Money Management Secrets of Millionaires

Money Management Secrets of Millionaires… Presented by: Jennifer Caravella UW-Extension Waushara County Taken and adapted from the work of: Dr. Thomas J. Stanley and William D. Danko authors of “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy”

Money Secrets of Millionaires… • This presentation is based on findings in the book, “The Millionaire Next Door: Surprising Secrets of America’s Wealthy” • Authors: Drs. Thomas J. Stanley and William D. Danko • Book is based on their research of American millionaires since 1973

Thomas J. Stanley, PhD. • Dr. Stanley, is an author, lecturer, and researcher who has studied the affluent since 1973. • He is the author of numerous best-selling books about affluence. • Dr. Stanley was formerly a professor of marketing at Georgia State University

William D. Danko, Ph.D. • Dr. Danko is associate professor at the University at Albany, State University of New York. • Author of numerous publications in leading academic journals. • In 1973, Dr. Danko assisted Thomas J. Stanley with his first study of the affluent. Since then, he has collaborated with Dr. Stanley on numerous academic and consulting studies.

***Presentation Disclaimer • Viewing one PowerPoint Presentation will not cause a person or persons to become “wealthy” • Adapting some or many of the daily strategies self-made millionaires practice will likely lead to increased familyfinancial security.

***Presentation Disclaimer (cont.) *Financial security refers to a families’ ability to meet ongoing economic needs and prepare for the planned and unplanned future(like the death of a spouse/job loss/illness) Definition by Michael Gutter, Family Financial Management Specialist, University of Florida.

Money Secrets of Millionaires… Trivia question….. If you want to be financially secure, who should you “hang around” with? a. Individuals who always seem to have money to spend on “fun” things and places. b. Individuals who drive really expensive cars and live in big houses? c. Individuals who keep track of what they buy and always spend less than they earn.

Definition of wealth… Webster defines wealth as: “having an abundance of material possessions.” **The problem with this definition is that many who display high consumption lifestyles (with lots of material possessions) have low net worth.

Drs. Stanley and Danko’s definition of wealth… 1.) Individual has at least a million dollars in net worth (assets – liabilities = net worth) The authors argue that this level of wealth can be attained in one generation. 2.) Not someone who earns a million dollars annually and spends the entire amount

America’s wealthy… 7% of U.S. households have a net worth more than $1,000,000 2007 data from William D. Danko survey

Assets – Liabilities = Net Worth { Savings Acct 500.00 Equity in home 40,000.00 Paid off car value 2,500.00 Retirement Acct. 40,000.00 Total Assets 83,000.00 House loan 30,000.00 Credit card 1,000.00 Total Liabilities 31,000.00 Assets { Liabilities 83,000 – 31,000 = [52,000.00 Net Worth]

Are you wealthy? Stanley and Danko’s formula for determining wealth: Multiply your age times your realized pre- tax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth is what your net worth should be. Example: 40yrs x $20,000 = 800,000 10 800000 = $80,000.00 in Net Worth

Assets – Liabilities = Net Worth { Savings Acct 500.00 Equity in home 40,000.00 Paid off car value 2,500.00 Retirement Acct. 40,000.00 Total Assets 83,000.00 House loan 30,000.00 Credit card 1,000.00 Total Liabilities 31,000.00 Assets { Liabilities 83,000 – 31,000 = [52,000.00 Net Worth]

“Millionaire Next Door”…. (Research from the book)

Research for “The Millionaire Next Door” • Compilation of more than 30 years of research of America’s wealthy • Personal interviews and focus group studies with more than 500 millionaires • Surveys of more than 11,000 high-net worth and/or high income respondents • Hundreds of hours analyzing in-depth interviews with self-made millionaires • Interviews with millionaire’s financial advisors

American Millionaires… • Are male, average age of 57 years • Married with three children • About one in five is retired • About two-thirds are self-employed • Earn 70 percent or more of their household’s income

American Millionaires… • Most consider themselves entrepreneurs • Types of businesses: welding contractors, auctioneers, owners of mobile home parks, pest controllers, coin & stamp dealers, paving contractors, rice farmers • About half of their wives do not work outside of the home • Annual taxable income of $131,000 (median) while average income is $247,000 (1994 data)

American Millionaires… • Live in older homes (30+ years) • Live in homes with an average cost of ($320,000) about 30% of $1 million • About half lived there for 20+ years • Most are still in their first marriage • Drive American made cars

American Millionaires… • Only 20% acquired their wealth through an inheritance • 80% built their wealth in a single generation • Most have wives who are planners and budgeters • Most have accumulated enough wealth to live without working for ten or more years

American Millionaires… • They are 6.5 times wealthier than their non-millionaire neighbors • Fairly well educated… 4 out of 5 is college educated…most hold advanced degrees • Most attended public schools, but 55% of their children attend private schools • Spend heavily for education for their children • Buy high quality goods, not necessarily the most expensive

American Millionaires… • Are frugal, frugal and frugal! • Have discipline! • Save, save, save • Live well beneath their means • Work between 45 and 55 hours per week • Invest nearly 20% of their realized household income

American Millionaires… • Recommend their children become attorneys, accountants or others who provide services to the wealthy • Believe that financial independence is more important than displaying high social status • Track how much they spend

American Millionaires… • Became wealthy by budgeting and controlling expenses (and they maintain their affluent status the same way) • Get professional financial advice • Review their receipts for errors before leaving a store

American Millionaires… • Develop and use a personal financial plan • Have a diversified portfolio of investments • Spend an average of $267 on a watch and less than $600 on their most expensive suit

American Millionaires… • Spend considerable time learning about their investments and hold on to them for at least six years • Often use last year’s household budgets to plan next year’s budget • Buy used cars (Most NEVER paid more than $30,000 for a vehicle)

American Millionaires… • Are proficient in targeting market opportunities • Chose the right occupation • Are very likely to frequently “clip coupons” • Avoid debt especially credit card debt

American Millionaires… • Engage in comparison shopping before making a significant purchase • May not produce millionaire offspring • Understand the difference between “needs” and a “wants” • Understand the difference between a “liability” and an “asset”

Millionaires Do Not… • Look like media’s portrait of a millionaire • Engage in “recreational shopping” • Spend all of what they earn • Let their incomes define their budgets

Millionaires Do Not… • Live lavishly and spend extravagantly • Hyper-consume • Let society or advertising influence their spending decisions • Provide economic outpatient care to their adult children

Summarizing quote… “The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.”

Are you “Millionaire Material?” • Building wealth takes discipline, sacrifice and hard work! • For most individuals this would mean re-orienting one’s current lifestyle

Tracking expenses is critical… Tools for tracking expenses: • Note book • Checkbook register • On-line banking • Computer programs like Quicken, Quick Books, or Excel • Billster: Free, on-line tool for organizing shared and personal expenses • myspendingplan.com: Free Internet-based budgeting program

Let’s look at Lynne’s Day-to-Day expenses… • What expenses do you feel Lynne HAD to have? • Which expenses could Lynne have gone without? http://www.dallasfed.org/ca/wealth/index.cfm

Using a spending plan is critical… Spending plans (aka “budgets”), help people control, monitor and plan for expenses.

Sample spending plans And other resources like: 1. Fact sheets, 2. Short lessons 3. Activities on a variety of financial topics

Personal beliefs about money… • Most spending decisions are based on personal values & beliefs about money. • Understanding our beliefs helps us control our spending.

Discussion questions… • Can you think of how you might apply some of this information to your own personal finances?

Discussion questions… • How might you share some of this information with family or friends?

Money Management Secrets of Millionaires