Millionaire - RICH or Middle Class?

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Millionaire - RICH or Middle Class?

Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes

I have had a interesting discovery recently. At the end of last year, I was finishing updating my financials and I realized that my networth had reached over 1 million dollars. That had been one of my financial goals over the last couple of years but last week I had a sad, disappointing realization. 

I posted a question on the forums asking if there was a shortcut to wealth. Many people on the forums said yes and a few suggested I read the book The Millionaire Fastlane by MJ DeMarco. I started listening to that book on Audible and it basically stated that 1 million dollars today is not worth what it used to be and that you would really need 5 million today to live a millionaire lifestyle that I saw when I was a kid.

Unfortunately, I think there is a lot of truth to this perspective. 

As my networth has gone up, I have relaxed a lot on my spending habits. I signed my kids up for music lessons, sports, and other activities without considering the cost because in my mind, I am a millionaire and millionaires are wealthy and that is what wealthy people do. When I would eat out I would think more along the lines of what do I feel like eating rather than comparing the prices of each meal and then asking myself, “how much do I want to spend on lunch.” Each month when my wife and I would do the budget, we were over spending by $500 - $1000 and I would need to pay myself more by transferring more money into our personal account from my business accounts. I was getting confused and frustrated at this. If I was a millionaire then why was I still feeling strapped financially?

DeMarco explaines in his book that the millionaires are not really wealthy but are considered the middle class or the upper middle class. And that if you spend like you are wealthy, you will ultimately become poor. So now I am back to budgeting more strictly and living more frugally - darn it! I thought that I had arrived just to find out I am only one-fifth the way there.

Have any of you come to the realization that what you thought was wealthy today isn’t really as wealthy as you thought? 

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Erik W.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
7y

For decades, I've heard people saying, "$1 million isn't a lot these days."  I wonder how many of those are broke people living paycheck to paycheck, spouting off statements like this make them feel better about their (lack of) drive and accomplishment?

Let's state the obvious: Inflation is a booger!  It's a "silent thief" that drives down our purchasing power every year.   "A loaf of bread was 10 cents and gasoline was 15 cents a gallon when I was a kid..."  Yes, yes...I get it.

But...a personal computer in the 1980s used to cost $2000 and couldn't do more than run DOS games. Today, the $50 Trak Phone from Wal-Mart can run circles around that ancient PC!

Most people's quality of life has also vastly improved.  Think about basic things such as central HVAC and indoor plumbing.  The wealthiest emperor 200 years ago couldn't make it 70 degrees inside on a 100 degree day.  You and I can with the touch of a switch or the turn of a dial (or just tell Alexa to set the NEST t-stat for us!)  You and I can travel coast to coast in 2-3 days in a car, or fly in 5 hours.  Could Dale Carnegie?   Nope.  How many multi-millionaires died on the Titanic?  Today, you and I would just hop over the Atlantic via Delta coach class and get there with far less risk (though admittedly with less comfort)...easy peasy!

Value and wealth are always relative to the time and place in which one lives.  Does that make sense?  We can't just say, "$1 million aint what it used to be".  That's a given.  But a wise person asks, "What IS $1 million today?"  I live in a medium size Midwest town.  $1 million will purchase 2-3x the assets you can buy for the same million in some high cost of living locations.  So is $1 million "a lot" in my town but barely "middle class" in San Francisco bay?

Over 98% of the world has less than $100,000 net worth.  I made that stat up, so don't bother Googling it, but I'd says it's fair since we know over half of American's can't handle a $400 emergency.  That is a real stat you can Google.  So if a person who has $1 million USD net worth today isn't wealthy, I don't know who is.  Is that person hyper-consumptive rich?  No, probably not....but is hyper-consumptive rich a true picture of what it means to be "wealthy?"  I don't think so.

In conclusion: Daddy Warbucks (movie Annie, set in the year 1933) stated, "I made my first million by the time I was 23 (around 1910)....that was a lot of money back then!"

Just for some perspective on how people view their personal wealth, always have, and probably always will.  ;-)

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  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    Hi Shiloh,

    Congrats on that, regardless its a great achievement.  I do agree with you, $1m today is not the same when you were a kid with the red Ferrari poster on your wall.  Lifestyle doesn't change until you have $3m+ in my opinion.  That number certainly could be more with kids.   $3m at 8% return = $240k cash flow. 

