Definition and Examples of Millionaires

Today, the most common definition of a millionaire is a person or a married couple whose net worth is greater than $1 million USD. Under this classification, the number of millionaires around the world has multiplied over the past century.

Note Despite inflation and subsequently weaker buying power, the U.S. dollar is the international measure for qualifying millionaires.

For example,suppose you have assets totaling $1,400,000 ($1.4 million) and liabilities totaling $200,000. In that case, your net worth would still be $1.2 million, meaning that you fit the definition of a millionaire.

Liquid Assets

Those who would argue that John is not a millionaire might say that only his liquid assets should be considered. These assets include his mutual funds, stocks, and cash.

Some people would also count the value of his retirement account, and others wouldn't. That's because those assets are protected from bankruptcy filings. Either way, John Doe is not a millionaire once those personal items are left out of the equation.

Yet another school of thought would adjust the value of John's house, car, and personal items. Surely, he needs to live somewhere, but he doesn't need a $350,000 house. This kind of wealth analysis would calculate a basic housing allowance for John. Then, it would credit any spending beyond that number toward his net worth.

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5. Increase Your Active Income

It is much easier to become a decamillionaire when

It is much easier to become a decamillionaire when you have active income. And it’s much easier to earn active income if you have a high-value skill to offer.

Let’s imagine, for argument’s sake, that a freak accident occurs and every single investment and every single cent I have in my bank accounts go to zero. This is straining credulity but let’s take the thought experiment to its logical conclusion.

I would of course be angry. After all, those millions of dollars represent decades worth of effort. Despite this, I have a network of contacts, I have Nomad Capitalist as a business, my social media presence, and the knowhow to start and run a successful company.

It would be a setback at most, and I could reach and surpass my present wealth in a short amount of time. This is how I’m shockproof, whatever life throws my way, I will be fine.

My skills are unique and in demand, so even if I were to lose it all, I could bounce back.

Having diversity, liquidity, passive income, and no debt will protect you against a lot of shocks, but if you want to join the ultra-wealthy, you need to increase your skills and active income.

It’s simply easier to make money through active income. Some successful entrepreneur friends of mine have told me that they just haven’t had time to invest their money because they are so busy growing their business.

Their path to success was through active income.

Obviously, some people do very well trading currencies, stocks, and crypto. You can have a high-value skill that involves passive income. For instance, you could be a crypto expert and make money doing that.

But if you are at the beginning of your journey to becoming a decamillionaire, ask yourself, what is your high-value skill?

Having an active income rather than relying on something else is the best way to join the ultra-wealthy.

Your Path to Riches and How to Become Rich Will Be Acquired Through Entrepreneurship

As an entrepreneur, you can grow your wealth as you grow your business’s profits and improve your returns, but there’s also an extra lever you have at your disposal … the value of the business itself. This will ultimately lead you on your mission to become a wealthy entrepreneur.

As an employee, no matter how well you do at your job unless your company offers some sort of equity arrangement, you might improve your salary and position in the business, but you’re not building wealth that can be sold, and that’s not how to be a self-made millionaire.

An entrepreneur not only has the advantage of growing profits and leveraging additional team members to expand the business, but the business itself has value.  In some cases, the business has tremendous value that can make the entrepreneur an instant multi-millionaire.

You’re now learning some of the secrets of self-made millionaires and of how to become rich.

Let’s say you start an elevator repair business a few years after college. You start with $30,000, and you manage to grow the business from a fledgling start-up with one employee, you, to a 20-person operation doing $5 million in revenues and $500,000 in profits by year 20.  (That’s no small feat, by the way, so congratulations if you’ve managed to get there.)

The average service business that has a large percentage of recurring revenues will have a valuation anywhere from 4 to 6 × EBITDA (earnings before interest, taxes, depreciation, and amortization), so the $500,000 in profits will value the business anywhere from $2 to $3 million. Let’s round this number at $2,500,000. For more info, you can read this post:  How to Expand Your Business Through Acquisition and Make a Killing

Enter Asset Allocation and Diversification (The Trick to Become a Wealthy Entrepreneur), and now I’m starting to come full circle from what I was speaking about earlier).

