How Millionaires Became Wealthy

Time recently highlighted a survey of multi-millionaires asking them how they became wealthy. The results:

• 27% are entrepreneurs


• 15% are corporate executives


• 7% are managers


• 6% are investors


• 6% are doctors and dentists

A few other key notes:

• 75% of wealthy entrepreneurs and business owners attribute their success to prudent risk taking. This group is also most likely to cite serendipity, or “being in the right place at the right time.” Just 58% of professionals including doctors and lawyers attributed their success to risk taking.


• 96% of professionals attribute their success to education while 81% of entrepreneurs feel that way. Professionals are also most likely to credit frugality as a significant factor in building their wealth. Nearly all (99%) corporate executives, meanwhile, cite “hard work” as a significant wealth creation factor.


• 80% say smart investing is a great way to join the millionaire’s club.

Some comments from me:

• I have grown my net worth through a combination of factors. First I was a "manager", and then became an "executive." Along the way, I spent less than I earned and saved and invested the difference to grow my wealth.


• I attribute a lot of my success to my education and rate my graduate degree as the main reason for my financial success.


• Of course, frugality is important as well. Without at least a degree of it, it's very difficult to significantly grow your net worth (which is why I list over-spending as the worst money mistake anyone can make). Of course you have to live and enjoy life as well, so that's why I practice moderate and selective frugality.


• "Hard work" is almost a given in wealth creation, isn't it? Very few become wealthy without it IMO.


• It's interesting to see so many say that "investing" is a way to become wealthy. I would see investing as part of another method, but I think few become wealthy with investing alone. Warren Buffett is the exception to the rule.

How about you? What has been the main reason(s) for your financial success?

Comments

[Lance @ Money Life and More]

I think that people think investing is a great way to get there but you have to earn the money to invest somehow. I think it just speeds the process up.

My (so far) financial success has been spending less than I earn and only on what is important to me. I also work very hard at growing my small entrepreneurial venture and we'll see what that turns into.

[Keith]

My financial success has come from a desire for freedom. So as a result, I have saved money, held onto money, and not spent money. I have not gone into debt, or if I have, I have paid it off quickly. My expenses are low and I do not sign up for reoccurring expenses. Giving away a portion of my wealth has also played a part in my financial success.

My biggest hurdle has never been an inability to hold onto money. It has always been the lack of any significant income. One day, I hope to correct this.

[Nate Fancher]

Really interesting stats. Thanks!

[Emily]

Interesting that the percent who were docs and dentists is only 6%. Wonder if that has to do with the long time it takes to pay off student loans? Or, they are the ones who had their own practice.

When you look at the stats of 65 years+ wealthy people, 76% own/owned their own business. Stats generally show that entrepreneurialism is the best path to wealth.

[Jonathan]

I think the characteristics of an investor overlap with others - hard work and frugality are common traits in investors, but once an investor gets his net worth and cash flow growing, frugality doesn't necessarily have to continue being part of the equation. For that matter, neither does hard work. But I think that just about any halfway competent investor would spend less than they earn, unless you consider investing in new assets as part of spending.

Basically, while those hard work and spending less than you earn are critical for an early investor, it's not necessarily mandatory later on.

And Warren Buffet started out fairly wealthy (not billionaire rich, but came from an affluent family) and from what I've read, always has and continues to practice frugality.

[Matt]

Being a millionaire is just a number.

My fathers family had enough money in the bank to buy a farm just before the bank crash of 1928. He grew up in a coal mining town and was dirt poor. His brother and him would go hunting for wild berries for food for the family and walk along the railroad tracks an pick up the coal to heat there house.

My dad went into the navy at the end of the war, got the GI bill and went to the University of Detroit and became a chemical engineer. He worked at GM for 35 years and put 4 kids through catholic school and supported us in our college efforts. He has a daughter with a masters dergee in nursing, a son who is a Plastic Surgeon, a son who is an artist and I am an architect.

Even though my dad never had a million dollars in the bank, he has earned millions dollars in wealth that he made sure us kids were the best we could be and to our fullest potential.

[Old Limey]

My highest salary when I retired in 1992, age 58, as a senior staff engineer for a large aerospace company was $74,000. My wife earned a lot less as a part time pre-school kindergarten teacher and we raised 3 children. We each receive a pension and social security, retired debt free and own a home worth about $1.5M and a condo worth about $500K. When we retired our investment portfolio was $320,000.

Our combined investment portfolio is now right around $7M, and produces a tax deferred and tax exempt income of about $350K/year. We live a very comfortable life and did loads of travelling all over the world between 1993 and 2010.

