions?
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QUESTION 1: DOES YOUR HOUSEHOLD OPERATE ON AN ANNUAL BUDGET?
Do you plan your consumption spending according to a variety of food, clothing, and shelter categories each year? Mrs. Rule does, and so do most millionaires. In fact, in our latest national survey of millionaires, we found that for every 100 millionaires who don’t budget, there are about 120 who do.
We anticipate your question about those millionaires who don’t budget. How did they become millionaires? How do they control spending? They create an artificial economic environment of scarcity for themselves and the other members of their household. More than half of the non budgeters invest first and spend the balance of their income. Many call this the “pay yourself first” strategy. These people invest a minimum of 15 percent of their annual realized income before they pay the sellers of their food, clothes, homes, credit, and the like.
What about those millionaires who don’t budget or create an environment of relative scarcity? Some inherited all or most of their wealth. Another minority, accounting for fewer than 20 percent of millionaires, typically earn such high incomes that to some extent they can eat their income and still have a seven- figure net worth. In other words, their extraordinarily good offense compensates for a lack of defense. But so what if you earn $2 million a year and have a net worth of $1 million? Technically you’re a millionaire. But spiritually you’re an under accumulator of wealth (UAW). And it’s likely that your millionaire status is temporary. These are the people you read about in the newspaper. The press loves to tout freaks of both nature and economics.
Will the popular press ever do a story on Mrs. Rule? It’s unlikely. Who wants to read about Mrs. Rule’s $140,000 home or her four-year-old “Detroit metal” sedan? Who wants to see her sitting at the kitchen table three nights in a row, putting together her family’s annual budget? Is there anything exciting about computing and accounting for each dollar spent last year? Would you be thrilled to watch Mrs. Rule compute and allocate future dollars of income into dozens of consumption categories? How long could you stand to watch her carefully complete her annual allocations calendar? Well, it’s not fun for Mrs. Rule, either. But in Mrs. Rule’s mind there are worse things, such as never being able to retire and never being financially independent. It’s much easier to budget if you visualize the long-term benefits of this task.
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QUESTION 2: DO YOU KNOW HOW MUCH YOUR FAMILY SPENDS EACH YEAR FOR FOOD, CLOTHING, AND SHELTER?
Almost two-thirds of the millionaires surveyed (62.4 percent) answered “yes” to this question. So did Mrs. Rule. But only about 35 percent of high-income- producing non-millionaires answered “yes” to this question. Many of these high- income/low-net worth types have no idea how much they spend each year for such items as food consumed at home, food consumed away from home, beverages, birthday and holiday gifts (for each category of recipient), each category of clothing for each household member at each store, baby-sitters, day- care fees, line of credit use, charitable contributions, financial advice, club dues, motor vehicles and related expenses, tuition, vacations, heating and lighting, and insurance.
Notice that we did not include mortgage payments in our list. Often high- income/low-net worth respondents boast about how much money they save on taxes via their mortgage deductions. Certainly most millionaires who have mortgages outstanding also take advantage of this provision. But most millionaires also account for their other categories of domestic expenditures. Ask typical high-income/low-net worth people about their goals. What will they tell you? A major goal they often name is to minimize their tax burden; they use the mortgage deduction as a way to accomplish this. Then why don’t these same people compute their other domestic expenditures? Simply because they do not perceive any value in doing so. As they see it, most of their domestic spending is not deductible in computing one’s taxable income.
But Mrs. Rule sees things differently. Her goal is to become financially independent—in her case, to have $5 million by the time she and her husband retire. She believes that budgeting and accounting for domestic consumption is directly related to achieving this goal. In her view, tabulating helps control consumption. It also reduces the probability of allocating too many dollars to product and service categories that are not really important. Mrs. Rule has always tabulated expenditures for her business. She realizes that the same system she used for business accounting can be used for domestic purposes. This is an advantage of being a self-employed business owner.
Mrs. Rule wants to be free of financial worry before her sixty-fifth birthday. Each time she tabulates, she tells herself she is reducing her fear of never being able to retire in comfort. Who has concern about their financial future? Not Mrs. Rule. Although she has an annual income of $90,000, she’s worth more than twenty times that amount. And she is in control of her household’s domestic spending.
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Robert and Judy, on the other hand, are frightened. And they should be. This couple earns $200,000 annually, or more than twice what Mrs. Rule earns. Yet, like so many of today’s high-income-producing couples, Robert and Judy have only a fraction of Mrs. Rule’s wealth. They feel that consumption controls them, not the other way around. Even Mrs. Rule might find it daunting to have to account for $200,000 in expenditures each year. Robert and Judy have fourteen credit cards; the Rules have two (one for business use, the other for domestic spending).
