Nearly 9S per- cent 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. 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. According to her husband of thirty-one years, she said, "I appreciate this, I really do. Nothing is so important as to interrupt her Saturday-morning chores. Made a lot of trade-offs Well, let's examine your lifestyle.
Is it one of great offense? 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 earners are in the same situation, but not most mil- lionaires.
Millionaires play both quality offense and quality defense. The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning. We have discovered that several occupa- tional groups contain large numbers of budgeters and planners. This percentage is slightly higher than the pro- portion of millionaire households living in America's finest urban and suburban neighborhoods. 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. 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. All the while, bidders were walking away with everything she once owned.
Let's ask the typical American self-made millionaire about her defense. We will refer to her as Mrs. Jane Rule. They also invest in several of the categories of items they appraise. 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 enter- prise.
It's her planning, designing, budgeting, bill collecting, and mar- keting that made this auctioneering company successful. Why are Mr. Rule millionaires today? Because Mrs. Rule plays tremendous defense! She is responsible for budgeting and spend- ing for both her household and their business.
Is anyone in your household responsible for budgeting? All too often the answer is "not really. When we tell our audiences about the budgeting and planning habits of the affluent, someone always asks a predictable question: Why would someone who is a millionaire need to budget?
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.
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 con- trol your spending. You don't take the time to budget or plan. Note that under accumulators of wealth spend three times as much time exercis- ing per month as they do planning their investment strategies.
Rule is different. She's like most millionaires. She's disciplined. She takes time to plan and budget. This translates into wealth. Rule's household income varies from year to year. It is typical for auc- tioneers to have ups and downs in their cash flow. Often downturns in our nation's economy translate into increased demand for auctioneer- ing services. But her net worth keeps increasing.
Today Mrs. 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?
Rule does, and so do most millionaires. In fact, in our latest national survey of mil- lionaires, we found that for every millionaires who don't budget, there are about 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 nonbudgeters 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 envi- ronment 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. Technically you're a millionaire. But spiri- tually you're an under accumulator of wealth. 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. It's unlikely. Who wants to read about Mrs. 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 indepen- dent. It's much easier to budget if you visualize the long-term benefits of this task.
Almost two-thirds of the millionaires surveyed So did Mrs. But only about 35 percent of high-income-producing nonmillionaires answered "yes" to this question. Notice that we did not include mortgage payments in our list. Certainly most millionaires who have mortgages outstanding also take advan- tage of this provision. But most millionaires also account for their other categories of domestic expenditures.
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 expendi- tures?
Simply because they do not perceive any value in doing so. As they see it, most of their domestic spending is not deductible in com- puting one's taxable income. But Mrs. Rule sees things differently.
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 proba- bility of allocating too many dollars to product and service categories that are not really important. Rule has always tabulated expen- ditures 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.
Rule wants to be free of financial worry before her sixty-fifth birthday. Who has concern about their financial future? Not Mrs. And she is in control of her household's domestic spending. Robert and Judy, on the other hand, are frightened.
And they should be. 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. 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. 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. What credit cards would be congruent with your station in life? Perhaps you consider yourself a fashion-sensitive millionaire. You would be in the minority of millionaires if you did list these cards. The results from our national survey of mil- lionaires reveal some interesting credit card preferences see Table The source of this question came from a decamillionaire whom we inter- viewed 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. 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. Rule also is goal-oriented. So are most other millionaires. For every millionaires who answered "no" to this question, there are who answered "yes.
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. What are your current goals? After Mr. Clark turned on his hearing aid, we repeated the question. Mt: 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. 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! Clark nor 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. 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. Rule enjoys being part of a close-knit family. Her family is everything to her. Her life and her goals are simple. Rule does not need a CPA to do her goal-planning for her, although she does seek his coun- sel in regard to both her domestic and business-related needs.
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, bud- geting, and controlling. Will they then be happy?
Financially independent people seem to be better able to visualize the future benefits of defining their goals. Rule, for instance, visual- izes 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. 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 study- ing 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 pro- ductive 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. Not enough! As previously stated, much less than millionaires. Although millionaires have much more experience in making invest- ment decisions, they allocate significantly more hours than do nonmil- lionaires in an effort to become even better investors. That is one of the main reasons that millionaires remain wealthy. Business owners like Mrs. Rule certainly have more freedom than people who are not self-employed.
She can and does leverage her busi- ness 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 knowl- edge about excellent investment opportunities, many do not leverage this knowledge. 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? Yes, zero, even though he had considerable firsthand 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.
Petersen, was employed in the high-tech field. But he never invested a dollar in Microsoft or any other growth company. Yes, they want a career, and yes, they want a good life, but knowing what to. Praise for Marketing to the Affluent: "Dr. Stanley's prospecting techniques saved me thousands of hours of tedious work normally given to cold calls and mailer leads.
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