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We soon realized that there was no point in even looking at people’s homes - by the time you got to the top 40, any personal real estate holding was pretty much irrelevant. I was struck by this while helping to research a package for Fortune back in 2000 called “40 under 40.” We tried to find the forty richest Americans under age 40 (this was during the dot-com craze). But it’s also true that most material possessions cost a rather insignificant chunk of truly wealthy people’s net worth. “Could it be that they have chosen to trade wealth for acquiring high-status material possessions?” Maybe. I say this as someone who very much admires what it takes to grow a business, but I also think a lot of the personal finance literature misses the mark with preaching that millionaires are frugal people, and by extension, people who drive new cars and wear sharp clothes must be deep in debt, or at least broke, and trying to impress the Joneses. I’ve been amazed, as I spent the past few years researching and thinking about personal finance for All the Money in the World, just how strong the morality tale aspect of wealth is in the common narrative. Scotch wouldn’t have created the same impression. But this same gentleman also mentions drinking scotch, which is often quite a bit pricier. So why do people so want the opposite to be true? The Millionaire Next Door has a scene of a man with an 8-figure net worth (>$10,000,000) announcing he drinks Budweiser, which is held out as so interesting that the authors call him Mr. The reality that most millionaires buy their cars new, and that their cars are three or fewer years old, isn’t surprising. Stanley, one of The Millionaire Next Door authors, writes about the used car myth here). The authors make a big deal about the fact that 25.2 percent of millionaires have not purchased a car in four or more years, but if you look at the chart, this also shows that roughly three-quarters of millionaires drive cars that are three or fewer years old.
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But that also doesn’t mean they kept them that long either.
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By my calculation, that means that the majority (63 percent) bought new cars - they just didn’t keep buying new cars every year. The book reports that “nearly 37 percent” of millionaires bought their cars used. But this is not quite the same as saying the majority are driving around in used (as in pre-owned) vehicles. It is true that in The Millionaire Next Door, the authors reported that only 23.5 percent of millionaires drive the current year’s model. Dave Ramsey has a spiel about millionaires being “people just like you who work hard, don’t live in fancy houses, and drive used cars.” In particular, many people have become quite excited about millionaires driving used cars. This idea of the frugal millionaire has become gospel in personal finance circles. They are, as The Millionaire Next Door puts it, “Frugal Frugal Frugal.” (That is a chapter title). These families must live relatively modestly to have significant savings that, over decades, launch their net worth into the 7-figures.
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But as most people who read personal finance books aren’t in that situation, personal finance writers have, in general, been more interested in the millionaires with 6-figure incomes (or in some cases, even 5-figure incomes). If you earn more than 7-figures per year, it can cross it quite quickly. Over some amount of time, these assets may cross the 7-figure mark. The difference between what one earns and one spends can be invested in assets that are more likely to appreciate (stocks, a business). Since most consumer goods are not actually appreciating assets, having a high net worth requires spending less than one makes on consumer goods. Years ago, the authors of The Millionaire Next Doormade a splash with what should be an obvious point: being a millionaire amounts to having a certain net worth.