    21Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y

    Welcome to the double comma club, Shiloh! A huge milestone and outstanding accomplishment for sure.

    The informed know that a $1M net worth is middle class today.  The uninformed will say you are rich.  The uninformed also don't know the difference between rich and wealthy, so no surprise there.  

    it's ok to be uninformed.  I worry overly-zealous net worth trackers will react like you did at first.  See that 7th digit and forget what got you there.  Start spending like in Congress or something.  

    Knowledge and experience are good. Glad you realized the difference between rich and wealthy early on. Your author is right.  I'd hold off on the driver and private schools for now.  LOL

    Chris Hogan, a Dave Ramsey personality, is out there with a book that studied 10,000 millionaires (like Dr Stanley did with The Millionaire Next Door 20 yrs ago, but 10x) spreading the word that it's ok to be an everyday millionaire.  Most feel bad at first for winning. Most others think if you're a millionaire, you're one of 'those rich people'. The 1%.

    I haven't read your $5M book recommendation but I think DeMarco is more right than wrong.  My estimation has been  at $4M I'll stop reading the menu right to left and take more naps. Oops, Nvm.  Will take that long to unlearn the habits that got us there anyway.  

    My wife and I are relaxing a little but it's a slow road.  She and my HS senior are going to Disneyland next week as part of a choir competition. I handed her $400 spending cash and she about fell on the floor, writhing and foaming, saying it's too much.  LOL We all have adjustments to make.  

    I remember our double comma discovery.  I told my wife but didn't know what else to do.  You know?  Can't really blab it, but it's a big deal and a long time coming.  Maybe join or start a Mastermind?  Is there a secret club somewhere? BP is about the only place I'd ever acknowledge this topic outloud.

    My wife and her family are very close so she told someone about our discovery. A sister or her dad or both. Ever since, we've been hearing things like 'Why don't you re-do your kitchen already. You can afford it.' Lots of -'advice' followed by 'you can afford it.' A new kitchen will have a -30% ROI. The uninformed worker-bees of good people whose homes are by far their largest asset. Chris Hogan and DeMarco have a lot of work to do out there!

    62Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    7y

    Hi Shiloh,

    What you're saying reminds me of the old (1947) movie "Life with Father".

    No matter what the poor guy does, he can't keep his monthly budget under control.

    Pug Dogs and Rubber Tree Plants, etc...

    Scott...

    6Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    7y

    For decades, I've heard people saying, "$1 million isn't a lot these days."  I wonder how many of those are broke people living paycheck to paycheck, spouting off statements like this make them feel better about their (lack of) drive and accomplishment?

    Let's state the obvious: Inflation is a booger!  It's a "silent thief" that drives down our purchasing power every year.   "A loaf of bread was 10 cents and gasoline was 15 cents a gallon when I was a kid..."  Yes, yes...I get it.

    But...a personal computer in the 1980s used to cost $2000 and couldn't do more than run DOS games. Today, the $50 Trak Phone from Wal-Mart can run circles around that ancient PC!

    Most people's quality of life has also vastly improved.  Think about basic things such as central HVAC and indoor plumbing.  The wealthiest emperor 200 years ago couldn't make it 70 degrees inside on a 100 degree day.  You and I can with the touch of a switch or the turn of a dial (or just tell Alexa to set the NEST t-stat for us!)  You and I can travel coast to coast in 2-3 days in a car, or fly in 5 hours.  Could Dale Carnegie?   Nope.  How many multi-millionaires died on the Titanic?  Today, you and I would just hop over the Atlantic via Delta coach class and get there with far less risk (though admittedly with less comfort)...easy peasy!

    Value and wealth are always relative to the time and place in which one lives.  Does that make sense?  We can't just say, "$1 million aint what it used to be".  That's a given.  But a wise person asks, "What IS $1 million today?"  I live in a medium size Midwest town.  $1 million will purchase 2-3x the assets you can buy for the same million in some high cost of living locations.  So is $1 million "a lot" in my town but barely "middle class" in San Francisco bay?

    Over 98% of the world has less than $100,000 net worth.  I made that stat up, so don't bother Googling it, but I'd says it's fair since we know over half of American's can't handle a $400 emergency.  That is a real stat you can Google.  So if a person who has $1 million USD net worth today isn't wealthy, I don't know who is.  Is that person hyper-consumptive rich?  No, probably not....but is hyper-consumptive rich a true picture of what it means to be "wealthy?"  I don't think so.

