Great article on how the "Rich" do it...

[armor99]

Saw this article today. I thought it was interesting.... especially the fact that only ~ 3% of the rich inherited that wealth.... a good read anyway...

http://finance.yahoo.com/banking-budgeting/article/105626/10-Things-Millionaires-Won't-Tell-You

 

[lets-retire]

Only 3% inherit their wealth?!? Wait a second that can't be correct. Opportunity is dead in America. The only people getting richer are the rich. So how can 97% of the millionaires have made their million? The facts must be skewed, otherwise the Republicans are correct and that can't be.

Couple your article with this quote out of a recent AP article and I feel someone is not telling the whole truth.

Nationwide, the median household income rose to $50,233, a modest increase of $665 from the previous year, although it was the third consecutive annual rise. While the overall poverty rate held steady at 12.5 percent, Latinos, children and the foreign-born — demographic categories that overlap considerably — experienced significant increases.

 

[cute fuzzy bunny]

There are a lot of stats on inherited wealth and most of them involve slices of the wealthy and arent complete views.

For example:

1. According to a study of Federal Reserve data conducted by NYU professor Edward Wolff, for the nation’s richest 1%, inherited wealth accounted for only 9% of their net worth in 2001, down from 23% in 1989. (The 2001 number was the latest available.)

2. According to a study by Prince & Associates, less than 10% of today’s multi-millionaires cited “inheritance” as their source of wealth.

3. A study by Spectrem Group found that among today’s millionaires, inherited wealth accounted for just 2% of their total sources of wealth.

IIRC, the "millionaire next door" identified that most millionaires dont inherit wealth but are either very frugal, small business owners or both.

One other factor to consider is that many rich people made themselves rich, but a lot of them came from very well to do families. They got the right education, had the right connections, and were able to take exceptional risks since they had their family fortunes to fall back on.

A quote from Philip Greenspuns web site:

"Most people who are rich chose their parents wisely. Bill Gates might not have ever figured out 1960s-style computer science but he had the foresight to pick a father who is one of the richest, most prominent lawyers in the state of Washington. And before he and Paul Allen made the deal with IBM that gave them a monopoly on the PC operating system, Bill had the foresight to choose a mother who was personally acquainted with John Opel, CEO of IBM Corporation. None of this would have worked if Bill hadn't been willing to take tremendous personal risks. Should Microsoft have failed, of course, Bill Gates would have had nothing to fall back on but a million dollar trust fund from his mother's parents (bankers) and the resumption of his degree program at Harvard College."

He points out that Donald Trump also came from a very wealthy family who provided him with the seed money to do his investing...but points out that had Trump put the money into mutual funds, we'd have probably never heard of him.

 

[FinanceDude]

"Most people who are rich chose their parents wisely. Bill Gates might not have ever figured out 1960s-style computer science but he had the foresight to pick a father who is one of the richest, most prominent lawyers in the state of Washington. And before he and Paul Allen made the deal with IBM that gave them a monopoly on the PC operating system, Bill had the foresight to choose a mother who was personally acquainted with John Opel, CEO of IBM Corporation. None of this would have worked if Bill hadn't been willing to take tremendous personal risks. Should Microsoft have failed, of course, Bill Gates would have had nothing to fall back on but a million dollar trust fund from his mother's parents (bankers) and the resumption of his degree program at Harvard College."

Looks like Bill had a rough life...........

He points out that Donald Trump also came from a very wealthy family who provided him with the seed money to do his investing...but points out that had Trump put the money into mutual funds, we'd have probably never heard of him.

I heard Trump's dad owned something like $50 million of real estate in Manhattan, that's a pretty good "seed money" fund...........

 

[Marquette]

Saw this article today. I thought it was interesting.... especially the fact that only ~ 3% of the rich inherited that wealth.... a good read anyway...

http://finance.yahoo.com/banking-budgeting/article/105626/10-Things-Millionaires-Won't-Tell-You

I'm a little confused by the article... they seem to peg the "rich" number at $1mm even though they then mention that you'd need $3.6mm to be on par with purchasing power from 30 years ago.

