America is the land of millionaires. According to a recent study, almost 11.8 million U.S. households had a net worth of over a million dollars. That is a higher number than the entire population of Greece. In 2018 alone, America saw 250,000 new millionaires.
One revenue source
When talking about millionaires, people instantly picture them as if they were a jack of all trades, dabbling in real estate, stocks, foreign investments, and so on. But the reality is quite different. Most millionaires usually have just one income source in the beginning — their job. Usually, it tends to be a high-income job that allows them to invest a significant portion of savings in assets. Real estate remains the top-most invested asset of millionaires. Once their real estate investments start generating profits, they begin spending more time in investment activities. However, many also opt to outsource such things to investment managers, since they often have demanding jobs that eat away a lot of their daily time.
No formal estate plan
It is estimated that only 4 out of 10 Americans have a will. With millionaires, one would assume that they would be more interested in organizing their wills or trusts. But research shows that this is not the case at all. According to a survey conducted by CNBC, almost 38 percent of millionaires were found to not have established an estate plan. Those who were Republicans set up a will more often than Democrats or Independents. Most millionaires, like regular Americans, do not have any grand plan for how their wealth is to be used after their death. They tend to procrastinate preparing their wills, choosing to do it at some future time.
Focus on savings
Millionaires focus on saving as much money as possible. According to a study, the median millionaire earns US$250,000 per year, spending just US$90,000 and saving the rest. If taxes are not taken into consideration, this would be an astounding savings rate of 64 percent. The actual savings rate is likely closer to 40 percent, which is still exceptionally impressive. While not all millionaires will have such a high savings rate, it is safe to say that most do save a lot more than the average American. These savings are what become the foundation of their future wealth and prosperity.
Interestingly, many also don’t have any clear-cut budgets. They just spend a portion of their monthly income the way they want while keeping hands off the money that needs to be saved. They do not underestimate the power of savings, no matter how small. According to one study on smokers, a certain percentage of them smoked three packs of cigarettes per day over a period of 46 years. If this money alone was invested year after year for 46 years, the person could have developed a portfolio worth US$2 million. Now, imagine how much wealth millionaires create by investing thousands every month!
There is a misconception that most millionaires tend to inherit their wealth. This is not true, at least in the U.S. According to a 2012 report by Fidelity, almost 86 percent of millionaires were found to have been first-timers who made their wealth through sheer hard work. Of these, 30 percent admitted to having a tough time while young. According to the book The Millionaire Next Door, four out of every five American millionaires are self-made. Interestingly, most of the wealth they create usually disappears by the second or third generation as their children end up blowing it all on expensive lifestyles.