Money Management Secrets of Millionaires…

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Money Management Secrets of Millionaires Presente
d by Jennifer Caravella UW-Extension Waushara
County
Taken and adapted from the work of Dr. Thomas
J. Stanley and William D. Danko authors of The
Millionaire Next Door The Surprising
Secrets of Americas Wealthy
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Money Secrets of Millionaires

• This presentation is based on findings in the
  book,
• The Millionaire Next Door Surprising Secrets of
  Americas Wealthy
• Authors Drs. Thomas J. Stanley
• and William D. Danko
• Book is based on their research
• of American millionaires since 1973

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Thomas J. Stanley, PhD.

• Dr. Stanley, is an author,
• lecturer, and researcher who
• has studied the affluent since
• 1973.
• He is the author of numerous
• best-selling books about affluence.
• Dr. Stanley was formerly a professor of
  marketing at Georgia State University

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William D. Danko, Ph.D.

• Dr. Danko is associate professor
• at the University at Albany,
• State University of New York.
• Author of numerous
• publications in leading academic journals.
• In 1973, Dr. Danko assisted Thomas J. Stanley
  with his first study of the affluent. Since then,
  he has collaborated with Dr. Stanley on
  numerous academic and consulting studies.

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Presentation Disclaimer

• Viewing one PowerPoint Presentation will not
  cause a person or persons to become wealthy
• Adapting some or many of the daily strategies
  self-made millionaires practice will likely lead
  to increased
• family financial security.

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Presentation Disclaimer (cont.)

• Financial security refers to a families
  ability to meet ongoing economic needs and
  prepare for the planned and unplanned future
  (like the death of a spouse/job loss/illness)
• Definition by Michael Gutter, Family Financial
  Management Specialist, University of Florida.

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Money Secrets of Millionaires

• Trivia question..
• If you want to be financially secure, who should
  you hang around with?
• a. Individuals who always seem to have money
  to spend on fun things and places.
• b. Individuals who drive really expensive cars
  and live in big houses?
• c. Individuals who keep track of what they buy
  and always spend less than they earn.

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Definition of wealth

• Webster defines wealth as
• having an abundance of
• material possessions.
• The problem with this definition is that many
  who display high consumption lifestyles (with
  lots of material possessions) have low net worth.

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Drs. Stanley and Dankos definition of wealth

• 1.) Individual has at least a million dollars in
  net worth (assets liabilities net worth)
• The authors argue that this level of wealth can
  be
• attained in one generation.
• 2.) Not someone who earns a million dollars
  annually and spends the entire amount

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Americas wealthy

• 7 of U.S. households have a net worth more than
  1,000,000
• 2007 data from William D. Danko survey

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Assets Liabilities Net Worth

• Savings Acct 500.00
• Equity in home 40,000.00
• Paid off car value 2,500.00
• Retirement Acct. 40,000.00
• Total Assets 83,000.00
• House loan 30,000.00
• Credit card 1,000.00
• Total Liabilities 31,000.00

Assets

Liabilities
83,000 31,000 52,000.00 Net Worth
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Are you wealthy?

• Stanley and Dankos formula for determining
  wealth
• Multiply your age times your realized pre- tax
  annual household income from all sources except
  inheritances. Divide by ten. This, less any
  inherited wealth is what your net worth should
  be.
• Example 40yrs x 20,000 800,000
• 10 800000 80,000.00 in Net Worth

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Assets Liabilities Net Worth

• Savings Acct 500.00
• Equity in home 40,000.00
• Paid off car value 2,500.00
• Retirement Acct. 40,000.00
• Total Assets 83,000.00
• House loan 30,000.00
• Credit card 1,000.00
• Total Liabilities 31,000.00

Assets

Liabilities
83,000 31,000 52,000.00 Net Worth
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• Millionaire Next Door.
• (Research from the book)

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Research for The Millionaire Next Door

• Compilation of more than 30 years of research of
  Americas wealthy
• Personal interviews and focus group studies with
  more than 500 millionaires
• Surveys of more than 11,000 high-net worth and/or
  high income respondents
• Hundreds of hours analyzing in-depth interviews
  with self-made millionaires
• Interviews with millionaires financial advisors

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American Millionaires

• Are male, average age of 57 years
• Married with three children
• About one in five is retired
• About two-thirds are self-employed
• Earn 70 percent or more of their households
  income