    In conclusion: Daddy Warbucks (movie Annie, set in the year 1933) stated, "I made my first million by the time I was 23 (around 1910)....that was a lot of money back then!"

    Just for some perspective on how people view their personal wealth, always have, and probably always will.  ;-)

    67Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    7y

    I believe there are around 10 million millionaires in the US (~3-4% of the population); so, you are in rare company from a net worth perspective.

    Most people purchase everything from hope to happiness and if you continue to avoid that, you will be in even rarer company.

    "Show me you checkbook (and calendar) and I will tell you what is important to you."  -Unknown

    20Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    7y

    I think it can come down to living within your means.

    If someone makes 500k a year but lives like 100k then usually  still plenty of money to invest. If they make 100k but live like 80k  etc. that can get people into trouble.

    Life has an ebb and flow to it. TIME is more precious than money. I know some people who have lot's of money 9 figures but worked their whole life away and now the kids want nothing to do with them. Others are in poor health so have money but can't do anything with it.

    Money isn't this magical thing that is going to solve all of life's problems. With having more money becomes more responsibility. Stress does not go away when you have money it's form just changes to something else.     

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  • Account Closed
    Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
    7y

    When the inflation rate is 3%, the Rule of 72 says it takes a quarter of a century (24 years) to have your purchasing power cut in half. That means $1 today requires $2 25 years from now (and $4 50 years from now) to buy the same item. The challenge of wealth building is to find ways to outrun inflation. Economic progress (faster, better, cheaper ways of doing things) has historically been the way to stay ahead of inflation. Investments in businesses (stocks and rental real estate) are ways people can do it.

    Today's middle-class millionaire is going to have to become tomorrow's middle-class decamillionaire to enjoy the same standard of living. Index funds (investing in the U.S. economy) will get you there without much effort beyond knowing you have to do it (and sticking to it no matter what the stock market does). Beating index funds takes effort, which is why BiggerPockets exists for those interested in real estate investing.

    Interestingly, the government's asset-based definition of an accredited investor ("millionaire") has remained essentially unchanged since the 1930s (Dodd-Frank required the value of one's personal residence to be eliminated from the equation when calculating net worth). The Alternative Minimum Tax was passed in the 1960s to nab millionaires avoiding income taxes using tax-free municipal bonds and other legal mechanisms. Because of inflation, many middle-class taxpayers are now subject to the AMT because Congress didn't index this tax to inflation.

    6Reply
  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    7y

    There is a huge difference between a $1,000,000 net worth that provides you with $100,000 passive cash flow per year and $1,000,000 in cash sitting in the bank.

    Anyway, this is what Grant Cardone has been saying for years. It's the reason why many of us won't stop at a million.

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  • Shaheen Pirouz
    Rental Property Investor · Dallas, TX · Member since 2018 · 30 posts · 32 votes
    7y

    One thing I haven't seen mentioned here is the cost of living in your area. $1M will go much further in the midwest vs in the Bay Area.

    9Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    Shiloh I think its very much regional..  1 million in some markets throwing off say 5k a month triple net and folks can live just fine..  house and cars paid for of course.

    in other markets not so much.

    My partners wife  when we were doing timber.. and would have a great  year.. she would just say it was just numbers on Paper.. she did not believe it until it was cash in her bank account.

    so everyone has a perspective..   And having been prior to 08 down the leverage massive net worth route. Well massive as in more than we are talking about here.. when things melted down equity net worth melted with it.. and cash was king..  so many of my peers went from monster net worth's to negative. 

    I know that was then and now is now  However if you read the posts by @Steve Vaughan I think he has really nailed the balance for the private rental investor.. IE get some things paid for !!!.

    I have to give a financial statements to our banks..  And when i land a new bank its a full package @Mike Dymski  Thank you Mike for that awesome referral.. They tend to look at the whole picture.. I dont know how they underwrite Net worth.. but if its equity in real estate I bet internally they discount it.  WE may just not know it LOL.. compared to cash in banks and securities that are highly liquid.

