Apparently the modest life styles of millionaires, as documented in The Millionaire Next Door, are modest because a million doesn't buy what it used to. Or so a quick visit to the gated communities and private resorts and yacht showrooms suggests. It takes a billion to get into Richistan, and that billion often comes from a business startup that the owner sells to a corporation for a large sum of money. That dynamic has been recognized in business journalism at least since "Adam Smith's" Supermoney, albeit the acquiring corporation is no longer a conglomerate, the source of the supermoney in those days, at least as long as the accountants could perpetuate the rising pattern of earnings right up to bankruptcy day. (I'm borrowing shamelessly from Supermoney for that passage.) That, however, is not the focus of Richistan. It's where the money goes: to gaudy yachts and trophy houses to house trophy wives who have to be appeased. Not a pretty picture, but in all likelihood, a small sample.The small sample Mr Sedensky starts with is consistent with what we understood about those millionaires next door, twenty years or so ago.
As a child, Heidi Barley watched her family pay for groceries with food stamps. As a college student, she dropped out because she couldn’t afford tuition. In her twenties, already scraping by, she was forced to take a pay cut that shrunk her salary to just $34,000 a year.That's always been the case: the millionaire next door is that Someplace who bought a house suitable to fill up with kids, held it for a long time, and probably put a lot of sweat equity into a business. There are many more millionaires who got the net worth that way, rather than by waiting for a will to be read. Mr Sedensky hints at something else that is at work.
But this summer, the 41-year-old hit a milestone that long felt out of reach: She became a millionaire.
A surging number of everyday Americans now boast a seven-figure net worth once the domain of celebrities and CEOs. But as the ranks of millionaires grow fatter, the significance of the status is shifting alongside perceptions of what it takes to be truly rich.
“Millionaire used to sound like Rich Uncle Pennybags in a top hat,” says Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, a wealth management firm in El Segundo, California. “It’s no longer a backstage pass to palatial estates and caviar bumps. It’s the new mass-affluent middleweight class, financially secure but two zeros short of private-jet territory.”
Thirty years ago, the IRS counted 1.6 million Americans with a net worth of $1 million or more. UBS — using data from the United Nations, World Bank, International Monetary Fund and central banks of countries around the globe — put the number at 23.8 million in the U.S. last year, a nearly 15-fold increase.That last sentence bundles the millionaire next door in with the venture capitalists, entertainers, and those professional athletes who learned enough personal finance to salt away some of their earnings during their playing days in order not to wind up cut, disabled, and broke. That bottom 50%? "There is more than money that separates prosperity from poverty, in the office or on the field."
The expanding ranks of millionaires come as the gulf between rich and poor widens. The richest 10% of Americans hold two-thirds of household wealth, according to the Federal Reserve, averaging $8.1 million each. The bottom 50% hold 3% of wealth, with an average of just $60,000 to their names.
So it is, dear reader, in the Barley household.
Barley was working as a journalist when her newspaper ended its pension program and she got a lump-sum payout of about $5,000. A colleague convinced her to invest it in a retirement account, and ever since, she’s stashed away whatever she could. The investments dipped at first during the Great Recession but eventually started growing. In time, she came to find catharsis in amassing savings, going home and checking her account balances when she had a tough day at work.This son of Depression babies approves! Those takeout napkins suggest frugality but not to excess, if you cook all your meals at home you aren't taking any fast food out, or the napkins that come in the bag. And lining trash cans with grocery bags? If I were dictator, I'd issue a ukase mandating paper bags, for just that reason.
Last month, after one such day, she realized the moment had come.
“Did you know that we’re millionaires?” she asked her husband.
“Good job, honey,” Barley says he replied, unfazed.
It brought no immediate change. Like many millionaires, much of her wealth is in long-term investments and her home, not easy-to-access cash. She still lives in her modest Orlando, Florida, house, socks away half her paycheck, fills the napkin holder with takeout napkins and lines trash cans with grocery bags.
On the other hand, those lottery winners who go broke (it's depressing, sometimes, following the stories of Powerball winners who burn through it all very quickly) often have an investment strategy called "hit the numbers." No long term plan to finance a house or start a business there.
Never mind that, adjusted for inflation, a million bucks doesn't buy what it used to.
Barley says it feels powerful to cross a threshold she never imagined reaching as a child.To achieve that competence, though, the millionaire next door still wastes not and wants not.
“But it’s not as glamorous as the ideas in your head,” she says.
All wealth is relative. To thousandaires, $1 million is the stuff of dreams. To billionaires, it’s a rounding error. Either way, it takes twice as much cash today to match the buying power of 30 years ago.
A net worth of $1 million in 1995 is equivalent to about $2.1 million today, according to the U.S. Bureau of Labor Statistics.
A seven-figure net worth is, to some, as outdated a yardstick as a six-figure salary. Nonetheless, “millionaire” is peppered in everything from politics to popular music as shorthand for rich.
“It’s a nice round number but it’s a point in a longer journey,” says Dan Usen, a 41-year-old from Providence, Rhode Island, who works in information technology and who hit the million-dollar mark last month. “It definitely gives you some room to breathe.”
Kenneth Carow, a finance professor at Indiana University’s Kelley School of Business, says commonalities emerge among today’s millionaires. The vast majority own stocks and a home. Most live below their means. They value education and teach financial responsibility to their children.Even if it's not champagne riches and caviar dreams, it is that competence, and diligence and consistency gets you there.
“The dream of becoming a millionaire,” Carow says, “has become more obtainable.”
The resilience of financial markets and the ease of investing in broad-based, low-fee index funds has fueled the balances of many millionaires who don’t earn massive salaries or inherit family fortunes.Indeed. That's more ancestral wisdom, my dad used to say "The man who is richest is the man with the fewest wants."
Among them is a burgeoning community of younger millionaires born out of the movement known as FIRE, for Financial Independence Retire Early.
Jason Breck, 48, of Fishers, Indiana, embraced FIRE and reached the million-dollar mark nine years ago. He promptly quit his job in automotive marketing, where he generally earned around $60,000 a year but managed to stow away around 70% of his pay.
Now, Breck and his wife spend several months a year traveling. Despite being retired, they continue to grow their balance by sticking to a tight budget and keeping expenses to $1,500 a month when they’re in the U.S and a few hundred dollars more when they travel.
Hitting their goal hasn’t translated to luxury. There is no lawn crew to cut the grass, no Netflix or Amazon Prime, no Uber Eats. They fly economy. They drive a 2005 Toyota.
“It’s not a golden ticket like it was in the past,” Breck says. “For us, a million dollars buys us freedom and peace of mind. We’re not yacht rich, but for us, we’re time rich.”
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