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Fewer Millionaires in the U.S. – Does this Surprise You, and What Does it Mean?

Doesn’t everyone want to reach 7 figures?

Becoming a millionaire has historically been a mark of great financial accomplishment. While it may not be quite the same grand accomplishment of days gone by due to the time value of money, millionaire status is something that many people would like to reach. However, there were apparently less millionaires in the U.S. in 2011 according this interesting CNN Money article.

The article reference data that estimated 129,000 fewer millionaires in the U.S., despite a global increase of 175,000. 4.3% of people were estimated to be millionaires, versus 17% in Singapore. Additionally, when looking at ultra high net worth people, the percentage in the U.S. did not make the top 15.

Surprised? Actually, I am a bit surprised.

Now, I do realize that there have been economic troubles here in the last few years, as I have personally felt some effects. However, there are people out there making money, as there are some technology companies we know and love (maybe) that have been in the news for making serious money. Plus, it seems like the barriers to entry for entrepreneurs have come down, with opportunities opening up for many.

Nevertheless, there are some parts of the country that have been hit so hard in recent years that it may be hard to recognize when living elsewhere. The extreme plight of someone in a rust belt city like Detroit might be completely lost on some people from, say, the San Francisco area, who are in the midst of growth and business creation and don’t see the utter devastation of a formerly prosperous area. Maybe to some people, this is hardly a surprise at all!

It gets me thinking about two things:

Is it truly harder to get ahead these days versus in days past?
Will the financial and lifestyle expectations of our kids and future generations will be different than they had been in the past?

You know, it seems as if there are still many opportunities to grow net worth. A starting point is getting a good education, as there is much evidence that education helps wealth (just be very careful with student loan debt). Beyond this, being disciplined and making good career decisions, saving a solid percentage of income, and discerning wants from needs can all help one reach aspirational goals. We can of course be derailed by bad health, bad luck, and other misfortunes – but making good decisions and following time-tested advice should help us go a long way, right?

According to the referenced data, 4.3% of the U.S. population is at millionaire status. While I’m in the other 95.7%, I still think that depending on where one lives and what choices are made, there are opportunities out there to succeed. I want to think positively 🙂

My Questions for You:

Does the data on millionaires (less in 2011, plus lower percentages in the U.S. than other countries) surprise you?
Do you think it’s harder to get ahead these days than in days past?
Do you think the expectations of future generations might be lower than today or a generation ago?

Millionaire Goal? Consider Time Value of Money

By Squirrelers 12 Comments

Having a million dollars would be great, wouldn’t it?

Yes, of course it would be! For most of us, it’s not likely that we’re making that annually, but it’s possible that we might eventually save that much. Financial independence would be ours!

Or not.

It’s always interesting to me how we read about the amount of money one could have, if you just saved X amount per year and earned Y percent rate of return. I do these calculations too, and have included such analyses here on Squirrelers as well.

The catch – which I regularly point out – is the time value of money. Why is it that we don’t read more about this? In my MBA program, it was one of the more basic, useful concepts that I learned early on. A dollar today is worth more than a dollar tomorrow, except when there’s deflation – which we don’t want of course.

Example:

Let’s say that someone is saving for a goal of becoming a millionaire in the next 5 years. If this is a realistic goal for you, that’s fantastic. Assuming 3% inflation, that million dollars in 5 years will equal $862,608 in today’s dollars. So, that original million dollars will be able to buy about $862,608 of goods based on today’s prices.

Calculation: $1,000,000 / (1.03) ^5

Fair enough.

The thing is, the further your time horizon, the lower the purchasing power of that future $1 million becomes. Expanding the timeframe further, and keeping the same 3% discount rate, we can see this illustrated more clearly:

Present Value today of $1 million in 10 years = $744,094

Present Value today of $1 million in 20 years = $553,676

Present Value today of $1 million in 30 years = $411,987

All nice sums of money, but not the $1 million windfall that would meet the eye without discounting back these sums at 3%.

I really think that the concept of purchasing power, and how it erodes over time, is a basic fundamental of personal finance and planning for the future. People need to plan accordingly in terms of income, savings, and rates of return, in order to be able to plan for the future. My perception is that the average person out there does not think about this concept when planning for the future.

Of course, many people do absolutely no planning for the future in the first place, which is not good. We know better, being personal finance enthusiasts, whether we’re bloggers or not.

Questions for You:

At what point did the light bulb go on for you, when you realized the need to base future retirement funds on the purchasing power of the time at which you plan to retire?

Do you think that this is something that the average citizen out there really even considers?

Getting Fired Up While Learning the Secrets of Millionaires

By Squirrelers 17 Comments

Would you like to be a millionaire? If you aren’t already, I’ll bet you would like to be one. Who wouldn’t?

To that end, it’s a good idea to understand some of the habits that millionaires have. Now, having said that, there is much advice like this out there. Additionally, many of us who blog on personal finance or read such blogs are already either:

Cognizant of such approaches and working to incorporate them into our routines;or
Actively employing such strategies already

That said, it’s a good idea to step back and revisit the topic periodically, in order to keep ourselves on track to financial success. Along those lines, I came across an article at U.S. News & World Report which I thought was worth exploring.

