Stop for a second and picture a millionaire. What comes to mind?
Does your version of a millionaire live in a big house, drive an expensive car, and wear designer clothes? That person could be a real millionaire, but they might not be.
The mortgage lender could own the house, the bank could own the car, and they might have racked up a ton of credit card debt buying the clothes. People can look like a million bucks, but they could be one step away from losing it all.
People believe all kinds of crazy myths about millionaires. If you asked 10 random people on the street what it means to be a millionaire, you’ll likely get 10 completely different answers. And most of them would be wrong!
So let’s cut through all the crap and get to the true definition of what it means to be a millionaire.
What Is a Millionaire?
A millionaire is somebody with a net worth of one million dollars. It’s a simple math formula based on your net worth. When what you own (your assets) minus what you owe (your liabilities) equals more than a million dollars, you’re a millionaire. That’s it!
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Being a millionaire is not about how much money you make in a year, your feelings or emotions, or your crazy uncle’s opinion. Again, it’s a math formula, and math doesn’t really care about feelings—whether they’re yours or anyone else’s.
Let’s say John and Maria have $750,000 in 401(k)s and savings accounts. They also have a house worth $350,000 and own two vehicles worth $10,000 each. Add all that up and their assets total $1.12 million.
But that’s just half the picture. Before we can call them millionaires, we have to look at what kind of debt they have. And would you look at that: They still owe $150,000 on their home, have $10,000 of credit card debt, and owe $20,000 on their student loans. Their liabilities add up to $180,000.
To figure out if they’re net-worth millionaires, let’s subtract what they owe from what they own.
What they own: $1,120,000
What they owe: – $180,000
Net worth: $940,000
So John and Maria are not millionaires. They’re really close, but they haven’t hit the mark yet.
But what if they didn’t have any student loan or credit card debt and they knocked their mortgage down to $100,000?
What they own: $1,120,000
What they owe: – $100,000
Net worth: $1,020,000
That’s more like it! Now, John and Maria would be considered millionaires! And if they got serious about paying off that mortgage—because you never want to take a mortgage with you into retirement—they could invest and save even more.
How about you? Are you a millionaire? Check out our Net Worth Calculator to find out.
What Does a Millionaire Look Like?
First of all, don’t make the mistake of confusing millionaires with billionaires. The millionaire lifestyle does not include owning private yachts, driving exotic sports cars, and eating gold-encrusted steak for dinner every night. That’s Hollywood’s mythical version of a millionaire!
Think of it this way: A million dollars is 1,000 times $1,000. A billion dollars, on the other hand, is 1,000 times $1 million. That means a billionaire has a thousand times more wealth than a millionaire . . . just think about that for a minute! If you have $10,000 in the bank, congratulations: You’re 10 times closer to becoming a millionaire than a millionaire is to reaching billionaire status.
Why are we telling you this? Because we want you to remember that reaching a million-dollar net worth is not some impossible, pie-in-the-sky pipe dream. In fact, becoming a millionaire is very doable! After all, there are roughly 22 million millionaires in the U.S. today.1
So we’ve covered what a millionaire is (and isn’t), but what exactly does a real millionaire’s life really look like? It probably looks a whole lot like yours does right now! Here are some of the things we learned about millionaires from The National Study of Millionaires:
- Millionaires don’t go for “luxury” vehicles. They drive Toyotas and Hondas, with nearly one-third (31%) saying they own those brands of cars.
- Millionaires own a paid-for home (probably in a normal residential neighborhood like the one you live in) and maybe a beach condo or cabin in the woods.
- Even though they’ve “made it” to millionaire status, they’re still careful about their spending (85% of them shop with grocery lists and 93% of millionaires use coupons).
- On average, millionaires actually spend less on clothes per month ($117) than the average American household ($154).2 Apparently, the myth that millionaires like to “wear their money” and buy expensive clothes is just that—another myth.
- Roughly two-thirds of millionaires (66%) spend less than $300 at restaurants each month. Did you think millionaires live on lobster and caviar? Think again!
And that’s just scratching the surface. The more you dig into the lives of millionaires, the more you’ll see that there’s a huge difference between what Americans think a millionaire’s lifestyle looks like and how they actually live their lives.
How Do You Become a Millionaire?
We’d be willing to bet you want to become a real millionaire—someone who actually has $1 million or more in assets and zero debt weighing them down.
If becoming a millionaire seems impossible, we’ve got some good news for you. Our Ramsey research team conducted the largest study ever done on millionaires, and we found that, for the most part, they’re ordinary folks just like you. In fact, the top three professions of millionaires were accountants, engineers and teachers!3
Here at Ramsey, we believe anyone can build wealth—no matter their background or income. And we believe anyone can become a millionaire. Believe it or not, the vast majority of millionaires didn’t inherit their money or win the lottery. That’s just another dumb millionaire myth.
Here are some of the things they did do to achieve millionaire status:
- They stayed far away from debt.
- They invested early and consistently into their 401(k).
- They made savings a top priority.
- They found ways to increase their income.
- They cut out unnecessary expenses from their budget.
- They worked with an investment professional.
Doing these things year after year takes a lot of discipline, but becoming a millionaire is absolutely possible.
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Work With an Investment Professional
If you want to learn more about hitting that million-dollar mark, it pays to sit down with a pro. SmartVestor is a free program that will connect you with qualified financial advisors who will help you get on a wealth-building path!