There was a time the word “millionaire” carried cachet. According to the Oxford English Dictionary, the word was first used in French in the early eighteenth century and in English nearly a century later. Regardless of your station in French society in 1719, you would recognize a net worth of one million livres being notable. The same would be true for one million U.S. dollars a century later. Only a small percentage of society could be listed within a roster of millionaires.
Millionaires are easier to find today. Inflation and the erosion of the value of a dollar over the course of two or more centuries has put the goal of having a financial worth of one million dollars within reach for more Americans, but the club is no longer the exclusive party it once was. When the term became popular in American print, the persons most likely to be millionaires were the heads of large, multinational corporations. These are the same folks who are most likely to be multi-billionaires today.
One million dollars is still an admirable financial target, and I say “target” because I’m hesitant to call any financial milestone a goal. Goals are related to why one might set a financial target, not the target itself. Outside of real estate equity, most households won’t have assets worth one million dollars. It may sound odd considering this is a country where 50 million people are living in poverty according to the U.S. census, but a net worth of one million dollars isn’t a demarcation line between the rich and the not-rich.
Retiring with a net worth of one million dollars in investable assets might allow you to withdraw $50,000 a year for 20 years — using the simplest calculation — but an annual income of $50,000 while living in the United States would probably not provide the lavish lifestyle historically associated with the idea of the millionaire. If you want to live the life of the upper class, you’ll need a net worth well north of one million dollars to generate annual income in six or seven digits.
Yet the concept of the millionaire still carries some mystique. The success of the book The Millionaire Next Door by Thomas J. Stanley and William D. Danko is evidence of this. The 2010 edition of book is ranked 29th in personal finance by Amazon.com. The book’s subtitle is, “The Surprising Secrets of America’s Wealthy,” but the authors didn’t seek out the wealthy for their advice and tips for this book, they interviewed mere millionaires. The premise is that today’s millionaires achieve their status by living below their means, spending less than they earn, and making financial choices that weigh future possibilities against today’s media-driven desires.
The authors show that the neighbor with an old car still running well is more likely to be financially secure than the neighbor whose fancy car requires unaffordable lease payments. People become millionaires by owning small businesses rather than working for a large corporation in middle management.
There is nothing wrong with this advice. It may inspire some readers to get started making better financial choices, but it won’t lead to wealth as represented by the socially-inherited concept of the millionaire. If we want the best advice for creating a lifestyle in which money is no longer a concern and the fulfillment of desires is not limited by wealth, ignore the millionaires and look to the multi-billionaires.
Forget about the neighbor who owns the auto repair business. Don’t waste your time looking for advice from financial bloggers like me. While keeping in mind that wealth itself is not a goal — your goal should be what you want to do with your life when you have access to as much capital as you need — take a look at the Forbes list of the wealthiest Americans. Two categories stand out.
First, there are the business owners who started their businesses small. Millionaires kept their businesses small, while these individuals, like Bill Gates, Larry Ellison, and the Waltons, took their businesses a few steps farther.
Next, the list includes people whose business is investing in businesses, like Warren Buffett and George Soros. Use your money — as well as other people’s money — to create wealth. This is easier when you have a lot to give. Warren Buffett gets sweetheart deals on his investments because a billion dollars from Berkshire Hathaway is more newsworthy, media-positive, and encouraging to other mimicking investors than a billion dollars from a conglomerate of Chinese or Middle Eastern investors. Don’t be fooled. You’ll need to work incredibly hard and be blessed with an inordinate amount of luck using the same tactics to become wealthy at this level. Paving your way to one million dollars, however, isn’t quite the challenge it once was.
“Aim high” was the recruiting slogan for the U.S. Air Force, and it applies here. Lionizing millionaires seems like a good way to come up with financial advice that applies to a mass audience, but I can almost guarantee that today’s recent college graduate planning to retire with assets worth one million dollars forty years in the future will be gravely disappointed — not because he or she couldn’t meet that goal, but because the sum isn’t going to provide the financial security expected.
Updated May 30, 2012 and originally published May 28, 2012.