Let’s talk about credit cards for a moment. Ask a large sample of millionaires a simple question about their credit cards. The results will give you an excellent idea of who these millionaires really are.
Mr./Mrs. Millionaire:
Please indicate, by circling the appropriate number, the credit cards that you or any member of your house possesses. Circle all those that
apply.
Now close your eyes and pretend you are a millionaire with a net worth of nearly $4 million. What credit cards would be congruent with your station in life? Perhaps at the top of your list would be American Express Platinum, Diners Club, or Carte Blanche. Perhaps you consider yourself a fashion-sensitive millionaire. You may list credit cards from Brooks Brothers, Neiman Marcus, Saks Fifth Avenue, Lord & Taylor, or even Eddie Bauer. You would be in the minority of millionaires if you did list these cards. The results from our national survey of millionaires reveal some interesting credit card preferences (see Table 2-2). Some highlights:
◆ Like most American households, most wealthy households have a MasterCard and a Visa card.
◆ The millionaire household is four times more likely to hold a Sears card (43 percent) than a Brooks Brothers card (10 percent).
◆ Both Sears and Penney’s cards are significantly more popular among the wealthy than the cards of status retailers.
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◆ Only 21 percent of the wealthy households in America hold the Neiman Marcus card; 25 percent, Saks Fifth Avenue; 25 percent, Lord & Taylor; and only 8.1 percent, the Eddie Bauer card.
◆ Only 6.2 percent of the millionaire respondents hold the American Express
Platinum card; 3.4 percent hold Diners Club; and fewer than 1 percent own Carte Blanche.
TABLE 2-2 CREDIT CARDS OF MILLIONAIRE HOUSEHOLD MEMBERS (N=385)
CREDIT CARD, PERCENT POSSESSING
Visa, 59.0
MasterCard, 56.0
Sears, 43.0
Penney’s, 30.4
American Express Gold, 28.6
American Express Green, 26.2
Lord & Taylor, 25.0
Saks Fifth Avenue, 25.0
Neiman Marcus, 21.0
Brooks Brothers, 10.0
Eddie Bauer, 8.1
American Express Platinum, 6.2
Diners Club, 3.4
Carte Blanche, 0.9
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QUESTION 3: DO YOU HAVE A CLEARLY DEFINED SET OF DAILY. WEEKLY, MONTHLY, ANNUAL, AND LIFETIME GOALS?
The source of this question came from a decamillionaire whom we interviewed a dozen years ago. He told us that he started a wholesale food business at the age of nineteen. He never finished formal high school but did eventually receive his high school equivalency diploma. We asked him to account for the fact that although he was a high school dropout, he had accumulated over $10 million. His response was as follows:
I have always been goal-oriented. I have a clearly defined set of daily goals, weekly goals, monthly goals, annual goals, and lifetime goals. I even have goals to go to the bathroom. I always tell our young executives that they must have goals.
Mrs. Rule also is goal-oriented. So are most other millionaires. For every 100 millionaires who answered “no” to this question, there are 180 who answered “yes.” Who are the “noes”? Many of the high-income and inherited-wealth types discussed in the last section. Many senior citizens and retired millionaires who have already reached most of their goals also answered “no.” You may wish to reflect for a moment on the comments made by an eighty-year-old multimillionaire:
Authors: The first question we always ask is about goals. What are your current goals?
Mr. Clark: It was $438 an ounce yesterday in London!
After Mr. Clark turned on his hearing aid, we repeated the question.
Mr. Clark: Oh, goals, not gold.... I see. My goals. I’ve accomplished what I’ve tried to do.... My long-range goal was, of course, to accumulate enough wealth so I can get out of business and enjoy life. I’ve been down the road.... I’ve got an international reputation. Mine is one of the greatest welding companies in the world. I never want to retire. But now my goal is my family and self-satisfaction about what I’ve accomplished.
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Mr. Clark is typical of seniors who have accumulated significant wealth. By the way, only two millionaires of all those we interviewed ever told us that their goal was to “spend my last dollar the day that I die!”
Neither Mr. Clark nor Mrs. Rule has such a goal. Mrs. Rule plans to leave educational trusts for all her grandchildren. She also wants to enjoy life now and after she retires. She wants to be financially secure. Her financial goal is to accumulate $5 million. Mrs. Rule knows how much she needs to set aside each year to attain her goals.
