Conventional thinking:  If I become a millionaire I will be able to live a life of luxury and financial freedom. 

Contrarian thought: A million dollars does not buy you much these days.  Even if you are lucky enough to become part of the 0.13% of the world population who qualify to call themselves millionaires, your life will not be much different than what it is today.

Defining a Millionaire

There are many definitions for the word millionaire out there.  But the one definition that is most commonly agreed upon is someone whose net worth is one million dollars or more.  This means that if you add up all of your assets (house, cars, investments, savings, etc.) and subtract all your liabilities (mortgage, car loans, credit card debt, etc), the resulting number should be one million dollars or more.

How Many Millionaires are There?

According to the research done by Cap Gemini and Merryl Lynch published in the World Wealth Report 2006, there are about 2,669,000 millionaires in the United States, or about 0.9% of the population.  In the whole world there are 8.7 million millionaires, or about 0.13% of the world-wide population.

Why is the Label Millionaire Meaningless?

Most people associate the word millionaire with a lavish lifestyle.  They think of flying in private jets and sun tanning in yachts in Monaco or the Caribbean.  This is a total misconception.  As reported in the book The Millionaire Next Door, most millionaires live a lifestyle that you would not be able to distinguish from an average middle-class lifestyle.

What can a Million Dollars Get You?

The reality is that these days a million dollars does not buy you much.  Let’s look at an example of a typical American millionaire couple in their mid forties with two kids.  A significant amount of a millionaire’s equity is usually in their home.  Let’s assume that that accounts for $350K in equity.  Another portion is saved to pay for college for the kids, let’s say $150K for both kids.  The rest, $500K is what is left to live the lavish lifestyle that you dream of.  Let’s assume that the money is invested in a diversified portfolio of stocks and bonds and yields 10% per year.  Accounting for 3% inflation, your net effective return rate is 7%.  If you were to live on this money for the next 40 years you would be able to withdraw about $3,000 a month.  Hardly enough for a lower middle class lifestyle.

Instead of focusing on becoming a millionaire, focus on how to generate enough income to live a life that you can enjoy today.  Save enough to have the essentials that you want in life and forget about meaningless labels created by society.

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