Friday, March 07, 2014

6 big myths about millionaires

While doing research for my book, "The Eventual Millionaire," I interviewed more than 100 millionaires. They came from all walks of life and made their first million in dozens of different ways, from starting their own businesses to investing in the stock market or real estate. And those aren't the only paths to becoming a millionaire, either: Others hit the mark by simply living below their means and saving portions of each paycheck.

Before you can make a million, though, you need to get past the mystique and the myths surrounding it. Here are six common myths about millionaires debunked.

Myth 1: Millionaires are smarter

People tend to put millionaires on a pedestal: They must be better or smarter than everyone else in order to achieve that goal. But that general statement simply isn't true. Millionaires are ordinary people who have achieved extraordinary goals, but they make mistakes like everyone else. They may misspell words; they may even have learning disabilities. They've likely been in debt and had to dig themselves out. They've had ideas and businesses fail. Most of the ones I interviewed for my book have worked their way up the ladder, learning and stumbling along the way.

Rather than having lots of book smarts, what most millionaires have is a knack for setting goals for themselves and working toward them, without letting excuses get in their way.

Myth 2: Millionaires are just luckier

Millionaires are the luckiest among us, right? They won the lottery, struck gold with their very first attempt at launching a business or haphazardly landed their dream jobs with massive salaries. Not so: Pure luck is not a factor in achieving success. Rather, truly successful people make their own luck. After all, a million-dollar idea is worth nothing without execution.

Myth 3: Millionaires live lavishly

When you think of millionaires, you may picture people living in luxurious mansions and driving expensive sports cars. The reality? Millionaires are often the people next door: They drive Hondas and Volvos. They're frugal (57 percent of the ones I interviewed described themselves as such). They often spend their money on necessities and a few things that are very important to them. Think Warren Buffett: The celebrated multi-billionaire famously still lives in the Omaha, Neb., house he bought in 1958 for $31,500.

In most cases, millionaires have gotten to where they are precisely because they've practiced excellent savings habits and live frugally. They learn to make smart choices, and they don't stop just because they hit the $1 million mark.

Myth 4: Most millionaires were born into money

Another common myth is that millionaires were born into money or inherited it. But that's not often the case. In a recent survey, Fidelity Investments found that 86 percent of millionaires are self-made. And among the more than 100 millionaires I interviewed for my book, each was self-made and only 26 percent of them said they even had connections to important people beforehand.

Myth 5: Millionaires have to be fearless

Though it may seem like the only way to become a millionaire is to forge full-steam ahead and assume a lot of risk, fears are totally normal, even for the ultra-successful. Fifty-seven percent of the millionaires I surveyed said they were scared before starting their own business: scared of failure, disappointing their spouses or their families, scared of losing everything.

Success requires some risk, but wise millionaires don't want to take uncalculated gambles. Millionaires have learned how to examine an opportunity and analyze the risk. They will even do small tests beforehand to see if an idea will work before going all in. They prefer to know as much information as they can ahead of time so they don't make a bad investment.

Most millionaires find a happy medium between optimism and pessimism; they figure out how to examine opportunities realistically. They acknowledge amazing potential, but work tirelessly to learn and predict beforehand to make sure their investments pay off.

Myth 6: They earn million-dollar paychecks

It's true that many millionaires have earned their money by starting (or selling) their own businesses or finding high-paying positions within organizations. But this certainly isn't the only way to amass $1 million. In his book "Millionaire Teacher," Andrew Hallam explains how he saved over $1 million as a teacher well before retirement age, outlining how he used low-cost index funds and a disciplined approach to saving, investing and living on a budget to build a nest egg most of his fellow teachers would envy.

In addition to investing in the stock market, like Hallam, other millionaires boost their bottom lines by adding second jobs or passive streams of income.

*** [10/25/14]

see also 5 Things Most People Don't Realize About Millionaires

Myths about millionaires abound: they're all greedy, or trust-fund babies, or like to flaunt their wealth.

Many people think "that millionaires are a lot like Kim Kardashian," says Cathy McBreen, managing director of Spectrem, which has tracked and polled the nation's richest households for years. "But they tend to be conservative with their spending," she says. "They're not out there buying mink coats and jewelry every day."

In fact, most millionaires spend more on charity than on bling. Spectrem has also found that most millionaires didn't inherit money, and that the percentage that did is actually shrinking as the number of millionaires grows.

When asked how their wealth was created, a whopping 94% of millionaires surveyed by Spectrem credited hard work. The number two factor? Education, cited by 87%. That ranked it ahead of smart investing (83%), frugality (78%) and risk-taking (60%).

Much farther down on the list: being in the right place at the right time (40%), luck (36%), inheritance (31%), and family connections (8%).

The percentage of millionaires who inherited some of their wealth has dropped to 18% as the number of millionaire households hit a record high last year of 9.63 million, McBreen says.

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