Money Management
Secrets of Millionaires…
Presented by:
Jennifer Caravella
UW-Extension
Waushara 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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Money Secrets of Millionaires…
 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
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Thomas J. Stanley, PhD.
 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
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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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***Presentation Disclaimer (cont.)
*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.
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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
Assets
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]
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Are you wealthy?
Stanley and Danko’s formula for determining
wealth:
Multiply your age times your realized pretax 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
Assets
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]
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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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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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American Millionaires…
 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…
 What expenses do
you feel Lynne HAD
to have?
 Which expenses
could Lynne have gone
without?
http://www.dallasfed.org/ca/wealth/index.cfm
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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 are
based on personal values & beliefs
about money.
 Understanding our beliefs helps us
control our spending.
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Discussion questions…
 Can you think of how you might
apply some of this information to your
own personal finances?
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Discussion questions…
 How might you share some of this
information with family or friends?
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