2. The Dreamers path

This is perhaps the hardest path to building wealth because it requires the pursuit of a dream, such as starting a business, becoming a successful actor, musician or author.

Approximately 28% of the folks in my study were Dreamers, and they accumulated an average net worth of $7.4 million — far more than any of the other groups — over a period of about 12 years.

All of them told me that pursuing their dreams was one of the most rewarding things they had done in their lives. They loved what they did for a living, and their passion showed up in their bank accounts.

Those who want to take this path, however, must be willing to work long hours and able to handle financial stress. The Dreamers in my study worked more than 61 hours per week before finally achieving their dreams. Weekends and vacations were almost non-existent.

Trying to make ends meet was not easy. At first, getting a steady paycheck was "nearly impossible," one Dreamer said. It was even harder for those who had families to support. To finance their dreams, some decided to put off buying a home, while others dipped into their retirement savings.

If you're risk-averse, this path may not be for you.

Books on how to become a Millionaire

These books help show you how easy it is to become a millionaire, thanks to the many insights from those who have done it before.

The Millionaire Next Door by Thomas Stanley

This book digs deeper into the principle of living simply to build wealth. It shows that millionaires can be your Toyota-driving neighbors and emphasizes why showing off with status symbols is worth so much less than financial independence and security.

The Simple Path to Wealth by J L Collins

The holy grail of many in the FI (financial independence) community, and for a good reason. It’s clear but comprehensive and highly actionable no matter what stage you’re in of your financial journey.

The Automatic Millionaire by David Bach

This has a similar lesson as the Simple Path to Wealth, focusing on maximizing your investments and living below your means. It’s a good option for beginners who are looking for a “set it and forget it” process for how to become a millionaire.

Check out these books to learn more about how to attain millionaire status!

7. Live Wealthy, Live Rich

While you should never spend more than you earn, t

While you should never spend more than you earn, that doesn’t mean you should not enjoy your wealth.

Doing things because you’re expected to do them as a rich person is not the way to happiness, or to keep your wealth in the first place. The same applies to being too frugal and dreading spending a single penny of your fortune. 

That is why saving more than you spend and living rich go together. They seem like they wouldn’t, but it all comes back to understanding the role of money in the first place.

Money is a means to achieve your goals – nothing more, nothing less. Once you understand this, you will be able to think more rationally about money.

I have a friend/client who is a psychotherapist who frequently has to tell his patients that if they are afraid to spend money, it will negatively impact their ability to make money.

That doesn’t mean that you should go out and waste money on stupid purchases. And it’s not permission to ignore the numbers, either. It simply means that you shouldn’t be so tight-fisted and obsessed with the numbers that you don’t enjoy life and get to the next level. 

If you’re terrified of spending money, you will let fear rule over you and you will pass on fantastic business opportunities because of inconsequential costs in the grand scheme of things. 

Instead, don’t be afraid to reward yourself. If you have a great month or quarter in your business, maybe you buy yourself a nice watch. Do you need it? No. But it can cement in your mind where you’re going.

These are the things that successful people do. 

This is beyond the millionaire-next-door level. If you have active income-earning abilities and a high-value skill, you can become the decamillionaire who lives the way that they want to, which may include spending money on quality goods, services, and experiences.

Reason #1 You Confuse a High Income with Being Wealthy

The average millionaire is not keeping up with the Kardashians or even the Joneses, for that matter. They are not driving around in a Ferrari, flying private, or dripping in diamonds and Gucci. The trappings of wealth are not the same thing as being wealthy. 

MORE FROMFORBES ADVISOR

A real-life example of this is Kathy Hilton on the current season of The Real Housewives of Beverly Hills. I think it is fair to assume she is the wealthiest of the women on this season. While I won’t describe her lifestyle as frugal by any stretch, she is likely living further within her means than some of the other housewives on the show. At the very least, she is less likely to be dripping in labels, shouting CHANEL – GUCCI – HERMES. 

The point here is that a high income is not the same thing as being wealthy. There are plenty of people in this country making huge salaries while still managing to drown in debt. There is someone in my neighborhood who lives in a relatively cheap apartment with no parking but still drives a Bentley, which they must park on the street. They may feel wealthy driving down Sunset Boulevard, but their bank account may prove otherwise.