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  • Jon Haft
    Rental Property Investor · Tyler, TX · Member since 2014 · 20 posts · 46 votes
    7y

    A quote I once heard that I've always liked is "rich people are rich because they act like they are poor and poor people are poor because they act like they are rich"

    my family is an example of this. My wife comes from money and they never spend anything. they wear old clothes and drive old cars, and my family doesn't come from money and they spend almost everything they earn but they have the latest clothes and cars

    36Reply
  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    7y
    Originally posted by @Jay Hinrichs:

    My partners wife  when we were doing timber.. and would have a great  year.. she would just say it was just numbers on Paper.. she did not believe it until it was cash in her bank account.

    My wife is the exact same way. 

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Shiloh Lundahl. Whether or not you feel wealthy at 1M probably depends a lot on where you live. 1M where I grew up (Midwest) is a lot more then say in LA.

    Any way you split it, 1M is a lot compared to average population. Whether or not that makes you feel different or “wealthy” idk. At 1M you probably live in a nice house, drive some nice cars and have some investments. To most people that doesn’t seem particularly wealthy.

    Also 90 percent of millionaires are worth 5M or less. So I would say true wealth (in the eyes of most people) starts around that number, meaning you’re worth 5M or more.

    Of course even if you’re worth 5M it also depends on if you show off that wealth or not. People I know that are that wealthy pretty much act like normal people, except they may live in a bigger house then normal.

    Anyways, congrats on that achievement, that’s really great!

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Jon Haft:

    A quote I once heard that I've always liked is "rich people are rich because they act like they are poor and poor people are poor because they act like they are rich"

    my family is an example of this. My wife comes from money and they never spend anything. they wear old clothes and drive old cars, and my family doesn't come from money and they spend almost everything they earn but they have the latest clothes and cars

    U do know there is a happy medium.. to all of these things.  but the renter driving the 100k Benz I sure get that one.. 

    I lived at a country club in Napa CA called Silverado.. and I was the youngest member and probably the least well off or to be exact not well off at all.. the only way I got into the property and the club was CA was in a deep recession and for 10k down I was able to assume a 450k mortgage..  So anyway.. the members there started at the poorest ME.. and went up to Presidents of wineries.. owners of garbage companies.. big time stock brokers ..  M an A guys  prominent surgeons on and on.  Lots of airline pilots  ( keep in mind in those days they still made 250 to 350k a year. ).. Airline guys most frugal.  But one of the members  they owned a court reporting business in SF and it was the largest there and sold it for just under 20 million plus they had invested in real estate in the bay area along the way.. mid 40s.. he would come to the club in a beat up old ford.. beat up old clubs.. etc etc..  so your right now rhime or reason.. then others had custom golf carts with their names on them etc etc.. I was just along for the ride.. but even though I could have bought something a lot less expensive.. it was worth every penny .. networking with these folks and then becoming friends set up my business going forward .. 

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  • Jai Reddy
    Edmond, OK · Member since 2012 · 456 posts · 270 votes
    7y

    @Shiloh Lundahl

    If you're including today's value of your RE assets, your networth is going to fluctuate every year, some years it goes up, other years it goes down.

    I'd say, unless one has financial assets worth 1M in cash, CD, bonds, etc.., one should assume they aren't yet a millionaire. I think its more practical that way.

    4Reply
  • Braden Klope
    Lebanon, TN · Member since 2018 · 5 posts · 2 votes
    7y

    @Shiloh Lundahl

    I am currently reading Robert Kiyosaki's Retire Young Retire Rich, and he would categorize that in the "Affluent" bracket, with Rich being next once you have a yearly income of $1,000,000 +.

    1Reply
  • Account Closed
    Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
    7y
    Originally posted by @Shiloh Lundahl:

    . . . Have any of you come to the realization that what you thought was wealthy today isn’t really as wealthy as you thought? 

    When my investment income first exceeded my living expenses many years ago, I felt the elation of having arrived (I defined my investment income based on a 4% safe withdrawal rate from a diversified portfolio of assets). Then I noticed my living expenses and investment income could fluctuate (which meant I could lose my financial freedom, as I did for a brief period during the Financial Crisis of 2008), so I decided to develop a demilitarized zone (margin of safety) between my low income number and high expenses number. A 25% MOS is good, a 50% MOS is better, a 100% MOS is even better, and so forth, when it comes to passing my financial stress test.

    On the expense side, I require 2,000 calories a day to sustain my metabolism. I remain frugal, wearing things until they wear out. On the income side, I continued working on a part-time basis and used this additional income to diversify my portfolio of income-producing assets. Should some assets reduce the income they generate because of market forces, other assets hopefully will continue generating the income I expect. I even changed my address and moved to an area with a lower cost of living to reduce my financial breakeven point by 25%. I have 24 hours a day, every day, to make all this happen. Lather. Rinse. Repeat.

