Not as much as most people think.

The following information is adapted from research by Stephanie Komon at Kent State University, and is based on the book The Millionaire Next Door.  Stephanie’s research was derived for the ability of fundraisers to be able to spot wealthy people, but it is very relevant for us.  Her presentation can be seen at the end of the post.

You may be surprised to know that only 5% of millionaires make a taxable amount over $1 Million a year, 8% make a taxable amount between $500,000 and $999,999 a year, and the other 87% work hard and live well below their means.  In fact, the average taxable yearly income for a millionaire is about $250,000.  Taxable income is mentioned because millionaires are most likely to greatly reduce their tax bill by investing in municipal bonds, real estate, an unrealized gain in stocks, and various other forms of (legally) reducing their tax burden.

80% of millionaires are self made, meaning that they are first generation holders of wealth, and 66% are self-employed.  Of the self-employed, 75% are considered to be entrepreneurs, the other 25% are professionals (Doctors, Lawyers, Accountants…).

Most of the entrepreneurs are not in glamorous industries, in fact they are in the opposite…think construction contractors, pest exterminators, plumbers, farmers, and even owners of mobile home parks.

The most common degree these millionaires have is an undergraduate degree.  The second most common?… no degree.  In fact the least common degrees for millionaires are the Ph.D., J.D., and M.D.

97% of millionaires are home owners, and 50% of those have occupied the same home for more than 20 years.

What does the most common millionaire look like? He is 57 years-old, married to his first and only wife, and has three children.

What does the millionaire spouse look like?  The spouses are typically “meticulous budgeters and planners and are more conservative that the millionaires are.”  The spouses are also most likely to be housewives.  If they are employed they are most likely to be an elementary or high school teacher.

Most entrepreneurs live well below their means, and in fact, live so conservatively that if they make $200,000 in a year, they will most likely live off of $80,000 and invest the rest in an effort to accumulate more wealth.

By what means do they live frugally?  They just don’t live extravagantly.  Half won’t spend more than $400 on a suit, they also won’t spend more than $140 on a pair of shoes.  They most likely haven’t bought a car in the last couple of years (if they did it’s probably used), and they are most likely driving an inexpensive domestic car.

What does all of this mean for you?  It means that there is light at the end of the tunnel.  Living frugally is not easy, in fact it’s hard, but as you can see from these that statistically the way to wealth is becoming an entrepreneur and living frugally.  Most small businesses owners make less than $250,000 per year, but they live frugally enough that they live well and save a ton.

Hopefully this has served as a pat on the back for conservative living because it helps us see that there is long term gain from making your own meals, carpooling, owning a home, and consuming less.

Related posts:

  1. Why Do You Save?
  2. The Party Always Ends
  3. The 7 Effective Habits of Highly Frugal People
  4. Why I Don’t Have Cable