% Networth Estimated 5% passive income (Annual basis)
99.90 % $30,644,280.00 $1,532,214
99.50 % $11,898,128.00 $594,906
99.00 % $7,869,549.00 $393,477
95.00 % $1,868,640.00 $93,432
90.00 % $943,656.00 $47,182
Household Annual Income
99.00 % $521,411
95.00 % $208,810
90.00 % $148,688
80.00 % $107,628
Why an estimate of 5% passive income?
Is this national? 107k household income for the 80th percentile seems low.
These numbers seem so low to me.
This site has data from census surveys for comparison based on income:
@Bryan Hancock :
I think the mind set of someone trying reach their first million is different from someone is a penta millionaire. In general, for someone who has a networth of $4M+, I would say that this individual is probably looking for wealth preservation with less risk than someone who is trying to reach his first million. Back in 2007, the going rate for CD were 5.5 APY%.
Many of us have not experience an interest rising environment like 1941 (ten year was 1.95%) - 1982 (ten year reached 14.59%) and the investment strategy will change when the interest rates rises in the years ahead.
I believe 5% is a yield one can achieve without take much risk of their captial and I believe that wealth preservation is important to a multi-millionaire.
Percentile of Networth:
99.90 % $30,644,280.00
99.50 % $11,898,128.00
99.00 % $7,869,549.00
98.00 % $4,640,000.00
97.00 % $3,180,000.00
96.00 % $2,400,000.00
95.00 % $1,868,640.00
Originally posted by @Bryan Hancock:
Why an estimate of 5% passive income?
@James Park I agree. Not that I am in that space (yet) but am reading the Millionaire Mind and just finished the Millionaire Next Door, both by Dr Tom Stanley (RIP)
An interesting aspect of the millionaires he queried (avg net worth of $4.2M in 2000) was that they were risk takers, but not gamblers. They risked opening their business or practice doing something they love, but NONE of them frequented casinos.
Preservation of wealth, exceeding inflation while investing in the thing they know was their primary focus. Knocking their ROI out of the park was no longer their goal.
Good data and thread.
Multiple flows of income is what I'm working towards. High net worth individuals have a primary source of income and build up other flows while protecting the original flow. One flow of income is day job thinking.
Those are excellent books that i still have in my library and refer to time to time. I read Millionaire Next Door as senior in college and Millionaire Mind two years out of college when I was consulting in the bay area. There are so many golden nuggets and financial wisdom in the Millionaire Mind book.
Another stat that you may find interesting from Tom Stanley is that the value of the primary residence of a millionaire is less than 25% of his or her networth and scales up as the networth increases.
Avg. Networth Personal Residence Value value of home % Net worth
$1,493,804 $404,240 27.1%
$3,416,267 $620,779 18.2%
$6,859,864 $1,034,411 15.1%
$13,687,961 $1,818,699 13.3%
$59,919,891 $2,735,436 4.6%
Even though I firmly believe that real estate buy and holds should be the foundation of your wealth managment process / portfolio, what I believe is even more important is to find a business that you are absolutely passionate about, a vocation of love, a lifetime career.
Another thing interesting about their housing choice @James Park is they tend to live in 40 year old homes and occupy them for 10 years+. Dr Stanley found that the newer, nicer neighborhoods harbored the UAWs (under accumulators of wealth) who worked like slaves just to pay their house and car and boat payments.
I'm thinking Warren Buffet. He's been in the same place since the 50's!
Oh- and they carry extremely low levels of mortgage debt. Some had an LTV of about 25%, most none at all. Not a single one had a jumbo loan!
That book actually had a big influence in my decision to move to Atlanta over Irvine, California. Not because the author is from Atlanta, but Tom Stanley states that once the purchase price of your primary residence goes above $500,000, due to higher overhead and carrying costs, the wealth building process goes against you. Back in 2010, my plans were to move to Irvine and I only wanted to spend in the mid $400s, but I quickly realized that $400k would only buy my family a two bedroom condo there. I ended up building a lovely home on a foreclosed lot in a golf course community with 10 rated schools in Atlanta for mid $400s in 2011. Looking back, I am extremely happy with my decision and thankful to Tom Stanley.
Page 8 in the book Millionaire Mind.