How did we become wealthy?
1) We have been happily married for 56 years.
2) I used my engineering and computer software experience to become a successful, active investor.
3) The dot.com bubble between 1993 and March 2000 got me off to an incredible start.
4) The explosion of growth in Silicon Valley resulting from the dot.com bubble produced an unvelievable real estate bubble. Homes that cost $27K in 1963 when we bought our first, sold for $90K in 1977. We then paid $107K for our current home, our neighbor recently sold his for $1.5M.
5) We live quite frugally, never frequent fancy, high priced restaurants, and were never faced with exorbitant costs to raise and educate our children. Our son, with a high school education is now Western District Sales manager for a large international company. Our oldest daughter has a junior college AA degree, recently moved to Maui and continues her legal office career with the help of the internet. Her SEP-IRA that I have managed is now at $1.75M. The middle daughter obtained a degree in marketing from San Jose State University, but only worked briefly after marrying a very successful attorney. Her marriage lasted 18 years and she left it with $2M and $20K/month alimony for 9 years. Her investment portfolio that I manage is now worth $3M.

Is my success story repeatable today? Quite frankly, No!
The Cold War was instrumental in my success in Aerospace. The two Bubbles are unlikely to repeat any time soon. For example, "Can you think of another discovery that will produce anything like the impact on our economy equivalent to that of the Internet"? We are also in an unprecedented poor economic state with high unemployment and a lack of sufficient highly paid jobs manufacturing jobs available and a roaring Bull Market seems to be a long way away.

[Mike Hunt]

I read and re-read the article to confirm that the group of people surveyed are at $25M or more in net worth.

I think it safe to say that nobody who peruses this site is at that level- including Old Limey.

FMF, you only fall into the ranks of the "patriotic" millionaire who agrees with raising taxes (along with Buffett)

Of course $25M is probably more wealth than most of us need.

The conclusion of the article is that once people get to $25M or more in net worth, they become less worried about taxation.

-Mike

[FMF]

Mike --

Yes, these are multi-millionaires. What I found interesting was that "only" 27% are entrepreneurs. I think many people believe that something like 80% of multi-millionaires are wealthy because they have their own businesses.

Also, don't lump me into the group that wants higher taxes. :)

Seriously, I would be fine paying more taxes IF I thought the government would spend it wisely -- quit over-spending and start working on the debt. I doubt that will happen.

[Old Limey]

FMF
I also wish the government would spend our money wisely.
I am still trying to figure out how the USA benefited from starting the Korea, Vietnam, Iraq, and Afghanistan wars. With WWII of course there was no choice and likewise the Cold War was necessary to contain the nuclear threat from the USSR.

I also feel that far too much money is given to ungrateful foreign countries in the form of foreign aid.

[Apex]

@FMF,

That is interesting because on your article about how you stack up to millionaires Jim pointed out to me that according to Stanley's millionaire next door book 2/3 of all millionaires are self employed when I thought it was mostly middle class people working jobs and being frugal. Clearly that doesn't work for most people to get to a million.

Further more, of the 1/3 who make it to a million without being self employed I suspect a huge portion of them work very high paying jobs compared to the median wage (in fact Stanley says the median millionaire made 131,000 in realized taxable income which means their income was probably higher than that too because that number is after all deductions and tax shelters etc).

This particular article about people worth 25 million sheds more light on that situation but makes sense to me. Many self employed people build a business that is worth a good amount of money. Over their lifetime it is clear from Stanley that a number of them get over a million. Many probably get to 2 or 3 or 5 million. But to build a business that makes it over the 25 million mark is a huge task that very few will ever make. You have to strike it huge to make that. Basically it's a business that really took off. It didn't stay very local. It had to go big. And yet 25% of those with over 25 million apparently did make it that big.

But the 25 million net worth crowd is a pretty small crowd. It takes a really high paying job to get there. A very successful small business can make it, but a top level executive or high up manager or very highly paid specialist doctor, or a high paid lawyer etc can make it too. John Edwards former candidate for vice president is said to have made 50 million with class action lawsuits.

25 million is probably a good number for the super rich. We still talk about millionaires like people did in 1920. In 1920 a millionaire was the super rich. Today its not even close.

While a successful business can get you there, there are plenty of other very high paying jobs that can as well. If you don't inherit the money there is simply no path there that doesn't involve a very high income or a lottery ticket. And there are a number of jobs in this country that have very high multi-million dollar incomes.

[jdgjdg]

We've done well by investing. Of course, we needed to have money to invest, and we've gotten that mostly via good salaries and frugality. I started to invest in the 1990s, when I made $12K/yr on a graduate student stipend.

However, I could've made a lot higher salary had I not gone into academia. Furthermore, I've never considered myself to have the right temperament for entrepreneurship.

[jim]

Yeah the survey is just for people with $25M or more. Thats a lot different group than people with $1M or more. e.g. Its pretty easy for a doctor to get to $1m via their salary and fairly smart money management but its a LOT harder for them to get to $25m.

[FMF]

Jim -

Not sure what you are saying. The percentages are still accurate.

[jim]

The percents will be different for the two groups.

This survey is for people with $25M or more. Thats differnt than millionaires as a whole.

Millionaires includes anyone with $1m or more.
THe survey is only among people with $25m or more. Those are two different groups and they will have different characteristics.

e.g. its a lot easier for a blue collar person to save over a lifetime and pile up $1m so we might see a % of the millionaires with middle income type jobs. But you're not oging to see frugal schoolteachers pile up $25m.