In my interview on The Dave Ramsey Show yesterday, I discussed the relationship between where one lives and the ability to accumulate wealth. Here is a continuation of the discussion from my new book, Stop Acting Rich.
Most of the self-made millionaires I have studied have one thing in common: They were able to build wealth precisely because they never lived in a home or neighborhood environment where their domestic overhead made it difficult for them to build wealth. And building wealth begins and ends at your home address.
There are just over 4 million millionaire households in the United States. There are over 54.5 million existing homes in America (or more than 70 percent of the total) that have a market value of under $300,000. About 2 percent of these homes are owned/occupied by millionaires. Nevertheless, there are more than 1.1 million millionaires (or 28.3 percent of the total) residing in homes and neighborhoods that would not likely be classified in the high-prestige category.
In contrast, consider the numbers for those who live in homes valued in the $1 million or more category. Four in 10 (41.41 percent) are high income producers (i.e., having annual realized household income of $200,000 or more). Yet only 27.09 percent of those who reside in homes valued at this level are millionaires. The ratio of millionaires who own/occupy homes at this level in contrast to the percentage of high-income-producing households who own homes at this market value is .65. In other words, it takes the equivalent of 100 high-income-producing homeowners who live in pricey homes to produce just 65 millionaires. But the ratio of those who reside in homes in the less-than-$300,000 market value range is 2.11, meaning that it took the equivalent of only 100 high-income-generating homeowners to produce 211 millionaires.
There are nearly three times more millionaire households (1,138,070 versus 403,211) living in homes valued at $300,000 or less than there are millionaires living in homes valued at $1 million or more. The data strongly indicate that this ratio of “wealth-building productivity” is inversely related to the market value of one’s own home as well as those of one’s neighbors. Once the market value begins to move up beyond the $500,000 level, wealth-building productivity moves into the unproductive range (i.e., less than 1.00).
To enhance your chances of becoming financially independent, you should live in a home and neighborhood environment that has high wealth-building productivity characteristics. You need to be surrounded by neighbors who have lower incomes than your household generates.