1 Money Management Secrets of Millionaires… Presented by: Jennifer Caravella UW-Extension Waushara...

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Money Management Secrets of Millionaires…

Presented by:Jennifer Caravella

UW-ExtensionWaushara 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 America’s Wealthy”

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This presentation is based on findings in the book,

“The Millionaire Next Door: Surprising Secrets of America’s Wealthy”

Authors: Drs. Thomas J. Stanley

and William D. Danko

Book is based on their research

of American millionaires since 1973

Money Secrets of Millionaires…

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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

Thomas J. Stanley, PhD.

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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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*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.

***Presentation Disclaimer (cont.)

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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 Danko’s 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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America’s 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

{Liabilities

83,000 – 31,000 = [52,000.00 Net Worth]

Assets {

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Are you wealthy?

Stanley and Danko’s 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

{Liabilities

83,000 – 31,000 = [52,000.00 Net Worth]

Assets {

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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 America’s 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 millionaire’s 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

household’s income

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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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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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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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They are 6.5 times wealthier than their non-millionaire neighbors

Fairly well educated… 4 out of 5 is college educated…most 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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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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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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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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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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Spend considerable time learning about their investments and hold on to them for at least six years

Often use last year’s household budgets to plan next year’s budget

Buy used cars (Most NEVER paid more than $30,000 for a vehicle)

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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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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 media’s 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 one’s 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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Let’s look at Lynne’s Day-to-Day expenses…

http://www.dallasfed.org/ca/wealth/index.cfm

What expenses do

you feel Lynne HAD

to have?

Which expenses

could Lynne have gone

without?

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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 arebased on personal values & beliefsabout money.

Understanding our beliefs helps us control our spending.

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Can you think of how you mightapply some of this information to yourown personal finances?

Discussion questions…

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Discussion questions…

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

1 Money Management Secrets of Millionaires… Presented by: Jennifer Caravella UW-Extension Waushara...

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