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American Millionaires

• Most consider themselves entrepreneurs
• Types of businesses welding contractors,
  auctioneers, owners of mobile home parks, pest
  controllers, coin stamp dealers, paving
  contractors, rice farmers
• About half of their wives do not
• work outside of the home
• Annual taxable income of 131,000
• (median) while average income is 247,000
• (1994 data)

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American Millionaires

• Live in older homes (30 years)
• Live in homes with an average cost of
• (320,000) about 30 of 1 million
• About half lived there for 20 years
• Most are still in their first marriage
• Drive American made cars

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American Millionaires

• Only 20 acquired their wealth through an
  inheritance
• 80 built their wealth in a single generation
• Most have wives who are
• planners and budgeters
• Most have accumulated enough wealth to live
  without working for ten or more years

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American Millionaires

• They are 6.5 times wealthier than their
  non-millionaire neighbors
• Fairly well educated 4 out of 5 is college
  educatedmost hold advanced degrees
• Most attended public schools, but 55 of their
  children attend private schools
• Spend heavily for education for their children
• Buy high quality goods, not necessarily the most
  expensive

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American Millionaires

• Are frugal, frugal and frugal!
• Have discipline!
• Save, save, save
• Live well beneath their means
• Work between 45 and 55 hours per week
• Invest nearly 20 of their realized household
  income

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American Millionaires

• Recommend their children become attorneys,
  accountants or others who provide services to the
  wealthy
• Believe that financial independence is more
  important than displaying high social status
• Track how much they spend

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American Millionaires

• Became wealthy by budgeting and controlling
  expenses (and they maintain their affluent status
  the same way)
• Get professional financial advice
• Review their receipts for errors before leaving a
  store

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American Millionaires

• Develop and use a personal
• financial plan
• Have a diversified portfolio of investments
• Spend an average of 267 on a
• watch and less than 600 on their
• most expensive suit

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American Millionaires

• Spend considerable time learning about their
  investments and hold on to them for at least six
  years
• Often use last years household budgets to plan
  next years budget
• Buy used cars (Most NEVER paid more than 30,000
  for a vehicle)

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American Millionaires

• Are proficient in targeting market opportunities
• Chose the right occupation
• Are very likely to frequently clip coupons
• Avoid debt especially credit card debt

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American Millionaires

• Engage in comparison shopping before making a
  significant purchase
• May not produce millionaire offspring
• Understand the difference between needs and a
  wants
• Understand the difference between a liability
  and an asset

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Millionaires Do Not

• Look like medias portrait of a millionaire
• Engage in
• recreational shopping
• Spend all of what they earn
• Let their incomes define their budgets

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Millionaires Do Not

• Live lavishly and spend extravagantly
• Hyper-consume
• Let society or advertising influence their
  spending decisions
• Provide economic outpatient care to their adult
  children

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Summarizing quote

• The foundation stone of wealth accumulation is
  defense, and this defense should be anchored by
  budgeting and planning.

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Are you Millionaire Material?

• Building wealth takes discipline, sacrifice and
  hard work!
• For most individuals this would mean re-orienting
  ones current lifestyle

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Tracking expenses is critical

• Tools for tracking expenses
• Note book
• Checkbook register
• On-line banking
• Computer programs like Quicken, Quick Books, or
  Excel
• Billster Free, on-line tool for organizing
  shared and personal expenses
• myspendingplan.com Free Internet-based budgeting
  program

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Lets look at Lynnes Day-to-Day expenses

• What expenses do
• you feel Lynne HAD
• to have?
• Which expenses
• could Lynne have gone
• without?

http//www.dallasfed.org/ca/wealth/index.cfm
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Using a spending plan is critical

• Spending plans (aka budgets), help people
  control, monitor and plan for expenses.

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• Sample spending plans
• And other resources like
• 1. Fact sheets,
• 2. Short lessons
• 3. Activities on a variety of financial topics

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Personal beliefs about money

• Most spending decisions are
• based on personal values beliefs
• about money.
• Understanding our beliefs helps us control our
  spending.

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Discussion questions

• Can you think of how you might
• apply some of this information to your
• own personal finances?

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Discussion questions

• How might you share some of this information with
  family or friends?