When it comes to achieving wealth, being worth a million dollars is a lasting benchmark, no matter how much times change. For those of us that aren’t quite there yet, the good news is that there’s a clear path to being worth seven figures (including owning plenty of real estate!)
Here are some tips and facts about joining the millionaire’s club:
It’s not just about income it’s also about net worth:
Of the 6.15 million millionaires in this country, only 304,118 actually earn one million dollars per year or more. The median annual household income for millionaires is $131,000, while the mean – or the exact 50th percentile- household income is $247,000.
Fun Fact: Only 8% of millionaires earn between $500,000 to $999,999 in annual income, while only 5% earn more than $1 million.
Invest in real estate:
Millionaires typically buy a home for their private and permanent residence and pay it off quickly as possible. But they also invest in more real estate with rental properties or commercial projects.
In fact, the average person can become a millionaire just by buying three rental properties over a ten-year period, allowing them to appreciate in value while also enjoying increased income on rent. When you factor in the 3-6% historical average for real estate appreciation, the ability to leverage loans and acquire real estate is significant. You are putting only a small amount of your own money down to purchase, to get the cash flowing, and reaping the incredible tax advantages of owning real estate. It might be the single most vital tool for millionaires to acquire their wealth.
Own a reasonable home:
97% of all millionaires are homeowners. However, their average home is currently valued at $320,000. The average stay in the same house is more than twenty years, and the value has gone up over that time. Investing in real estate is paramount for creating wealth!
Just how common are millionaires?
Although estimates vary, the most recent assessment is that there are about 6.15 million millionaire households now in the U.S.; so about 1 in every 20 households in the U.S. has more than $1 million in assets. While that may seem like a lot, remember that we’re talking about households, which most likely contain more than one person, not individuals.
Millionaires live well within their means and avoid conspicuous consumption. Only a small minority live in big, newer houses or drive new or leased cars. Instead, they buy modest older homes in nice neighborhoods, drive the same cars, and wear clothing that’s not lavish.
They live in family neighborhoods, but are usually the wealthiest people there, with more than 6.5 times the level of wealth of their neighbors. But their non-millionaire neighbors outnumber them more than three to one.
Pay off bad debt:
The typical millionaire is completely free of bad debt, choosing not to use credit cards, installment loans, and personal loans, or paying them off in full every month or as soon as possible. They also don’t typically have student loans or pay them off early. (Note: although that might change soon with the huge number of Millennials paying record levels of student loan debt.) Millionaires also pay off their auto loans and mortgages quickly.
However, people who amass a million dollars or more in net worth do use loans to grow their businesses and invest, taking advantage of the principle of arbitrage that allows them to make money off of other peoples’ money.
Live in one of these states:
Did you know that California, Texas, and New York hold 25% of the nation’s millionaires? Bare in mind that those states have huge populations, so we can also look at the states with the most millionaire households per capita:
- 1) Maryland (7.7% of households there!)
- 2) New Jersey
- 3) Connecticut
- 4) Hawaii
You DON’T need to inherit wealth:
The average millionaire probably was born with a silver spoon in their mouth, inheriting the bulk of their wealth, right? Wrong! In fact, more than half of all millionaires received no inheritance at all!
Fun Fact: Only 19% of millionaires receive any income or wealth of any kind from a trust fund or an estate and 80% of millionaires have first-generation wealth, self-making their fortunes.
Incredibly, fewer than 20% of them inherited 10% or more of their wealth, a tiny proportion. About 50% of them never even received a dollar of college tuition from their parents or other family members.
Start investing young:
Anyone who understands the incredible power of compounding interest knows that HOW much you invest is important, but HOW SOON you invest is way more important. Millionaires save a significant portion of their income, essentially paying themselves first and building a sizable safety net. But they also invest consistently. In fact, starting to invest just a little bit monthly in your early 20s and keeping it up over time is probably the single most important factor for becoming a millionaire. To illustrate the power of saving and investing young, here is a great example.
How much do you need to save (and invest) each day to have $1,000,000 by age 65?
(This illustration is based on a modest 5% rate of return.)
Starting Age: Need to save daily:
That essentially means if you’re 20 years old, you only need to put aside less than $500 per month in order to become a millionaire by the time you retire. So if you start 15 years later at age 35, you’ll need to commit almost $1,200 a month to reach the same goal. No wonder millionaires are meticulous budgeters, planners, and savers!
When it comes to buying a home and investing in real estate to help you reach your goal of a million dollar valuation, I’d love to help! Contact me to get started!