    What was emotional at first when I first achieved financial freedom is now strictly mechanical as I expand and strengthen my financial freedom going forward. My heirs and beneficiaries (mostly charities) will be happy if I'm successful. I'm happiest with a low-cost roof over my head and a high-speed internet service connecting me to the outside world. 

    10Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    7y
    Originally posted by @Jon Haft:

    A quote I once heard that I've always liked is "rich people are rich because they act like they are poor and poor people are poor because they act like they are rich"

    my family is an example of this. My wife comes from money and they never spend anything. they wear old clothes and drive old cars, and my family doesn't come from money and they spend almost everything they earn but they have the latest clothes and cars

    Yeah, but TRULY rich people certainly don't act like they are poor.  They act like they are rich.....as well they should. Perhaps your wife's family is a exception however.

    As for whether or not a millionaire is rich or middle class, I think even a qualified purchaser in a primary city would be hard pressed to call herself rich. All it would take is a few years of living lavishly to put a huge dent into that $5 million.

    2Reply
  • Marko Zlatic
    Rental Property Investor · Cleveland, OH · Member since 2013 · 85 posts · 146 votes
    7y

    This number is obviously regional. $1M in the Midwest is different than $1M in Manhattan.

    At the end of the day, inflation eats away at purchasing power. You have to make sure that you are outpacing inflation and then some to be able to comfortably live off of your nest egg. 

    This is known as The 4% Rule or Safe Withdrawal Rate

    1Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    The median household income in the area I invest is $22,300 (per capita  <$13k), so a net worth of a million here definitely puts one in the "rich" category.

    2Reply
  • Ramon Flores
    Rental Property Investor · Los Angeles, CA · Member since 2016 · 172 posts · 122 votes
    7y

    @Shiloh Lundahl A million dollars net worth looks like mediocrity and middle class if you live in Los Angeles. I believe that being wealthy is not about how much money you have in the bank, but how much money you are cash flowing without having to work. I see wealth as being free and doing what you want. Not necessarily living lavishly. If you have a chance I would read The Millionaire Next Door. 

    I do agree though that a million dollars is not as much as it used to be. Either way congrats... If were you I would be celebrating!

    4Reply
  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    7y

     “Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.” -W. Buffet

    Net worth is just a number. The habits, lessons, and values that got you to that number along with what you do with it are far more important.

    That's my second Buffet quote of the day, so I've reached my limit.

    15Reply
  • Craig Jeppesen
    Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
    7y

    Congratulations! This is quite an accomplishment but you are not done and you shouldn’t give up the money management habits that got you here. lifestyle also has a lot to do with it. Some people can easily live off the income from the wealth of $1 million while others want to have a better lifestyle. Also it depends how much of that million is tied up in non earning assets like your house and cars vs your investments. Keep investing and let that million grow to 2 and 3 million. 

    0Reply
  • Tyler Blackwell
    Rental Property Investor · Olympia, WA · Member since 2010 · 127 posts · 76 votes
    7y

    $1M was a big goal of mine as well for a long time. After all, if you start at $0, it doesn't matter if it's 1950 or today, it's still a big number! So congrats on the milestone. It's certainly something to celebrate, since only 1 in 10 households are millionaire households. Top 10% isn't something to sneeze at! Of course, if you zoom out globally you're a 1%'er without question. So perspective is important.

    HOWEVER, what I have found is that unless you're very frugal, $1M still doesn't guarantee you financial freedom in the US or the ability to spend like Gatsby. But it's a good starting point for further growth. The 4% safe withdrawal rate, assuming it's all invested in the market, would provide $40k a year. I say if you're making 4% you're not trying hard enough, but that's what the stock market folks think is safe. But let's play their game. If you have $3M then you can retire with $120k. Starting to get there. For us real estate investors, if that return is say, 8%, then we're at $240k--starting to get good! 

    6Reply
  • John FortesPro Member
    Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
    7y

    The best thing that happened is you self educated yourself on today's standards and you assessed your criteria of what it means to be at your goal. Proud and happy for you. Also, thank you for bringing this to light as this is always a good reminder of doing what you should be doing as opposed to what you normally would be doing. 

    0Reply
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