"About 12 years ago we purchased our current homes for home for an average price of $558,718. The median price was $435k. We have enjoyed reasonably good appreciation on our home. On average, it is currently worth $1,381,729. The current median value is approximately $750,000. Thus, we have benefited financially and added to our net worth by the appreciation of our homes.
Yes.....wealth generation is suprisingly simple:
1. Spend far less than you earn
2. Make your money grow optimally
Item 1 is very difficult in our look-at-me culture. Earning more is a major focus of this forum, but it is FAR easier to consume less to get you to financial independence. You have to acquire 25 or so dollars for every dollar you spend annually. So spending fewer dollars requires you to have a far smaller amount of accumulated dollars for financial independence.
Texas has extremely affordable housing and no state income tax. I guess that is why 170 people a day are moving to Austin right now. $100k+ W2 jobs are all over the place in Austin and things are affordable. This is a pretty good recipe for wealth generation.
To acquire assets to get to the top 1% you generally need to focus a lot on item 2 above. That is the primary focus of BiggerPockets. Other sites spend a lot of effort encouraging people to be frugal and achieve financial independence sooner. Those items are fine if you're simply trying to acquire "enough" and set your goals lower. If you're truly trying to crack into the top 1% though you better have a good strategy for making your money work for you harder than it will in the equities market.
Your post reminds em of an article I read about 15 years ago. A couple fo NYU professors wanted to interview millionaires to find out how they accumulated their wealth. I believe the article ran in Money or Kiplingers.
They set up the interview room with caviar and nice wines. The typical interviewee preferred beer.
They typically bought used cars and lived in modest houses. Most of them were small business owners.
The interviewers had expected doctors and lawyers and such. What they found out about doctors and lawyers was they felt they had to maintain the appearance of a certain level of weatlh which meant living in expensive houses and drivign expensive cars. So while they had good incomes, they were not savign and accumulating wealth.
@Hugh Ayles that article must have used info straight from the Millionaire Next Door. You're right, these folks didn't know what to do with the fine food and wine provided. What IS that? (pointing to caviar) The millionaires wanted steak and beer!
They interviewed a Sam Waltonesque cowboy from TX that was a decamillionaire. Old pick-up, beat up boots and jeans. Yeah, he says, I may not have a big hat, but I have a lot of cattle. Where we get the term: Big hat, No cattle. Describes the docs and lawyers you refer to! Thanks for posting!
This is an awesome dataset.
I'm sure that the highest income earners are earning a great, optimal return on their money like @Bryan Hancock suggests. I think the data also seems to suggest that point number one of yours - "Spend FAR less than you earn" - is the real driver of wealth for the richest Americans:
It still seems to me at this time that preserving, then increasing, your income and investment returns - savings first - is the fastest way for almost everyone to grow their wealth. That would appear to change as you move up the table above though!
Savings can come in many forms. In this case, I'd suspect that they simply earn so much money that they don't feel compelled to spend it all AND they focus a good amount of time on reducing their largest expense - and the one that many Americans seem to do nothing to prevent - taxes.
The games you can play on tax savings diminish as you make more income @Scott Trench . My number one expense BY FAR is my federal income taxes and there is little I can do to decrease them without trading off a disproportionate amount of income. The ultimate goal is maximal after-tax income and not minimal taxes. The next goal is maximal money to keep to invest, which means trying to minimize expenses to a level that does not drastically impact our standard of living. Sites like Mr. Money Mustache take all of this to an illogical extreme and advocate people live on something like $20k/year for a family of 3 or 4. This can certainly be done, but pretending that it doesn't eat into your lifestyle or utility is ridiculous to me. Time freedom is an admirable goal, but not if you trade off things you love for said freedom.
Learning to grow your income and your capacity to make your money work hard is a big deal. Getting your real (net of inflation) returns to north of 4% like what the traditional financial planners tell you is the "safe" withdrawal rate does wonders for your expense multiple. A 7% withdrawal rate decreases your expense multiple from 25X to closer to 14X. So if you need $100k annually your stache requirement goes from $2.5M to $1.4M. That is a pretty drastic difference!
As is the case with anything in life balance is key. Learn to enjoy your life now, but try to optimize for later to a degree where it doesn't make your time spent now miserable. Learn to grow your money, but don't spend every waking hour in the pursuit of more when "enough" is sufficient.
