Updated: Jul 20, 2020
“Three things too much, and three too little are pernicious to man; to speak much, and know little; to spend much, and have little; to presume much, and be worth little.” Cervantes
Worldwide there are an estimated 2,208 billionaires, while there are about 585 billionaires in the US, that is one for about every 1.17 million people. The US has the most billionaires of any nation, with China second and closing, at 476. You might wonder how that is possible in a communist nation, but that is what the numbers tell us. Interestingly India has the next most at 131, Germany at 114, and Russia rounds out the top 5 at 96.
While absolute numbers of billionaires is interesting, how about the highest concentration of billionaires per capita? The highest concentrations of the top 5 nations are, hold onto your hat, Monaco, St. Kitts & Nevis, Liechtenstein, Guernsey, and Hong Kong. The U.S. is 14th on the list, following such countries as Norway, Sweden, and Switzerland. There some tax reasons for some of these top concentrations of billionaires e.g. what is the economy of Guernsey to create a billionaire? It does, however, portray a picture that billionaires can be created and thrive in nearly any setting.
Millionaires: A bit closer to earth are the millionaires. Estimates here can vary widely depending upon how this is defined e.g. some measures include total net worth including your home and autos etc. A more conservative estimation would only include investable assets e.g. cash, stocks, bonds, real-estate investments, etc. Other estimates include everyone in the household is a millionaire, so a household whose total investable assets is over $1million and has 5 people would count as 5 millionaires. A more conservative estimate would be of millionaire households, so the prior example would only be counted once. As of 2018 the Boston Consulting Group estimates, using the more conservative households measure, that the US had about 7 million-millionaire households, the highest of any other country (followed by China, Japan, United Kingdom, and Canada). That is one millionaire-household out of every 9 total households (using 78.6 million households). These are obviously not evenly distributed and certain cities and neighborhoods have disproportionate numbers of millionaire households e.g. parts of New York City, San Francisco, Los Angeles, and Chicago. CapGemini estimates that of millionaire households: 16% inherited their wealth, 47% were business owners, and 37% are paid workers (managers and professionals mostly). In “The Millionaire Next Door” the authors portray the average millionaire in the U.S. as so average that you would not even know it, they drive a Ford and buy their shoes at Sears (or they used to). They work hard, have been a bit lucky, and certainly are disciplined as they live on less than they earn and save and invest that difference.
Incomes: Looking at incomes, as of 2019 there are about:
19% of total households (24 million) earning at or below $25,000/year (federal poverty level for a family of 4 in 2019 was $23,492/year).
21% of households earned $23-49,0000/year,
30% of households earned $50-99,999,
30% earned over $100,000.
As to wealth and equality there are good indications that wealth is growing but is ever more concentrated e.g. gini scores going up and average wages being flat after inflation.
There are a lot of videos on You Tube, books at Barnes and Noble, and white papers and seminars on how to create wealth. It is tempting to look at outliers e.g. Bill Gates and Beyoncé who grab a lot of headlines and are in the media a lot. While interesting, they are probably not the way most people will create wealth or financial independence. Given that there have always been, and likely will always be, a ridiculously small number of super wealthy individuals in any generation what is one to do?
Take this to the bank: Given the statistics my sense is that most of us should be striving for a level of financial independence or security. What that means will vary from person to person, but here are a few principles that I think are worth considering for all people. They may not be sexy, but they are how most people, in every economy, and in every nation stand the best chance of economic security. Once you have made the skills of economic security your own, you are in a stronger position to grow from there. Without those foundations, wealth built by luck or short-term circumstances rarely lasts.
Work. You are responsible for your own life, including your finances. The only sure way to earn a living is to work. Work lifts the soul and provides for your needs. Finding work that you enjoy makes all the difference in the world. If you cannot find it, work anyway, and look for something better from the strong position of having earned successfully in something that was not ideal.
No matter your income, live on less than you earn. If your income is low this can be difficult, and at times may be impossible. The principle, however, remains valid. The only way to ever create financial stability and even security is to live on less than you earn. Inevitably this requires setting and sticking to a budget and learning about the basics of financial management.
