Most households in America with good to even great incomes, “have small levels of accumulated wealth. Many live from paycheck to paycheck.” And, as I also wrote in The Millionaire Next Door, these are the people who will benefit most from the book. With this in mind you will understand my keen interest in the contents of a just published report by the Pew organization.
The title is indeed telling, The Precarious State of Family Balance Sheets. Here are some highlights from this empirically based report:
- . . . many families, even those with relatively high income, are walking a financial tightrope, and have little, if any cushion to absorb an unexpected financial emergency.
- At all income levels households could not replace 2 months of income with liquid savings.
But the millionaire next door types are different as revealed in the original data from The Millionaire Next Door. The typical millionaire household had a net worth of $1.6M (median). Its total annual realized income was $131,000 or the equivalent of 8.2% of its wealth. [Call this return on net worth, RON] “. . . with a net worth of $1.6M we could live comfortably for more than 12 years.” In fact they could live longer than that. If we deduct income taxes totaling 25% of their income and then the equivalent of the 15% of the income they invest each year, they are down to $78,600. That is just under 5% of their total net worth. This translates into being able to sustain their lifestyle for approximately 20 years!
One of the millionaire next door mile markers suggests that by the time one reaches his 50s, one should have a net worth large enough to sustain one’s household for 20 years or more. While the income and net worth characteristics of millionaires have changed since the publishing of The Millionaire Next Door, the RON hasn’t changed much at all. For the national sample of millionaire women who owned their own businesses highlighted in Millionaire Women Next Door it was 8.3%. For the 733 millionaires profiled in The Millionaire Mind, the RON was 8.1% (average).
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I was first exposed to Dr. Thomas Stanley when I was an MBA student at Georgia State University in the early ’80’s. Just by chance, I was assigned to one of Dr. Stanley’s Marketing courses. Wow! I knew right away that Tom Stanley was possessed of wisdom far beyond his (then, anyway) tender years. Dr. Stanley was all about generating income in that course (well, that is the purpose of marketing, isn’t it?) and in the subsequent Marketing courses I signed up for just because he was teaching them. Each was eye-opening as to how buying decisions were made and how they could be influenced. Later, I eagerly read “The Millionaire Next Door” and realized that becoming financially independent was not just about generating income, but was also about eschewing unnecessary “shows” of wealth (often borrowed). We saved hard, invested intelligently, borrowed only for a home mortgage, and always lived within our means. How’d all that work out? Well, we’ve put 3 kids through college with no debt (okay, one still has a couple of years to go), we owe just a little on our mortgage, have been able to give generously to our church, and, best if all, I’m still in my 50’s and am very happily retired. I don’t “owe it all” to Tom Stanley, but without his wisdom, I’m sure I’d still be working every day and wondering if I could ever afford to retire! Thank you, Tom Stanley!