In comfortable middle class neighborhoods across America there are families that are just getting by and those that are more than financially secure. The view of their lives from the street probably can’t tell you much. Their incomes and educational attainment may even be similar, but some in any neighborhood are millionaires, while others are carrying a lot of debt and saving little.
Often outward appearances are misleading. The luxury SUV in one driveway may announce success, but if leased this status symbol is just an expensive monthly liability. The four year old sedan in the neighbor’s driveway is probably paid for and still worth $15 – $20,000 with a service life remaining of perhaps 10 years.
All the neighbors may know and even envy one family’s Caribbean vacation last winter, but was most of it put on a credit card? Borrowing for consumption is different than borrowing for a long lived asset like a car or even an education that will provide higher earnings. As a rule, middle class millionaires pay cash for entertainment and goods. Not only does it avoid borrowing costs, but it helps keep the cost in line with the reality of a household’s budget.
Interest costs, excess spending and buying and selling of homes and autos all add extra costs. Middle Class millionaires are low key and stay in their homes, hold onto their cars and don’t borrow to consume. The thousands they save every year is available to invest and grow their wealth.
Middle class millionaires probably haven’t been divorced. Divorce is one of the most financially damaging events that can happen in a person’s life. Generally their lifestyle choices follow the dictum of moderation in all things.
Education is the biggest indicator of affluence. That statement doesn’t stand on its own anymore. It is possible and actually common nowadays for people to spend too much money on an education that doesn’t yield the return they expect. The number of people with post secondary degrees today is much higher than it used to be. People really do need to think hard about the return they will get on their education dollar.
That said, it is tangible useful skills that create value and wealth. A skilled plumber is a valuable worker. There are bachelors degree programs today that are not as valuable, yet the cost of those degrees is tens of thousands of dollars greater than the cost of the training to be a plumber. I personally know a master plumber who didn’t graduate from high school but at the age of 50 is probably already a millionaire.
Middle class millionaires steadily invest in retirement plans, maximize employer match’s and invest in businesses that yield cash flow. They have the money to do so because they have been careful with their spending. After years of modest but well executed financial investments and choices, not only is it likely a portfolio has substantially appreciated but the value of dividends, business income and interest can more than support their retirement.
Financial success doesn’t have to be outwardly apparent and usually doesn’t happen quickly. Millionaires live in modest neighborhoods everywhere. It is a valuable exercise to consider how they got that way. Can you think of any middle class millionaires in your neighborhood?