Earn what you make. The principle of getting what you don’t earn is pervasive in modern society, though in some form it has been around since the beginning of time. Lotteries are pervasive, gambling is lauded as great recreation, and banking on “luck” is everywhere. In every form they are perverse to your individual well-being. So, don’t buy lottery tickets, earn what you make. Plan on it, bank on it, and resist the temptations on screens large and small. The odds of winning a lottery average about 175 million to 1. If you took your lottery waste and saved it for a year then invested it in the stock market you would earn, on average, 6-7% on that investment. If you did that for 40 years, and say invested $100/year, you would have gained wealth of $17,000! The odds of winning a lottery over that same time are effectively 0 (.000022% to be precise). WOW.
Save for a rainy day. Virtually every financial planner encourages you to have 3-6 months of your cash needs available for emergencies. This should take priority over retirement planning, though I personally recommend that If you haven’t saved for retirement to start that after accumulating just 2 months emergency funds. After that, split the amount you have been setting aside between the two funds until you have your 3-6 months.
Save for retirement. Most people do not save adequately for retirement, by most I mean about 90%. The easiest way to do this is when you get your first raise invest most of it into your retirement.
If you could save even $100/month over a 40-year career you would have over $210,000 saved for retirement.
At $200/month that grows to $421,000,
at $400/month a nest egg of $843,000 and
$450/month would make you a millionaire.
The key is to start as early as you can and do your best. If your employer offers a match of any kind, it would be worth almost any sacrifice to take advantage of that. A 3% match, for example, is literally a 3% raise in pay. Despite the internet wealth creation people selling the latest easy way to make lots of money, earning even an average wage and saving religiously for your own retirement is the most certain way to become a millionaire.
Get an education. The key here is to know yourself, what are your interests, talents, and resources. As an individual you are always wise to get as much education as you can. Anymore an Associates Degree is probably a minimal level, though I personally feel a bachelors is better – no matter what you want to do. Don’t stop at college, however. Some of the best education I have ever received has been after college, and the choices and offerings are greater and more accessible than ever. Education is probably the most consistent way to earn more per hour of labor - no matter if your labor is as a mechanic or a YouTube creator.
Take appropriate risks. Risk is a touchy subject, and tolerance for risk varies greatly from person to person. If you incorporate the previous points you are in a great position to consider the risks of any financial decision, and to take greater risks. More millionaires are created as entrepreneurs than by any other means, but the risks are significant. For every millionaire entrepreneur there are 20 who are just getting by and 20 more who failed and have nothing. So, know your tolerances, interests, and plan accordingly. If you don’t like the self-employment odds don’t feel bad. As you might imagine many people are simply not cut out for that lifestyle and risk profile.
Take care of your health. We are surrounded by beer and pizza on every corner, stores are full of slightly nutritious offerings, and gyms are expensive. You will only ever get one mind and one body, making them some of the most precious things in your life. Take care of your mental and physical health and it will pay dividends throughout your life. I recognize that every person is unique, genetics, circumstances, and resources vary greatly. Taking the best care of yourself that you can bears fruit not just in your health, but in your self-esteem and self-confidence as well.
Care for others. Reaching out and serving others connects us to our common humanity, gives back to society for her gifts to us, and makes for a well-rounded and balanced individual. This entails a spirit of gratitude which becomes a part of who we are no matter our outward circumstances.
As you work, save, and serve you will become a person of character, respected by most, and of clear conscience before man and God. Your focus will be on what you can do to make life better for those you serve at work, home, and in your community. You will have avoided the curse of idleness, the debilitating dole, and enjoyed the enabling and ennobling benefits of industry, thrift, and self-respect.
These principles work as well in the internet age as in the information age as in the industrial age. They work for all ages, races, genders, and professions. They are timeless and build strong individuals, families, businesses, and communities. While they are not a quick fix, they are consistent and reliable, in a world that is neither. They represent your greatest chance for getting ahead and creating the financial stability and flexibility that is consistent with living your own unique best life.
To many millions of people who are still out of work due to Covid-19 this may have been a frustrating read. I have great empathy for you. Please don’t feel badly about things that are outside your control. This too shall pass, and the day will come when you will be back at work. For now, review the principles and think how they could be applied in your life to your lifelong benefit once you are back to work.
HVASF provides an automatic, small, daily dose of motivation based on the core cognitive foundations of self-efficacy and self-compassion. With this daily dose you are primed mentally to take the further steps to live intentionally, accomplish your goals - including your financial goals. Click here to find out more www.hvasf.com.