REASON #2 You Aren’t Investing Enough

Without a huge income or some type of windfall, it will be nearly impossible for the average American to become a millionaire without at least doing some investing. A few movie stars, pro athletes, or lottery winners will break this rule. Even in these rare cases, the money likely won’t last without at least some smart investing over time.  

Inflation has reared its ugly head lately, which means all that cash you have stuffed in a mattress or savings account is losing purchasing power every single day. For those looking to achieve and maintain financial freedom, you will need the help of compounding interest via some type of investing to help ensure your money lasts.

Of course, there are risks associated with investing in anything from stocks, bonds, ETFs, mutual funds, and even real estate. Yes, you can lose money buying and selling real estate. In my opinion, over time, the risks of not investing are even far greater than investing in a diversified portfolio. By not taking any investment risk, you are likely guaranteeing what you are most afraid of, running out of money in retirement.

Example of How to Accumulate a Million Dollars

CASE STUDY 1*:  How to accumulate $1 million by the time you reach age seventy.

·        Option 1: Starting at 25 and earning 1% (after any taxes and fees), you would need to save $1,476 per month to become a millionaire. That will be tough or impossible for most people.

·        Option 2: However, with the help of compounding interest, if you were able to earn 10% (after taxes and fees), you would need to save just $11 per month. That is less than $4 per day. I’m confident we could all find a way to come up with $4 per day to become a millionaire. Right?

By investing, you allow compounding interest to help you become a millionaire faster and easier. This is a simple example of the magic of compounding interest. The same result, but you can get away with saving a whopping 95% less! Putting this another way, if you saved $1,476 per month from 25 to 70 and earned 10%, you would have accumulated more than $12.7 million. Instead of being just a millionaire, you could be a millionaire twelve times over.

Shopping is fun, but make sure you pay yourself first, and invest in your future.

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REASON #3 You Are Not Saving Enough

Hopefully, the magic of compounding interest has helped you overcome the irrational fear of the stock market. Even with the perfect investment portfolio crafted by an amazing fiduciary financial planner, you will never become a millionaire. Remember, it is not what you make but what you keep. Over the years, I’ve met plenty of ultra-high-income folks without a pot to pi$$ in.   On the flip side, I know plenty of people who have managed to become multi-millionaires with merely good income, paired with smart financial decisions.  

Reason #4 You Wait to Get Started Investing

The younger you are when you start investing, the easier it will be to become a millionaire.

CASE STUDY 2*:  Let’s say you just turned 40 and want to become a millionaire by the age of 70.

·        If you earned 1% net of fees and taxes, you would need to save $2,383 per month. That is $28,596 per year.

·        Assuming a 10% net return, you would only need to save $442 per month.

·        Remember, these numbers continue to grow the longer you wait. Starting at 40 versus 22 translates into needing to save nearly six times as much per month. GET STARTED NOW! No matter your age, the sooner you get started, the better off you will be.

Credit cards are great if you use them for points and miles. Credit cards are terrible if you use … [+] them to rack up debt.

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REASON #5 You are Living Beyond Your Means

Big houses, fancy cars, designer clothes, Instagram-worthy vacations are all fine and dandy if you can afford them without mortgaging your financial security. Living beyond your means may seem like the American way, right up there with fake it till you make it. The number of people making six figures but living paycheck to paycheck is mindboggling to me.

For those living beyond their means, the best-case scenario here is that you are not accumulating any wealth. The worst case is that you are accumulating debt and setting yourself up for a future bankruptcy or, perhaps even worse, having to work until you die. 

Around one-third of US, households carry credit card debt from month to month, according to the National Foundation of Credit Counseling. This could mean thousands upon thousands of dollars per year flushed down the toilet on crazy amounts of credit card interest.

MORE FROM FORBESHow Much Should Gen X And Millennials Have Saved At Every Age?By David Rae

REASON #6 Wasting Money on Debt

I don’t really care if you have a giant amount of mortgage debt, assuming you can afford the cost of homeownership. Mortgage debt is even less of an issue if you own income properties. 

However, if you are living beyond your means and racking up massive amounts of credit card debt, this is a recipe for financial disaster. The cost of credit debt will further strangle your spending, taking up a larger and larger portion of your budget. Get a handle on credit card debt today; the longer you’re procrastinating, the bigger the hole you will be digging out of, and the more money you will end up flushing down the toilet.

