Why is it that some people worth $10 million, $20 million, $30 million own few or no luxuries whatsoever? They know that satisfaction in life is not a function of what you can buy in a store. As you will come to learn in these pages, these people were conditioned by their parents to live below their means and were taught how to invest and manage money effectively. Accordingly the billions of dollars poured into the marketing hype associated with promoting status products have had little effect on their consumption lifestyle. Also these people tend to associate with others who have similar attitudes, interests and activities, and beliefs.
The reason why so many homeowners today are having a difficult time making ends meet goes way beyond merely mortgage payments. When you trade up to a more expensive home, there is pressure for you to spend more on every conceivable product and service. Nothing has a greater impact on your wealth and your consumption than your choice of house and neighborhood. If you live in a pricey home in an exclusive community, you will spend more than you should and your ability to save and build wealth will be compromised. My research has found that most people who live in million dollar homes are not millionaires. They may be high income producers, but, by trying to emulate the real millionaires, they are living a treadmill existence. In the U.S., there are three times more millionaires living in homes that have a market value of under $300,000 than there are living in homes valued at $1 million or more.
Given the recent reversals in the market value of stocks and homes, you may be asking: Is the millionaire market dead? While completing this book, a newspaper writer called and asked me what I thought about a published study claiming that the number of millionaires had significantly declined during the 2008-2009 period. I told her that I disagreed with these findings. Since 1980 I have consistently found that most millionaires do not have all of their wealth tied up in their stock portfolios or in their homes. When the investment gurus talk about diversification, they show how very parochial they are. Real safety is not in a diversified stock portfolio. One of the reasons that real millionaires are economically successful is that they think differently. Many a millionaire has told me that true diversity has much to do with controlling one’s investments; no one can control the stock market. But you can, for example, control your own business, private investments and money you lend to private parties. Not at any time during the past 30 years have I found that the typical millionaire had more than 30 percent of his wealth invested in publicly traded stocks. More often it is in the low to mid 20 percent range. These percentages are consistent with those found in studies conducted by the Internal Revenue Service which has the best data set on millionaires in the world.
In a way, the credit crisis of 2008-2009 is serving as something of an intervention. But for the treatment to work, you must take a cold hard look at your balance sheet and at your life, and determine if you would be wealthier if you would stop acting rich. It is my hope to show you that you can Stop Acting Rich and still enjoy life to the fullest by living like a real millionaire.