Who wants to be a millionaire? Luckily, the odds are in your favour, and you don’t need rich parents or to win a gameshow.
We imagine millionaires to be people with luxury yachts, toting Louis Vuitton handbags, and snacking on caviar and foie gras. But millionaires are just average people- in NZ, it’s estimated that 24% of households have millionaire status. 10% of households are multi-millionaires.
Research from the US, which has similar figures, delved into the data a bit deeper. It found that these millionaires are just regular, everyday people. 79% of them had no inheritance from their parents and families, dispelling the rumour that inherited wealth is the only way to get rich.
Most surprisingly, the top five careers for these millionaires were engineers, chartered accountants, teachers, attorneys, and management. These are regular-paying white-collar roles, and teachers are far from highly paid. Only 31% of these people made $100,000 annually at any time in their career, and one third NEVER made over six figures in any year, ever.
So who are these silent millionaires, and how did they get so rich?
Millionaires are Made, Not Inherited
The process for most millionaires is not inheriting an indecent sum of money from family. In the study, only 3% of current millionaires received an inheritance more than $1 million. We also know that 70% of family wealth is lost by the second generation, 90% by the third, proving that inheriting wealth is no magic panacea.
It’s highly unlikely that millionaires have a sudden burst of inspiration and create something that makes them millions; in fact, none of the millionaires surveyed said that a single-stock investment was a big factor in their wealth.
Most of these millionaires simply invested regularly. They didn’t spend money they didn’t have, and they avoided debt. That was it. Small efforts, over time, building up. Becoming wealthy is just following a process. Which is why engineers, chartered accountants, teachers, attorneys, and management are more likely to produce millionaires – they are used to working with and following a process.
How Can You Become a Millionaire?
The findings from this study show some really important things for you to do in order to become rich.
Get an Education
Higher education is important, but you don’t need to go to Oxford or become alumni with a bunch of dudebros. The American study showed that two thirds of millionaires graduated from regular public schools. But what’s really interesting is that 88% of millionaires got a tertiary degree, and 52% got a masters or doctoral degree. In the general NZ population, only 65% of people have a tertiary education.
It’s not about where you study, but about your willingness to learn. Schools (and often parents) don’t teach about personal financial management and how to grow wealth. You have to be a self-starter and teach yourself. This is why education is so important; you need to learn how to learn. Once you know that, your desire for knowledge and how you take it on board will make the difference.
Invest in Kiwisaver or Equivalent
80% of American millionaires saved, utilising their company’s 401(K), which is the US equivalent of KiwiSaver. Those consistent savings grow over time, use the power of compounding interest, and form the basis for a healthy bottom line. Three quarters of millionaires said that making a habit of investing over time was their reason for success.
Also, start saving as soon as you can to take advantage of compounding interest. And, stick to your plans; prioritise saving over avocado on toast (actually, it’s ok to have avocado on toast, your cholesterol will thank you. Maybe just choose the cheaper holidays or bottle of wine and save a few extra dollars a week).
Don’t Spend Money You Don’t Have
Warren Buffet famously has lived in the same house forever, drives the same car, and lives pretty frugally. That’s a trend the study found repeated again and again—while wealthy people no longer needed to stress about money, they were still very careful about how much they spent. And they don’t care two hoots what anyone thinks of them. They don’t participate in the ‘keeping up with the Joneses’ game.
94% of millionaires live on less than they make, and almost 75% of them had never carried over a credit card balance, ever.
Discretionary spending was managed well too, with these millionaires saying they spent a maximum of $200 on restaurants in any given month. 85% of these millionaires used a shopping list of some sort too.
Set Yourself Up to Be a Millionaire
While having a million dollars sounds pretty aspirational, at the heart of it, it’s not a big scary goal. A millionaire may simply own a large home in Auckland and have substantial retirement savings. It’s a realistic target for those looking to retire in NZ.
There is a big difference between how people think wealthy people got their money, and how they actually earn and spend their money. Don’t let the myths convince you it’s unattainable and get in the way of planning for your own wealthy future.
Create a process that makes it easy to save and invest, and hard to spend irresponsibly. Things like having a budget, setting up Kiwisaver for more than the minimum amount, and paying your savings accounts immediately after payday can all help keep you on track.
If you want to be a millionaire, come and chat to us at Smart Adviser. We can help you plan a budget, set targets, manage your money effectively, and set you up for success.