If "rich" is $1mm then that's a fairly achievable number for two white collar workers who save. Heck, a couple with two DB plans and discounted health insurance could easily have equivalent purchasing power.

The article has some other interesting numbers too... the cutoff for truly rich (the first vestiges of wealthy?) is $23mm. For those trying to keep up with the joneses, just like we have demarkations for middle class, it'd probably make sense to make sure you're up on demarkations for "rich".

 

[eridanus]

I'm a little confused by the article... they seem to peg the "rich" number at $1mm even though they then mention that you'd need $3.6mm to be on par with purchasing power from 30 years ago.

Right, inflation applies to being "wealthy." The percentage of inherited wealth will only go down since it'll be easier to be a millionaire in the future through one's own savings.

The same applies for poverty. The rate of "poverty" is usually based on the fed poverty guidelines, which has a set annual income. It's about $10,000 for a single person.

Whenever I hear about poverty levels, I always remember one suggestion of the Heritage Foundation. They wanted to "reduce poverty" in America by....

wait for it...

reducing the poverty income level. Voila! Fewer poor people!

 

[haha]

If "rich" is $1mm then that's a fairly achievable number for two white collar workers who save. Heck, a couple with two DB plans and discounted health insurance could easily have equivalent purchasing power.

One retired big city teacher is ahead of this; or a successful military officer or cop. Two put it way over any $1mm.

A person with only $1mm and little else is barely OK, or perhaps not OK depending on how things go. He or she will certainly not be eating much foie gras.

Ha

 

[Frugality_of_Apathy]

Right, inflation applies to being "wealthy." The percentage of inherited wealth will only go down since it'll be easier to be a millionaire in the future through one's own savings.

The same applies for poverty. The rate of "poverty" is usually based on the fed poverty guidelines, which has a set annual income. It's about $10,000 for a single person.

Whenever I hear about poverty levels, I always remember one suggestion of the Heritage Foundation. They wanted to "reduce poverty" in America by....

wait for it...

reducing the poverty income level. Voila! Fewer poor people!

If you don't have any debt or obligations and you share an apartment $10,000 is very livable so long as you don't live in some megalopolis. I lived on less than $10,000 a year for all 5 years through college and never thought I was living in poverty.

 

[eridanus]

If you don't have any debt or obligations and you share an apartment $10,000 is very livable so long as you don't live in some megalopolis. I lived on less than $10,000 a year for all 5 years through college and never thought I was living in poverty.

Well, there ya go. Maybe that was their thinking.

 

[lets-retire]

The same applies for poverty. The rate of "poverty" is usually based on the fed poverty guidelines, which has a set annual income. It's about $10,000 for a single person.

This level is below the full time Federal minimum wage level. So even if a couple was able make the minimum wage, working full time, they would be making more then me and my wife did when we first started adjusted or inflation. We did not feel poor. We had money to spare and we were able to entertain ourselves. If the couple work hard and tried to improve themselves they wouldn't be at minimum wage for very long.

 

[eridanus]

This level is below the full time Federal minimum wage level. So even if a couple was able make the minimum wage, working full time, they would be making more then me and my wife did when we first started adjusted or inflation. We did not feel poor. We had money to spare and we were able to entertain ourselves. If the couple work hard and tried to improve themselves they wouldn't be at minimum wage for very long.

Ok, now we have two opinions that the federal poverty income level is too high.

I assume that means that these non-poor people should be removed from the welfare rolls as well? Because, obviously, they have money to spare.


Can this thread be moved to Soap?

 

[cute fuzzy bunny]

Pretty interesting. I just added up all my expenses from when I was 17-18 and living with my girlfriend. We were way over 10k a year just renting a crappy one room apartment in a bad area, with one crappy car that broke down a lot, food, basic utilities and basic necessary items like toothpaste and toilet paper.

And that was 30 years ago.

Inflation adjusted to todays dollars 10k then would be 25k now. Which interestingly enough is my barebones minimum budget plan, which doesnt include a rent/mortgage payment or car payments since we own outright.