Eating fattening food is bad for your health and your finances. (and more) HOLLYWOOD, CA – AUGUST … [+] 01: Chick-fil-A supporter recording artist Pat Boone attends PETA and the LGBT community’s ‘Chick-fil-A Is Anti-Gay!’ at Chick-fil-A on August 1, 2012 in Hollywood, California. (Photo by Araya Doheny/WireImage)

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REASON #7 You Make Unhealthy Life Choices

A whopping 98% of millionaires consider good health to be their most important personal asset, according to a recent US Trust study. Without your health, no amount of wealth will be able to buy back your quality of life. Money can help you live a healthier lifestyle, but no amount of money can fix a lifetime of unhealthy life choices.

Take the time and spend the money to ensure you are getting all the necessary screening and physical exams that your health care professionals recommend. If you don’t have a primary physician, get one. Look to exercise (more) and increase the health value of the food you consume. I am aware that real food will cost more than junk food, but this is the one area I almost always advocate for people to spend more.

Prioritize your spending so you have money to do the things that are most important to you. Think … [+] dream trip to the Maldives.

NurPhoto via Getty Images

REASON #8 You Don’t Prioritize Your Spending

Budget is such a cringeworthy word. I get it; budgeting is about as enjoyable as raw kale. I try to operate with a spending plan, prioritizing spending that brings me the most joy. When people are good with money, they are not just treating their financial choices as a random event. Money will not just take care of itself. 

Simply put, a spending plan is about managing your financial expectations to avoid unwelcome surprises, and so you will still have money left over for the better things in life. Think vacations, clothes, massages, or even money for a babysitter. Yes, you can probably afford that new car, but would you rather take the extra car payments and spend it on an extra vacation?

REASON #9 Ignoring Tax Planning

The more money you make, the more important tax planning is for your march towards being a millionaire. America has a progressive tax system, which means the more you make, the higher your income tax brackets. You may have heard billionaire Warren Buffet opine that he paid a lower tax rate than his secretary. Different ways of making money are taxed differently. Likewise, tax planning can help you minimize your current taxation or even plan for lower taxes throughout your retirement.

Proactive tax planning is a major part of becoming a millionaire. Keeping more of your hard-earned money frees up more money to be invested. The more money invested, the faster wealth can accumulate. 

MORE FROM FORBESThe $100,000 Tax Deduction Most High-Income Business Owners MissBy David Rae

REASON #10 You Work in The Wrong Career Field

Some professions will bring you more jobs, and some will bring bigger paychecks. Anyone with any income can become a millionaire. Bigger paychecks will increase the odds that you reach the status of having a million-dollar net worth. Likewise, enjoying what you do will make it easier to work long enough to accumulate a million-dollar net worth.

Similarly, if you hate your job or career, it will show. It can often result in slower career advancement over time which will typically slow increases to your income. 

Divorce. Torn photograph of wedding cake topper.Some similar pictures from my portfolio:

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Reason #11 Choosing the Wrong Spouse Is Expensive

Overall, I think being married is good for your finances and mental well-being. Assuming you are happily married. On the flip side, choosing the wrong spouse will make your quest to become a millionaire much more challenging.  When one spouse is a spender, and the other is a saver, the spender tends to win. When considering a life partner, don’t forget to consider how you each think about money.

While a big spender can sap your ability to save, divorce isn’t cheap either.

REASON #12 You Haven’t Found Your Purpose in Life

Over the years, I’ve observed that many of my happiest and most successful financial planning clients love what they do or at least have something they are passionate about. They seem to be moving through life with an extra spring in their steps. Finding ways to bring joy into your life will make it easier to become a millionaire.

We all probably know someone who picked their career path based mostly on salary, only to hate their work. Don’t forget to consider the qualify of life that your career choices will provide for you and your loved ones. If you have passions, follow them, and the money will follow.

You don’t have to do this all alone. Working with a fiduciary financial planner can make this process a bit more fun. Hopefully, you will enjoy getting your financial house in order, and maybe, just maybe, you too will make it to millionaire status.

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