Another book I enjoyed reading a while back is "The New Elite" by Taylor & Harrison.
Jim Taylor and Doug Harrison define this "Elite" group as “people in the top 1 percent of half of 1 percent of the American economic spectrum: These people typically have at least $5 million in liquid assets (i.e., not including their primary residence) or have at least $500,000 in annual discretionary income.”
General Facts About The New Elite
For every 100 new elite members in the United States:
- The average age is 47 years old
- 90 to 95 made the money themselves; only 5 to 10 inherited it
- 90 are college graduates; 10 are not
- For those who are college graduates, 3 out of 4 did not attend an Ivy League school
- 8 are Asian (defined including those from Indian subcontinent); nearly 3x the rate found in the population
- 96 do not own a yacht; 4 do
- 50 haven’t furnished their homes in any way that would reflect their economic status
Family Background: For every 100 new elite in the United States:
- 8 grew up in poverty
- 28 grew up in lower middle class
- 36 grew up in middle class
- 25 grew up in upper middle class
- 8 grew up in a wealthy or affluent class
Notice how only 8% of the "The New Elite" millionaires in this group grew up in a wealthy or affluent class family. Most of these self-made millionaires grew up in a solid middle class family. I think this ties in well with Tom Stanley's Out Patient care theory, that the more money / cash gifts that the adult child receives from his / her wealthy parents, the less likely he or she will be economically productive and financially independent as an adult.
How many of you believe this to be true? How many of you in the Bigger Pockets community believe that you are financially independent today and grew up in a middle class household?
Originally posted by @Bryan Hancock :
The ultimate goal is maximal after-tax income and not minimal taxes.
I get a weekly newsletter from a CPA/author named Phillip Campbell.
He had an anecdote along the lines of your statement. He was writing about companies trying hard not to show a profit or spending more so as not to show a profit. For the record, he was against that.
Cash is king. You must build up cash to grow a business or secure your retirement.
Cash may be king, but holding too much of it is sub-optimal. Cash management is one of the toughest jobs of a real estate investor IMO. Real estate is EXPENSIVE and requires a lot of cash. I don't know many successful investors that have an easy time keeping a lot of cash lying around. Cash does, however, give you staying power and should be managed well.
I grew up in a middle class family so I fit the narrative above James. Hopefully I'll make it into the top echelon you mention ;-)
When I stay at my ranch, all my neighbor's are high net worth but reclusive. Hence why we've counted some 14+ retired rock and rock stars among them.
At the other homes, most all are affluent, but not super-wealthy. My canyon home is now surrounded by a largely Asian buyers with lots of cash.
When visiting friends in Santa Barbara, people who buy a $25MM home (or a $45MM home as one of my Bottomfeeders mastermind group has purchased) typically own multiple homes and have net worth that exceeds $100MM +, in my estimation.
They are very economical with time and take care of their health as they recognize the things that you cannot replace as a commodity and value privacy as the luxury it really is.
I'm surprised how low the threshold for the top number is, $15m is a lot but its not FU money.
Originally posted by @Chris Field:
I'm surprised how low the threshold for the top number is, $15m is a lot but its not FU money.
Sorry $12m for the top 1/2 of a percent.
$15M is WAY more than enough to have FU money unless you have a severe cocaine addiction. I think almost everyone in the country can live on $600k annually with a conservative portfolio indefinitely.
Folks often cite $10k/month as the amount needed for retirement. If you use that and have a horizon of 100 years (not sure who will live that long) on firecalc you will see that the portfolio survives 100% of the time:
I'm not sure how $15M wouldn't be enough FU money for just about anyone in the country.
Now we're getting to the technical terms we all can understand! FU money lol! What was that recent-ish movie again? It escapes me. Guy borrowing money from John Goodman.
Anyway - to your query about who grew up middle class and such @James Park- I grew up poor, but dignified. Small logging town in MT when the mills started closing, but mom never put us on the free lunch program. I still respect her for that!
More is definitely caught than taught as far as our kids are concerned. I have a hard time spending to this day. The kids that grew up 'rich' and receive cash gifts as adults (outpatient financial care) are dooming their family tree. The wealth ends with them. Jr sees fancy homes and belongings but doesn't learn to work or save and the chain ends.
Teach your kids to work, to spend wisely, to save and to give. Be an excellent example!
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