No wonder I had to work three jobs and she had to work two, and we barely kept our noses above water...

I had a girlfriend about 18 years ago that was a full time student, worked part time in a copy shop. I think she made around 10k. She lived in the worst apartments in the worst areas, rode a bike to school and work, and lived at about the cheapest most low level lifestyle I can imagine. Dinner regularly consisted of whatever was on the dented can clearance shelf. She'd call me up and laugh about the weird combinations of things she ate for dinner. Her 10k would be about 16k today, inflation adjusted.

So I'm kinda leaning towards 10k being not really a good standard of living, and pretty far down towards the basic subsistence/poverty level.

 

[lets-retire]

Ok, now we have two opinions that the federal poverty income level is too high.

I assume that means that these non-poor people should be removed from the welfare rolls as well? Because, obviously, they have money to spare.


Can this thread be moved to Soap?

I never said it was too high, just my own fugal experiences from when I was young.

 

[steve88]

There are a lot of stats on inherited wealth and most of them involve slices of the wealthy and arent complete views.

For example:

1. According to a study of Federal Reserve data conducted by NYU professor Edward Wolff, for the nation’s richest 1%, inherited wealth accounted for only 9% of their net worth in 2001, down from 23% in 1989. (The 2001 number was the latest available.)

2. According to a study by Prince & Associates, less than 10% of today’s multi-millionaires cited “inheritance” as their source of wealth.

3. A study by Spectrem Group found that among today’s millionaires, inherited wealth accounted for just 2% of their total sources of wealth.

IIRC, the "millionaire next door" identified that most millionaires dont inherit wealth but are either very frugal, small business owners or both.

One other factor to consider is that many rich people made themselves rich, but a lot of them came from very well to do families. They got the right education, had the right connections, and were able to take exceptional risks since they had their family fortunes to fall back on.

A quote from Philip Greenspuns web site:

"Most people who are rich chose their parents wisely. Bill Gates might not have ever figured out 1960s-style computer science but he had the foresight to pick a father who is one of the richest, most prominent lawyers in the state of Washington. And before he and Paul Allen made the deal with IBM that gave them a monopoly on the PC operating system, Bill had the foresight to choose a mother who was personally acquainted with John Opel, CEO of IBM Corporation. None of this would have worked if Bill hadn't been willing to take tremendous personal risks. Should Microsoft have failed, of course, Bill Gates would have had nothing to fall back on but a million dollar trust fund from his mother's parents (bankers) and the resumption of his degree program at Harvard College."

He points out that Donald Trump also came from a very wealthy family who provided him with the seed money to do his investing...but points out that had Trump put the money into mutual funds, we'd have probably never heard of him.

i heard bill copied windows from apple and that launch him to his billion. dos for ibm was a good program but people didn't want to learn programming.

 

[cute fuzzy bunny]

Actually both apple and microsoft copied the Xerox Star's windowing system, developed in the Palo Alto Research Center.

Pic from ~1980. System used a mouse, a gui and windows. Steve Jobs saw the product and then began development of the Lisa OS based on what he saw. Microsoft copied both.

 

[tuixiu]

If it weren't for healthcare I could see 16k working for someone if they were ok with no car.

What would they take home $1200 per month? That could handle renting a room for $500, a $300/month food budget, etc.

They probably wouldn't be going to the opera on Saturday nights and would be very vulnerable to disaster from a big ticket expense, but could be done. Would someone in that income range qualify for free or almost free healthcare depending where lived?

 

[CaseInPoint]

One retired big city teacher is ahead of this; or a successful military officer or cop. Two put it way over any $1mm.

A person with only $1mm and little else is barely OK, or perhaps not OK depending on how things go. He or she will certainly not be eating much foie gras.

Ha

Right. This gets back to the concept of the middle class millionaire. The cost of living in many places has become so high that having $1M
doesn't give people the feeling of being "rich."

FWIW, contrary to what the article says, I don't believe that there are too many tax shelters left. Those were pretty much eliminated with the advent of the AMT.

