Millionaires' Income: 8.2% of WealthPosted on November 27th, 2012
Five years ago Brit, 36, and his wife were upside down on their heavily mortgaged home, had a negative net worth and owed more than $60,000 on their credit cards alone. Today the couple has a positive net worth of about $20,000. Brit explains that paying off their debts was extremely difficult and took much sacrifice. The couple is genuinely proud of this accomplishment. But, in spite of this, Brit reports that he is depressed . . . "bummed out. . . I can't see how we are ever going to become wealthy even with us both working our tails off."
People who believe that they will never become wealthy generally fulfill this hypothesis. I explained to Brit, who was once a member of the ultimate income statement affluent club, that he has an excellent chance of becoming a millionaire next door type and that the typical millionaire next door is 57 years old. The Bible states that those with faith and hope can achieve a great deal. Even those with faith the size of a grain of mustard seed will likely reach their intended goals.
The will and discipline that this couple demonstrated in paying off its considerable debt is telling. The same determination can be used in setting aside at least 15% of their income for savings and investing.
What should you anticipate as a typical member of the millionaire next door fraternity? One, given the calculation via the Wealth Equation, actual net worth exceeds its expected value by a factor of 2 or more. Two, the market value of the home is less than 20% of net worth. Three, debt totals the equivalent of less than 5% of net worth. Four, annual income tax is the equivalent of about 2% of net worth. Five, total annual realized income is approximately 8.2% of net worth [median], or the equivalent of $8.20 of income for about every $100 of wealth.
This $8.20 figure from my own research is fairly congruent with the findings of other researchers. For example, three scholars employed by the Treasury Department, Johnson, Raub and Newcomb, compared the wealth characteristics of millionaires via 36,352 federal estate returns who passed away in 2007 with the incomes of these decedents when they were living. Those millionaires who were married and under the age of 70 [like the large majority of the millionaire next door types that I have surveyed] realized the equivalent of $8.45 for every $100 of their net worth. This figure is within approximately 3% of the dollar figure ($8.20) that was determined from my surveys.
Post A Comment
Comments are moderated and generally will be posted if they are on-topic and not abusive. For more information, please see our Terms & Conditions
Most Recent Posts:
Most Recent Comments:
- Michiko on Ivy League Achievers
- Sam S. Pittsburgh on J.C. Penney Patronized by The Millionaire Next Door
- Martin Bayley on Integrity, The Bedrock of the Road to Success
- Sam Smith on Why Are the Rich Rich and the Poor Poor?
- Will L. (First Quarter Finance) on Why Are the Rich Rich and the Poor Poor?
- Victoria on Why Are the Rich Rich and the Poor Poor?
- Jill Boyer on Public School, Private School, Home School
- John on Enlightened Parents Teach Their Children the Benefits of Independent Thought
- Grace on Enlightened Parents Teach Their Children the Benefits of Independent Thought
- James Milo Hatch on Childhood Experiences Often the Foundation for Success