The Millionaire Next Door

1
The Millionaire Next Door

• Geoff Gordon
• Tracy Henderson

2
The Millionaire Next Door

• Thomas Stanley, Ph.D.
• William D. Danko, Ph.D.
• Marketing Professors
• Compilation of 20 years of research
• Focus groups of 500 millionaires
• Survey of eleven thousand high-net worth
  respondents
• Interviews with professional advisors (CPAs, etc)

3
In 1996, Millionaires were

• 3.5 of all households
• worth 1.6M (median millionaire)
• English or German (about 40 of all millionaires)
• But, Russians or Scottish more likely to be
  millionaires
• Russians are the best horse-traders
• Scottish are very frugal

4
Who are these Millionaires?

• Self-employed, largely entrepreneurial
• First-generation affluent
• Less than 20 inherited any significant wealth
• Live on less 10 of wealth
• Very likely to know their monthly budget by
  category
• Investors of all kinds

5
Who are they?

• Live in middle-class neighborhoods
• Typically the same house
• Drive American cars
• Buy off-the-rack clothes
• Most have a Sears card
• Low status lifestyle

6
Who they arent

• Conspicuous consumers
• Neiman Marcus shoppers
• Porsche or BMW owners
• High status lifestyle

7
PAWs vs. UAWs

• PAW Prodigious Accumulator of Wealth
• UAW Under Accumulator of Wealth
• Wealth Formula
• (Age X PreTax Income)/10 Net Worth
• PAW is 2X greater, UAW 2X less

8
Frugal (not cheap)

• Frugal - Behavior reflecting economy in the use
  of resources
• Most millionaires live on 7 of wealth by
  spending wisely
• Median millionaire income - 112,000
• Reduces tax bill immensely
• Financial independence is their goal, not
  spending their last dollar on the day they die

9
Good Offense, Good Defense

• Effectively manages cash flow
• Plan and control expenditures
• Offense income
• Defense spending
• Spend your time efficiently
• Not penny-wise and pound foolish

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Investors

• PAW spends twice as much time on investments as
  UAW (10 hours/month)
• Financial advisor and accountant are key advisors
  
• Inactive trader
• Too many fees
• Not high enough return

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Any Fools in the House?

• Motley Fool focuses on similar issues
• Reducing spending
• Making sound, well-researched investments
• Planning and Budgeting
• Investing for the long term
• Your Money or Your Life
• Exposes hidden costs of a UAW lifestyle
• You can die a millionaire, but you just cant
  live like one

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Seven Factors for building wealth

• They live well below there means.
• They allocate their time, energy, and money
  efficiently, in ways conducive to building wealth
• They believe that financial independence is more
  important than displaying high social status.

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Seven Factors for building wealth

• Their parents did not provide economic outpatient
  care
• Their adult children are economically self
  sufficient
• They are proficient in targeting market
  opportunities
• They chose the right occupation.

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What did we get out of this?

• Live below your means to produce a surplus which
  you invest wisely
• It doesnt take a huge salary to become a
  millionaire
• It does take time
• Seek good advice

15
Questions?