 

[Finance Dave]

Only 3% inherit their wealth?!? Wait a second that can't be correct. Opportunity is dead in America. The only people getting richer are the rich. So how can 97% of the millionaires have made their million? The facts must be skewed, otherwise the Republicans are correct and that can't be.

Couple your article with this quote out of a recent AP article and I feel someone is not telling the whole truth.

Nationwide, the median household income rose to $50,233, a modest increase of $665 from the previous year, although it was the third consecutive annual rise. While the overall poverty rate held steady at 12.5 percent, Latinos, children and the foreign-born — demographic categories that overlap considerably — experienced significant increases.

I guess it depends on what you call rich, but I am friends with many "self made" people...nearly all of them have started their own businesses. Although I don't have access to their financial statements, I'd estimate that on average these are people in their 30s/40s with net worths of $2M or more and annual incomes of $200k or higher. Would you call that rich?

I guess what I'm saying is that I disagree that opportunity is dead. One guy started a pizza restaurant franchise chain, one guy started a construction company, one guy has a company that remodels movie theatres, one owns a machine shop, one invests in rental homes and now has 14 of them, one is an attorney and has written several books, and one started an enthusiast auto web site.

Keep in mind these are not people I found by Googling "rich people"...these are people I've met, had dinner with, and some of them I would even consider friends. If I know this many self-made people who have taken "opportunities", I'm sure there are MANY more.

Edit: you might be tempted to respond "but Dave, their "apparent" wealth may be facade...they might be maxed out on loans and credit cards." However, they know of my hobby in personal finance, so they have all entrusted in me certain information such that I am confident they are NOT in debt, and they truly are successful. Some of them have shown me their investment statements, some I've seen their credit scores and credit reports (they asked me how to detect identity theft so I sat with them and showed them www.annualcreditreport.com process), and some of them asked for help running their businesses so I've seen their P&Ls.

You might also ask if they got a big wad of cash from parents or others. No, I have met their parents in many cases too. One guy did win a lawsuit that netted him about $200k...but that's the only one. These are people who were brought up in middle class families except for one guy, who is from an upper middle class family.

 

[armor99]

I guess it depends on what you call rich, but I am friends with many "self made" people...nearly all of them have started their own businesses. Although I don't have access to their financial statements, I'd estimate that on average these are people in their 30s/40s with net worths of $2M or more and annual incomes of $200k or higher. Would you call that rich?

I guess what I'm saying is that I disagree that opportunity is dead. One guy started a pizza restaurant franchise chain, one guy started a construction company, one guy has a company that remodels movie theatres, one owns a machine shop, one invests in rental homes and now has 14 of them, one is an attorney and has written several books, and one started an enthusiast auto web site.

Keep in mind these are not people I found by Googling "rich people"...these are people I've met, had dinner with, and some of them I would even consider friends. If I know this many self-made people who have taken "opportunities", I'm sure there are MANY more.

Edit: you might be tempted to respond "but Dave, their "apparent" wealth may be facade...they might be maxed out on loans and credit cards." However, they know of my hobby in personal finance, so they have all entrusted in me certain information such that I am confident they are NOT in debt, and they truly are successful. Some of them have shown me their investment statements, some I've seen their credit scores and credit reports (they asked me how to detect identity theft so I sat with them and showed them www.annualcreditreport.com process), and some of them asked for help running their businesses so I've seen their P&Ls.

You might also ask if they got a big wad of cash from parents or others. No, I have met their parents in many cases too. One guy did win a lawsuit that netted him about $200k...but that's the only one. These are people who were brought up in middle class families except for one guy, who is from an upper middle class family.

I think you are completely correct. By and large those who make money in life are those who took the risk, had the vision, and just plain WORKED HARD AT IT! Most people that talk about things like the "job lottery", "birth lottery", etc, find it more palatable to believe that those who made it had some sort of unfair advantage over them. Or perhaps that these people even had an active hand in preventing them from achieving their dreams. It is almost always easier to blame someone else for your misfortunes in life, rather than blame yourself.

