While America is often dubbed the land of opportunity, a surprising number of people are under the impression that a high income or inheritance is a prerequisite for making it to millionaire status.
However, the perception that you need to be born into wealth or earn a high salary to accumulate substantial assets is often contradicted by empirical data. A recent study of millionaires debunks some of these pervasive myths. For example, 80% of millionaires in the study made at least a portion of their wealth by investing in their 401K.
How else did these millionaires achieve their financial goals? By adopting a certain set of financial habits, including saving diligently, investing wisely, and living within or below their means. It’s not about making a quick buck, but rather building wealth steadily over time. And the best part? It’s an approach that is open to all, not just those with high salaries or born into privilege.
In this article, we will discuss how these millionaires invest and spend, and consider key factors such as retirement, stability vs. market volatility, and interest, should you invest in a 401K.
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Beyond the basics
The National Study of Millionaires that surveyed over 10,000 U.S. millionaires, reveals a stark contrast between popular perceptions of how the wealthy acquire their fortunes and the actual financial behaviors and attitudes that contribute to their success. Here are some key takeaways:
- How Millionaires Invest: Contrary to popular belief, millionaires usually don’t rely on single-stock gambles or “once-in-a-lifetime opportunities.” In fact, no millionaire surveyed credited their wealth to risky stock bets.
- Long-term Consistency: Forget the stories of young tech prodigies raking in millions overnight; those are outliers, not the norm. Instead, a whopping 75% of millionaires attributed their success to steady, long-term investing.
- Smart Spending Habits: Even when money is no longer a concern, millionaires still continue to spend cautiously. A stunning 94% said they spend less than they earn, and almost three-fourths have never carried credit card debt. They also don’t go big on dining out, capping their monthly restaurant expenses at $200 or less, and 93% frequently use coupons when shopping.
- Self-Made Wealth: The public often assumes that millionaires inherit their wealth, but the data begs to differ. A decisive 79% received no inheritance at all, while only 3% inherited $1 million or more. Furthermore, in an interesting twist, 8 in 10 came from middle-income or lower-income families.
- Modest Salaries: You’d think millionaires would be pulling in massive salaries, but that’s not usually the case. Only 15% held senior leadership positions like VP or C-suite roles. By contrast, a strong 93% said their wealth was the result of hard work.
- Education Matters, Elitism Does not: The study showed that getting a degree is what counts, not where it comes from. About 62% of millionaires graduated from public state schools, whereas only 8% went to elite private schools. However, most millionaires did earn that all-important diploma.
One of the most powerful tools at your disposal is the 401k. These company plans offer a convenient and often lucrative way to save for the future. With the benefit of tax deferment and, in many cases, employer matching, 401k’s function as a sort of double whammy for your savings. Add in other contributions like a Roth IRA or a high-yield savings account, and you have got a multifaceted approach to building wealth.
The trick is in regular investing, and consistency is key. The magic of compound interest works best when you are adding to your investments on a routine basis. Whether you are bullish on stocks or prefer the steadiness of bonds, a diversified portfolio can help you ride out the ups and downs of the market. So, keep growing that millionaire 401k, take advantage of company plans, make other contributions when you can, and embrace the power of regular investing. Millionaire status? It might be closer than you think.
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Guidance and stability
Millionaires who invest wisely often turn to a variety of resources to both safeguard and grow their net worth. That’s why Blankinship & Foster, San Diego wealth advisors, are here to help. With a multi-faceted approach to financial planning, we offer custom designed services for pre-retirees looking to manage their 401K and maintain a well-diversified portfolio. If you’re serious about transforming your financial future, the next step is one consultation away.
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