It’s called “10 Secrets of Millionaires’ Money Management”. Below, I’ll list the 10 “secrets” from the article, and provide my own comments:

Start Early to Avoid Financial Pitfalls. Sure, it’s important to avoid pitfalls. As I have said before, don’t lose money as it’s harder to recover than might meet the eye. Living within one’s means, and saving while young, provides a foundation for avoiding crippling debt and surviving issues that may come up in life. Issues can take many forms that could be unexpected as well, including reverse mortgage pitfalls, accidents, and things of the like
Believe That You Can Do It. I really like this one, and think it’s especially important. Sometimes it’s our expectations that we somehow align our actions and decisions to. If we expect to struggle, we probably will. If we believe that we can succeed, we’ll have a better chance. Be confident. More on this after the 10 secrets.
Articulate Your Vision For Success. It’s important to have a strong sense of where you want to go. If you’re nebulous, you’ll be more likely to drift. Working toward a specified goal can help you get to the place you want to be in a more efficient manner. I have such thoughts in my mind, and can articulate them.
Insuring Against Life’s Risks. Very important, and one area that I’m shoring up now. You never know what could happen to your physical or mental capacity to generate income. Additionally, major life events could wreak havoc with finances as well. It’s important to insure against such risks, as we have discussed before here. One way to insure against certain risks is with a system
Work Hard and You’ll Get Lucky. The article quotes Ben Franklin’s fantastic saying of “The harder I work, the luckier I get”. I think it’s also important to work smart, as hard work alone might not get us where we need to go
Practice Smart Budgeting. I agree with knowing where your money goes. Even if you don’t spend the time tracking every penny every month, at least do it periodically to “audit” your expenses and money management performance. This is how I have done it in the past, and find that works well.
Do What You Love. I’m working on this one. When I was younger, I thought that it was all about making money, not necessarily liking what it is you’re doing. As I have gotten older, I realize that life is a gift, and we need to enjoy it. The thing is, we need to enjoy it responsibly. With a family and major responsibilities, sometimes we have to be careful with risks to our income streams and just make money. Ideally, though, if we do what we truly love, our passion will shine through and we’ll be successful in the long run. Or so the story goes. I do actually believe that to a large degree, but one must balance this with the reality that some careers do pay more and offer better options than others.
Decide How Much You Really Want. The way I see it, this is a matter at trying to project your future needs, as well as the lifestyle that you think you’ll want. Now, while nobody knows yourself like you do, you might not know the future you perfectly well as of today. Things change. I think it’s important to think of all the things you might want to do in life, leaving some room for new ideas to come into play, and work toward those goals. A big part of this is financial planning, by saving and investing toward those goals.
Invest Against the Grain. Zig when the market zags. I think it takes some real guts to do that. For example, would you buy tons of distressed property right now, with the hopes of a big bounceback? Many people have been hit hard in real estate, and the thought of making money on it seems to be so yesterday, so to speak! To the contrarians, it’s an opportunity. Anyway, I of course see merit to this, but not everyone will be able to follow through. Smart value investments can yield significant profits down the road.
Live Within Your Means. This goes without saying: maximize your savings minus expenses gap. If your income level increases, try to keep your expenses from rising as well. Don’t overextend your self.

One thing I think is additional advice that the article may have missed is the propensity to avoid debt, while paying cash for purchases. If one is taking on significant debt, it becomes a case of servitude to the lender. Where’s the progress there? Debt reduction is important. Paying cash for purchases as a rule is a good approach, in my opinion. It sounds like depression-era thinking, and maybe it is. But avoiding loans and interest obligations can go a long way to building your financial future.

Anyway, of the 10 “secrets”, the one that jumped out at me as a big hurdle for many – including myself, at times – is confidence that we can do it. Sometimes it seems daunting, but if you give up, you probably won’t get there. If you’re fired up, and want it enough, you have a chance at the least.

Speaking of fired up, I have always liked the scene below, from Jerry Maguire. Check out the Youtube clip and see someone get fired up!

httpv://www.youtube.com/watch?v=OaiSHcHM0PA

Stealthy, Quirky Millionaires are Among Us

By Squirrelers 5 Comments

They’re out there. Lurking in our midst. Frugal, seemingly modest-living people, that are quietly hiding their secret.

What’s that secret? They’re millionaires.

I came across this story from The Seattle Times that was yet another example of a stealthy millionaire. This particular example was of a lady who recently passed at the age of 98.

We often hear about people who made their millions in seemingly typical ways: business, fame, inheritance, etc. But we also hear stories about everyday people that become millionaires through frugal living. Some of these can be quite boring, yet inspiring. Work at a job, do a 401k rollover when moving to each new job, and let the money accumulate and compound. Yet other stories, inevitably, are inspiring and compelling.

This one I find to be of the latter variety. This lady did not just live within her means, it would appear, but would go well out of her way to pinch pennies:

She bought a coat for $2, then used the zipper to lace her shoes (why pay for shoe laces?)
She never went to a salon; rather, she cut her own hair or used a wig
She would heat her home with wood she hauled in with a wheelbarrow, even into her 90’s; she didn’t want to pay to heat her home

What she also did, besides living within her own means, was become knowledgeable about investments. She apparently studied finance on her own, and became self-taught in the subject, though she held such hard jobs as picking cranberries, shucking oysters and filleting fish. Is a million dollars not enough? Maybe to her that’s the case!

So, this is a lady who:

Lived within her means
Worked to grow her income through investments

The result was a $4.5 million nest egg, of which she left $1.o million for the local school district and $3.5 million for her town to build an indoor swimming pool. Very interesting choice, with the pool, but I give her credit – she did it her way. Kudos to her.

I’m a proponent of trying to live with an income minus expense gap that facilitates saving, having a sound stock investment strategy, and also trying to grow the top line through career management. While there wasn’t career management involved here, she followed the general framework of saving and investing.

A compelling story, odd yet inspirational in its own way. An ordinary person who successfully saved money, and left for causes dear to her. As long as someone doesn’t hide their wealth to mislead or take advantage of others, why not be private if you choose?

What do you think? Is this inspiring to you, or just plain quirky?