 

[Marquette]

Although I don't have access to their financial statements, I'd estimate that on average these are people in their 30s/40s with net worths of $2M or more and annual incomes of $200k or higher. Would you call that rich?

The more I think about it, the more I'd have to say no... I guess I'll have to sit down and think of what, personally, I would consider the rich cutoff line. Of course, I don't consider myself rich even though I'm aware that my situation is neither normal nor average. I would love to have that $2mm net worth, though.

$2mm gives you a SWR of $80k a year. More than many of us (myself included) live on, but less than the household AGI for many people here as well.

You know, that's probably where I would consider someone rich, when their SWR from their portfolio puts them in the top 1% of households.

 

[CuppaJoe]

....
They probably wouldn't be going to the opera on Saturday nights and would be very vulnerable to disaster from a big ticket expense, but could be done. Would someone in that income range qualify for free or almost free healthcare depending where lived?

My frugal budget will allow $15.00 tickets to the opera, that $15.00 gets you balcony side on a weeknight, and don't tell anyone, it's heaven; many buffs says its the best location to hear Wagner. Apparently opera ticket sales fell off some time ago and they lowed the prices from $25.00. My extravagant budget will get me student rush tickets for $30.00 any day of the week, that gets you into a decent, wide seat in the orchestra side section, often about six rows from the stage. I will get to the opera house by public transit. The season starts next week.

 

[Michael Dirubio]

Opera Rich

Joe-

We are seeing Simon Boccanegra soon. We get tickets from my dear MIL who is a huge fan. Everyting I know about opera I learned from Bugs Bunny. My MIL might be considered rich. But I do know the secret of how she did it: Studied hard every night in school. Finished with a Master's, worked hard all her life, saved every penny, invested over a lifetime. Viola!! 45 years later she goes to Ashland and Sante Fe to hear the sweet sounds of Verdi and Puccini.

 

[CuppaJoe]

Joe-

We are seeing Simon Boccanegra soon....

-
"See" ya there. I'll be in a blue polo, sandals and casual jacket that would also w*rk on the 38 line at midnight. For the first time in 20 years I'll be free to stop for a cappuccino afterward. I learned about opera from the Marx Brothers as well as cartoons, good education. I see this fellow Simon was Doge in Venice, should be good sets; his daughter reappears, is about to marry a murderer, lots of misunderstandings, mistaken IDs, political intrigue, it's Verdi, never mind, and then the plot get complicated.

 

[Hamlet]

Remember that that is a self-reported number. I would suspect that the real number is higher than that, although the basic premise that most millionaires are self-made is certainly true.

There are a lot of people who feel that they are self-made that have very selective memories. It's kinda like how many people think that they're about even from gambling at the casino.

I'm not a millionaire yet, but I will be eventually, and I'm more or less self-made. However, I got some help paying for college. My mother gave me $5k from my grandfather's estate.

Only 3% inherit their wealth?!?

 

[harley]

FWIW, contrary to what the article says, I don't believe that there are too many tax shelters left. Those were pretty much eliminated with the advent of the AMT.

Not at all. There are still tons of tax shelters left, and as long as the rich guys write the laws there will always be. They don't get rid of them until they start getting used by the 'lesser' rich. For example, they are doing away with one of my favorites, the ability to sell a principal residence, get the tax break, move into a vacation home for two years, and sell again. Curse them!

Although I don't have access to their financial statements, I'd estimate that on average these are people in their 30s/40s with net worths of $2M or more and annual incomes of $200k or higher. Would you call that rich?

I would definitely call that rich. Not the guys who sign Shaq's check, but definitely rich. Self made or not, if your income is in the top 2 or 3% of the nation, you are rich. Whether you live richer than you are is another question. And I agree, opportunity isn't dead, but some have a lot harder time finding the door than others.

I consider myself rich, although I'm a tad below that $23M mark. And I also consider myself extremely lucky. But I know plenty of people who have worked hard, taken risks, and failed miserably. Especially restauranteers (hardest workers in the world). So I say it takes more than just hard work. Luck comes into play too, and some just don't seem to have it. Of course, they are still alive, so maybe next time.