A FOUNDATION FOR BUILDING WEALTH
Today we are much wiser about the lifestyles of the affluent. When we interview millionaires these days, we offer a spread that is more congruent with their way of life. We provide them with coffee, soft drinks, beer, scotch (during evening sessions), and club sandwiches. Of course, we also pay them between $100 and $250 apiece. Occasionally, we offer additional incentives. Many respondents have picked a large and expensive teddy bear as one of their non monetary rewards; they tell us they have a grandchild who would be thrilled to receive a big bear.
It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles, and such. To them, superior people have excellent tastes in consumer goods. But it is easier to purchase products that denote superiority than to be actually superior in economic achievement. Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement.
What are three words that profile the affluent?
FRUGAL FRUGAL FRUGAL
Webster’s defines frugal as “behavior characterized by or reflecting economy in the use of resources.” The opposite of frugal is wasteful. We define wasteful as a lifestyle marked by lavish spending and hyperconsumption.
Being frugal is the cornerstone of wealth-building. Yet far too often the big spenders are promoted and sensationalized by the popular press. We are constantly barraged with media hype about so-called millionaire athletes, for example. Yes, some of the members of this small population are millionaires. But if a highly skilled ball player makes $5 million a year, having $1 million in net worth is no big deal. According to our wealth equation, a $5 million earner who is thirty years of age should be worth $15 million or more. How many highly paid ball players have a level of wealth in this range? We believe only a tiny fraction. Why? Because most have a lavish lifestyle—and they can support such a lifestyle as long as they are earning a very high income. Technically, they may be millionaires (have a minimum net worth of $1 million or more), but they
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A FOUNDATION FOR BUILDING WEALTH
Today we are much wiser about the lifestyles of the affluent. When we interview millionaires these days, we offer a spread that is more congruent with their way of life. We provide them with coffee, soft drinks, beer, scotch (during evening sessions), and club sandwiches. Of course, we also pay them between $100 and $250 apiece. Occasionally, we offer additional incentives. Many respondents have picked a large and expensive teddy bear as one of their nonmonetary rewards; they tell us they have a grandchild who would be thrilled to receive a big bear.
It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles, and such. To them, superior people have excellent tastes in consumer goods. But it is easier to purchase products that denote superiority than to be actually superior in economic achievement. Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement.
What are three words that profile the affluent?
FRUGAL FRUGAL FRUGAL
Webster’s defines frugal as “behavior characterized by or reflecting economy in the use of resources.” The opposite of frugal is wasteful. We define wasteful as a lifestyle marked by lavish spending and hyperconsumption.
Being frugal is the cornerstone of wealth-building. Yet far too often the big spenders are promoted and sensationalized by the popular press. We are constantly barraged with media hype about so-called millionaire athletes, for example. Yes, some of the members of this small population are millionaires. But if a highly skilled ball player makes $5 million a year, having $1 million in net worth is no big deal. According to our wealth equation, a $5 million earner who is thirty years of age should be worth $15 million or more. How many highly paid ball players have a level of wealth in this range? We believe only a tiny fraction. Why? Because most have a lavish lifestyle — and they can support such a lifestyle as long as they are earning a very high income . Technically they may be millionaires (have a minimum net worth of $1 million or more) , but they are typically low on the prodigious accumulator of wealth (PAW) scale.
How many households in America earn $5 million in one year? Fewer than five thousand of the nearly 100 million households. That’s about one in twenty thousand. Most millionaires never earn one-tenth of $5 million in a year. Most never become millionaires until they are fifty years of age or older. Most are frugal. And few could have ever supported a high-consumption lifestyle and become millionaires in the same lifetime.
But the lavish lifestyle sells TV time and newspapers. All too often young people are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.” Could you imagine the media hyping the frugal lifestyle of the typical American millionaire? What would the results be? Low TV ratings and lack of readership, because most people who build wealth in America are hard working, thrifty, and not at all glamorous. Wealth is rarely gained through the lottery, with a home run, or in quiz show fashion. But these are the rare jackpots that the press sensationalizes.
Many Americans, especially those in the under accumulator of wealth (UAW) category, know how to deal with increases in their realized income. They spend them! Their need for immediate gratification is great. To them, life is like a quiz show. Winners get quick cash andconspicuous gifts. Viewers of these quiz shows have lots of empathy for the contestants. Look at the top ratings such shows enjoy. People love to view their surrogate-other winning motor vehicles, boats, appliances, and money. Why don’t quiz shows offer tuition scholarships as prizes? Because most people want immediate gratification. They don’t want to trade a prize of, say, a camper van for eight years in night school, even though a college degree can translate into a value equivalent to more than a dozen vans.
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