The Discreet Millionaire

Who do you consider rich? With what income are you considered rich? For now, we’ll put aside the platitudes that say you’re rich if you’re healthy, have a happy and loving family, close supportive friends, and lots of interests. Of course, these are the reasons we live and money can’t buy those treasures. But as Spike Mulligan once said, “Money brings you a more pleasurable form of misery.”

These characteristics of the vast majority of millionaires in the United States may surprise you:

• Live in a house under $400,000.
• Most likely he is wearing a Timex watch.
• Pay $15 or less for a bottle of wine.
• I never paid more than $400 for a suit.
• You are more likely to drive an Acura than a BMW.
• Spend little on fashion brands and luxury items.

Figures from the Tax Policy Center say that if your annual household income is $107,628, you are in the top 20% of income earners. If it’s above $148,687, you’re in the top 10%. The top 5% earn more than $208,810. And if your household income is over $521,411, congratulations. You are one of those “1%ers” and probably demonized by those who see hard work and risk taking as a matter of luck or good genes. However, just like a business, your personal balance sheet should be the determining factor. If you make $200,000 a year, it doesn’t do you any good if you spend $210,000.

In fact, it may just Appear rich instead of actually being rich.

Take, for example, the recent news about NBA legend Alan Iverson. Amazingly, a man who before the age of 35 had amassed a fortune more than the average person will see in his lifetime had thrown it all away. To quote the article: “Iverson spent his money at an alarming rate on flashy jewelry, expensive cars, and other frivolous purchases. In 2012, a Georgia judge garnished his wages to settle an $859,896.46 debt to a jeweler.”

Hey? Almost a million dollars for a single jeweler! Here is a man who not only looked rich, but actually was. But because the desire to appear rich overwhelmed him, he is now begging on the street. He can receive $30 million from a trust, but not until age 55. It will be interesting to see if he learns his lesson, if he can survive until then. I’m guessing $30 million will be gone before he reaches “official” retirement age.

This is why net worth is a much better indicator of true wealth than income. The Federal Reserve Survey of Consumer Finances indicates that a net worth of $415,700 puts you in the top 20% of households. You are in the top 10% if your net worth is $952,200. (Dr. Thomas J. Stanley – author of the millionaire next door – says one in eight American households has a net worth of $1 million or more. That’s close) If your net worth totals $1,863,800, you’re in the top 5%. And if you have a family net worth of $6,816,200, ta daa- you’re in the top 1%…and possibly frowned upon by redistributionists who resent people who live below their means, save regularly, and manage their financial affairs. with prudence.

Most millionaires are the opposite of being big spenders. They spend far less than they can afford on all common property assets. Would-be’s, on the other hand, (people with average or higher-than-average income but little net worth) are merely “aspirational.” They buy expensive clothes, premium wines, luxury cars, and often more houses than they can comfortably afford.

It’s ironic that the very thing that makes them LOOK rich prevents them from BEING rich.

So how do you get rich if you’re not currently? The basic formula is quite simple: maximize your income (by upgrading your education or job skills). Minimize your responsibilities (living below your means). Save the difference in an IRA or 401K (I know that’s easier said than done) and follow proven investing principles.

Surely you must learn to be frugal. But eventually, being financially free, being able to do and go where you want, not having to depend on a stupid boss or the federal government is what I consider rich. What feeling.

Some people refuse to change, but the bottom line is clear: If you want to be rich, you have to stop looking rich and start living like the many real millionaires you won’t see on TV.