In an editorial in The New York Times, it was stated that:
A million dollars used to be a magic number, a sign of permanent affluence. You made it! But now it won’t buy you . . . [the array then follows].
I have found that journalists have a tendency to discount the importance of “a measly million dollars.” Most of the journalists that I have come into contact with felt compelled to tell me that they are having a difficult time accumulating wealth.
The first person who blurted out in my presence, “a million, that’s nothing anymore,” was a young trust officer who “dressed rich.” Yet when asked he admitted [red faced] that his net worth was well below $1 million. And I’ve been listening to this mantra throughout my career! He is not alone, especially in the finance industry. I find that most investment counselors who pan the million dollar figure are not very good at their craft. Note that within the sample of 121 stock brokers/investment counselors profiled in my book, The Millionaire Mind, “only 1 in 3 (34.4%) had a net worth that exceeded expected levels for those within the same age/income cohorts.” In contrast, for millionaire business owners, it was 77.4%.
The best investment guru whom I have interviewed told young adults starting out that the first $100,000 in investments is the hardest to achieve. And with every successive $100,000 it becomes progressively easier.
Currently only about 8% of the 115M households in this country have a net worth of $1M or more. If one of your children came home the last day of high school and said, “I graduated 8th out of 100 in my class,” you might likely be pleased.
Also in the same editorial were these statements:
It’s not that money doesn’t buy happiness. It’s that these days it requires a whole lot more than a million dollars.
Really? What is more important than absolute wealth in explaining happiness? The answer is relative wealth. If you live in a modest neighborhood and have five times the median net worth of your neighbors, you are very likely to say that you are extremely satisfied with life. Or look at it another way through the wealth equation. Take the head of a household, age 50, with an annual realized income of $100,000. The household’s expected net worth is $500,000. But to be classified in the balance sheet affluent category the household’s net worth would be $1M or more. To get there, this household had to live on 85% of its income, investing the rest. How many years could this household sustain itself without any earnings? The answer is nearly 12 years.
The median net worth of the household is $94,000. This means that if you have just a $1M net worth, you are 10.6 times better off than the norm. I’d call this meaningful! The median realized annual household income in the US is $53,000. So again if you are at the $1M mark in net worth, you have the equivalent of nearly 19 times the typical household’s income.
The meaning of having a $1M net worth is a function of the market value of the home/community in which you reside. Currently in the US the median market value of a single family home is about $175,000. You can buy 5.7 of these if you have a net worth of $1M. Even better, move to South Bend, IN where the current sales price of a home is approximately $90,000. With your wealth, you could buy 11 of these homes! But if you insist on moving to San Francisco, the median price is nearly $870,000.
The median millionaire profiled in The Millionaire Next Door had an income of $131,000 and a net worth of $1.6M. This means that his total return on net worth was 8.2. Imagine having a net worth of $1M yet only having an annual income of $82,000. Meaningful!