But is she happy? That’s a question very often asked of us regarding frugal millionaires. Yes, she is happy. She is financially secure. Mrs. Rule enjoys being part of a close-knit family. Her family is everything to her. Her life and her goals are simple. Mrs. Rule does not need a CPA to do her goal-planning for her, although she does seek his counsel in regard to both her domestic and business-related needs. But Robert and Judy, our high-income/low-net worth couple, are in dire need of a strong and intelligent guiding hand. They need a CPA who has considerable experience in changing his clients’ orientations, one who will help them change their household environment from one of chaos and hyperconsumption to one of goal-oriented planning, budgeting, and controlling. Will they then be happy? We don’t know, but we can tell you this:
Financially independent people are happier than those in their same income/age cohort who are not financially secure.
Financially independent people seem to be better able to visualize the future benefits of defining their goals. Mrs. Rule, for instance, visualizes all her grandchildren graduating from college. She visualizes their success after college. She never sees herself being financially dependent on others, even if she is disabled in the future. Her goals are congruent with those of most millionaires in this regard.
QUESTION 4: DO YOU SPEND A LOT OF TIME PLANNING YOUR FINANCIAL FUTURE?
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For every 100 millionaires who answer “no,” there are 192 who answer “yes.” Again, many who answer “no” are either high-income types with relatively low levels of accumulated wealth, those who inherited all or most of their wealth, or wealthy seniors/retirees.
People such as Mrs. Rule accurately label themselves as planners. In fact, the responses to this question are highly correlated to the actual hours the respondents allocate to planning their financial futures. On average, millionaires spend significantly more hours per month studying and planning their future investment decisions, as well as managing their current investments, than high- income nonmillionaires. The hours allocated to planning and managing finances are detailed in Chapter 3.
Millionaires like Mrs. Rule not only spend more time planning their finances than nonmillionaires, they also seem to get more out of their planning hours. Remember, Mrs. Rule is not only in the auctioneering business. Her job includes appraising the value of what her company auctions. Often Mrs. Rule invests in those same areas in which she has considerable expertise. In this regard she is like many millionaires. They astutely allocate their time so that they can plan their business and personal investing at the same time. We often find that highly productive auctioneers are also excellent investors. Take, for example, an auctioneer who specializes in auctioning commercial real estate. What area of investments does he know a great deal about? Commercial real estate. He is his own investment analyst. What if your auctioneering specialty is antique furniture and American firearms? Should you invest in high-tech securities? Probably not. But you would be wise to use your expertise to help you make your investments. If you’re well versed in antiques, why not leverage your knowledge?
You don’t have to be an auctioneer to benefit from your knowledge. One of our associates was formerly the head of strategic planning at a major corporation. Part of his job was to study a wide variety of trends across a wide variety of business categories. Years ago he discovered that the demand for investment-grade baseball cards would likely explode someday. This was long before the market reflected this trend. He invested heavily when the market was “asleep,” in his words. And he sold out all his holdings—including all his Mickey Mantle rookie cards—at the top of the market. Another acquaintance, a manager of a department store, always studied trade journals to learn how to make his store more productive. Later he leveraged his reading habits into investing in growth stocks in the retailing area.
How much time do non millionaires allocate to planning and managing? Not enough! As previously stated, much less than millionaires. Although millionaires have much more experience in making investment decisions, they allocate significantly more hours than do non millionaires in an effort to become even better investors. That is one of the main reasons that millionaires remain wealthy.
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Business owners like Mrs. Rule certainly have more freedom than people who are not self-employed. She can and does leverage her business knowledge with her personal investing habits. She can pick her area of business and the one she wants to study. Often employees don’t have this luxury. But even among those who do have significant knowledge about excellent investment opportunities, many do not leverage this knowledge. Consider the following examples:
◆ A highly productive sales professional (we will call him Mr. Willis) had Wal-Mart as a client for more than ten years. All during this time, Wal-Mart was exploding in growth and value. How many shares of Wal-Mart did Mr. Willis, the six-figure-earning sales professional, ever purchase? Zero. Yes, zero, even though he had considerable first hand knowledge of his client’s success and an annual six-figure income. But he did purchase a foreign luxury car every two years during this time.
◆ A high-income-producing marketing manager, Mr. Petersen, was employed in the high-tech field. But he never invested a dollar in Microsoft or any other growth company. Never, in spite of having considerable knowledge about many of the firms in the technology industry.
◆ The owner of a printing business enjoyed having one of the leading beverage companies in America as a customer. The customer bought millions of dollars’ worth of printing from him annually. But how much money has the printer invested in his customer’s equity offerings? Zero.
In all three cases, the person makes a higher income than does Mrs. Rule. Yet none is a millionaire. In fact, Mr. Petersen, the marketing manager, has zero invested in stocks. He never invests any of his income. But he lives in a $400,000 home that is surrounded by others in the high-tech field who have big hats and bigger mortgages, but no cattle. Too many high-income/low-net worth types live from paycheck to paycheck, fearing a sudden downturn in our economy.
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