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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  • James Ma
    Burnaby, BC · Member since 2017 · 282 posts · 268 votes
    7y

    Great work building up the networth - that is ahead of most people these days where savings are almost non existent for the average person.

    It really depends on lifestyle, I think a million can be enough to retire on but it wouldn't be a fancy retirement given the longer life expectancy these days. Research has said that millennials will need much more than a million in the bank by the time they retire given inflation and life expectancy increases or they'll be broke before they pass.

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  • Mike Roy
    Rental Property Investor · Bath, ME · Member since 2014 · 220 posts · 288 votes
    7y

    @Shiloh Lundahl Don't beat yourself up!  $1 Million net worth puts you in the top 1% according to Google.  I would caution though against assuming that wealthy people spend freely; rather, I think the poor are more likely to be fiscally irresponsible and that the wealthy have money because they are much more intentional with their spending.  Lots of good reading out there about the habits of the wealthy.

    I would also offer that the size of the pile of money is much less important than the return on it.  If you have $5 Million in the bank earning 1%, you have $50k in annual income.  If you have $500k in multifamilies earning 15%, you have $75k in annual income.  I contend that millionaire status is not necessary for permanent financial freedom, certainly not $5 Million.  

    I would look at where your $1 Million net worth is invested and what it is earning.  Perhaps there is opportunity to reposition your assets for better returns. 

    The last thing I would say is that wealth is the result of mindset.  No matter how much income you have coming in, you must always consume less than you earn in order to have something leftover to save and invest.  Lifestyle inflation is okay to the extent it's proportional to an increasing income stream.  It sounds like your increase in spending was not related to an increase in income, just a realization of current net worth.  Just think of all the broke celebrities out there - I think they basically did the same thing but much more recklessly.  

    But again, you're a millionaire and must be doing more things right than wrong.  You're also very honest and humble to share - thank you!  

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  • Irina Belkofer
    Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    7y

    According to self-made millionaire Grant Cardone, “millionaire is the new middle class. ” And a new survey from Charles Schwab reveals that many Americans may side with Cardone: Survey respondents say it takes an average of $1.1 million to be “financially comfortable.”

    But how many Americans are actually worth over $1 million and, therefore, “comfortable”?

    According to a 2017 report from Spectrem Group, as of the end of 2016, there were a record 10.8 million millionaires nationwide.

    There were 9.4 million individuals with a net worth of $1 million to $5 million, 1.3 million individuals with a net worth of $5 million to $25 million and 156,000 households worth more than $25 million, the report says.

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

    Having enough cashflow from your assets to cover your needs is all that really matters. Everything else is strategy and numbers (and vocabulary).

    I believe this actually happened and is not an urban legend regarding comedian Groucho Marx's tour of the NYSE in the 1950s. Groucho had a reputation of being wealthy and was asked about it afterwards by one of the floor traders.

    • The SETUP:
      Trader: "Groucho, where do you invest your money?"
      Groucho: "Treasury bonds."
      Trader: "They don't make you much money."
    • The PUNCHLINE:
      Groucho: "They do if you own enough of them."
    4Reply
  • Loren Clive
    Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
    7y

    @Konstantin Boubev so true! Only in the US would a millionaire think they're middle class. Having traveled to third world countries and lived abroad, I can tell you firsthand anyone born in the US is enormously wealthy just in terms of the easy credit and loans we have access to and the wealthy folks who surround us who can power our businesses. The income potential in America is unlimited!

    https://www.nytimes.com/2018/09/12/business/econom...

    This is a great article on what's considered middle class by the Pew Research Center. Pew Research says the middle class runs from $42,000 to $125,000 (before tax). 

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