Growing up, I always wondered why some people are so damn rich and most others just getting by on the fringes of poverty.
Smart or Aliens in Human Form
My grand mother, a very wise woman, bless her soul, always said: “If your stars are in the right configuration… then, it’s the family that you are born into”. And later in life, as I grew older into a young man with some looks, she would say: “It’s your luck… if you are lucky enough to marry a rich man’s only daughter.” I never ever heard her say that it could be because “you’re smart”… or “you’re hardworking”… or “they must be Aliens from another planet”.
As I grew older, finished my education, and got a decent professional job… but still wondered: “Why some people are so damn rich”.
Soon after I got married, I found the answer to my question when I got into an argument with my wife─ ex-wife now, when she would sometimes resort to the nuclear option, her tried-and-true conversation stopper.
Putting her hands on her hips and using the worst faux South Asian accent imaginable, she’d say, “Well if you’re so damn smart, why aren’t you rich?”
I never knew how to respond to this. Of course, I was still very young at the time and just making a Professional Engineer’s salary. Still, it ingrained in me the notion that the rich must have a little something extra going on upstairs or may be they are aliens from other planet… otherwise we’d all be rolling in wealth.
Right?
There is, in fact, some evidence to support this… the “smart” part of my speculation and not the Aliens from another planet. According to a recent report from the U.S. Census Bureau, there is a strong positive correlation between income and education.
Over an adult’s working life, on average…
- High school graduates should expect to earn $1.2 million;
- Those with a bachelor’s degree, $2.1 million;
- Those with a master’s degree, $2.5 million;
- Those with doctoral degrees, $3.4 million;
- And those with professional degrees, $4.4 million.
But here’s the rub. Studies show that those who earn the most aren’t necessarily the richest…
What Is Real Wealth
To determine real wealth, you need to look at a balance sheet – assets minus liabilities – not an income statement. Just ask Dr. Thomas J. Stanley, the bestselling author of The Millionaire Next Door and perhaps the country’s foremost authority on the habits and characteristics of America’s wealthy. Many of his findings are just the opposite of what you’d expect.
For example, we generally envision millionaires as Bentley-driving, mansion-owning, Tiffany-shopping members of exclusive country clubs. And, indeed, Stanley’s research reveals that the “glittering rich” ─ those with a net worth of $10 million or more─ often meet this description.
But most millionaires─ individuals with a net worth of $1 million or more─ live an entirely different lifestyle. The findings show that the vast majority:
- Live in a house that cost less than $500,000.
- Do not own a second home.
- Have never owned a boat.
- Are more likely to wear a Timex than a Rolex.
- Do not collect wine and generally pay less than $15 for a bottle.
- Are more likely to drive a Hyundai Santa Fe than a Beemer.
- Have never paid more than $300 for a suit.
- Spend very little on prestige brands and luxury items.
This is certainly not the traditional image of millionaires. And it makes you wonder, who the heck is buying all those Mercedes convertibles, Louis Vuitton purses, and $2,000 bottle of Latour Bordeaux? The answer, according to Dr. Stanley, is “aspirationals,” people who act rich, want to be rich, but really aren’t rich.
Many are good people, well-educated and perhaps earning a six-figure income. But they aren’t balance-sheet rich because it’s almost impossible for most workers─ even those who are well paid─ to hyper-spend on consumer goods and save a lot of money. And saving is the key prerequisite for investing… which, as you will discover later in life.
This notion shocks many Americans. I recall from a recent Oprah show; when a member of the audience asked the question, one we all have heard hundreds of times before:
“What good does it do to have all this money if you don’t spend it?” She was angry and sounded annoyed when she said: “These people couldn’t possibly be happy.”
Keeping Up With the Joneses
Like so many others, this woman [from the audience] genuinely believed that the more you spend, the better life is. Please understand, we’re not talking about people who live below the poverty line. Clearly, their lives would be better if they were able to spend more. However, we’re talking about middle-class consumers and higher-up the scale… those who often live beyond their means and then find themselves under enormous financial pressure, especially in a weak economy.
Some folks are overly optimistic about their earning prospects. Others don’t even realize that they are up against an army of the best and most creative marketers in the world, whose job it is to convince you that “you are what you buy,” that you need to outspend… to out-display others. The unspoken message behind the constant barrage of TV, Internet, and billboard ads featuring all those impossibly good-looking men and women is that you are special, that you deserve, and you need to look and act successful now.
According to several research reports, “The pseudo-affluent are insecure about how they rank among the Joneses and the Smiths. Often their self-esteem rests on quicksand. In their minds, it is closely tied to how long they can continue to purchase the trappings of wealth. They strongly believe all economically successful people display their success through prestige products. The flip side of this has them believing that: “people who do not own prestige brands are not successful.”
Yet “real” millionaires see things differently. Most of them achieved their wealth not by hitting the lottery or gaining an inheritance, but by patiently and persistently maximizing their income, minimizing their outgoing expenses and religiously saving and investing the difference wisely.
You Aren’t the Car You Drive or the Watch You Wear…
They aren’t big spenders. They just recognize that real pleasure and satisfaction don’t come from the car you drive or the watch you wear, but time spent in activities with family, friends and associates.
They aren’t misers however, especially when it comes to educating their children and grandchildren… or donating to worthy causes. Although they are disciplined savers, the affluent are among the most generous wealthy in charitable giving.
Just how prevalent are Global millionaires? According to The Boston Consulting Group’s Global Wealth study, there were 5.2 million US households with a net worth of at least $1 million at the end of 2011. Very few of them won a Grammy, played in the NBA, or started a computer company in their garage. Clearly, thrift and modesty─ however unfashionable─ are still alive in many parts of the country. There are now 12.6 million millionaire households globally, according to BCG.
So while millions of consumers chase a blinkered image of success─ busting their humps for stuff that ends up in landfills, yard sales and thrift shops… disciplined savers and wise investors are enjoying the freedom, satisfaction and peace of mind that comes from living beneath their means.
These folks are turned-on not by consumerism but by personal achievement, industry awards, and recognition. They know that success is not about flaunting your wealth. It’s about a sense of accomplishment… and the independence that comes with it. They are able to do what they want, when they want, where they want, with whom they want.
They may not be smarter than you, but they do know something priceless: It is how we spend ourselves and our time─ not our money─ that makes us rich.
Work hard, be thrifty, save, invest wisely, and play hard… and enjoy life with your friends, family and associates.
Best wishes for health and happiness.
Producer CEO – RKNet Studios
Producer – Romantic Thriller ‘Pyar Mein Kyun‘
Facebook Page: Pyar Mein Kyun
Based on and excerpts from articles, blogs and sponsored research reports.
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