What does the modern-day millionaire look like? As a financial planner San Antonio for many years, I have seen firsthand that the definition of who this is has changed over the years. And the answer might surprise you.
According to Wealth Engine’s 2019 U.S. Millionaire Report, the number of millionaires in the United States has grown substantially. And the stereotypical persona has changed dramatically since the 1980s. In fact, as more and more people take an interest in their finances and learn to save correctly, today’s millionaire comes in many different identities.
According to this report, Baby Boomers are the wealthiest generation in America and perhaps even the world. And because of this, the number of young millionaires is growing – these Baby Boomers are expected to pass down millions of dollars to Millennials, Gen Xers and the generations to follow.
However, while they may look, spend and save differently, these U.S. millionaires do tend to share some of the same characteristics.
Today’s millionaires are more likely to:
- Save and invest smartly
- Practice better spending habits than those who came before them
- Avoid debt
- Get an early start on their financial planning
According to Wealth Engine’s report, one of the fastest growing millionaire segments is the Millennial millionaire. Making up 2 percent of the millionaire population in the U.S., Millennials’ buying and giving habits are extremely different than their predecessors. Unlike their parents and grandparents who found financial success as CEOs and executives at a large firm, many of these young millionaires are business owners who live in the suburbs. They don’t drive luxury cars but opt for a more economical vehicle instead. They’ve made money by making smart decisions with the money they have.
Today’s millionaire tends to understand investments and the importance of saving. They avoid debt and typically have an emergency fund or follow a system similar to PAX Financial Group’s “Buckets of Money.” They follow a budget and plan ahead for large expenses like children’s education or a wedding. Many work with a financial advisor earlier in life and follow a plan put together by a professional. Several become millionaires by simply avoiding debt.
Tips for Becoming the Next Millionaire
- Don’t fall for the car financing trap. If you currently have a car payment that is more than 15 percent of your take-home pay, you are paying too much. If you have car payments beyond four years, you are paying for too long. The ideal and realistic goal for everyone is to avoid the dreaded car payment altogether.
Think like a millionaire: Buy used and pay with cash.
- Set aside some cash for life’s uncertainties. The ideal life – a substantial paycheck and predictable expenses – doesn’t exist. You will want. Things will come up. But instead of going into freak-out mode when a huge bill shows up in your mailbox, set aside some cash for these exact situations.
Think like a millionaire: Be prepared for the unprepared.
- Pay down debt. You can easily increase your net worth by aggressively paying down debt, something today’s millionaires tend to understand. If you ignore your debt problem, the situation only gets worse with accrued interest and often times late-payment fees.
Think like a millionaire: If you must get into debt, pay it off as soon as you can.
- Work with a financial advisor. The experience of a qualified fiduciary financial advisor can not only help you make smart decisions about your finances, but he or she can prepare a plan of attack that you can follow to reach the goal of becoming a millionaire. This can also help you avoid costly mistakes with your financial planning.
Think like a millionaire: Use the help of experts when you can.
Commit to the Process
Planning for retirement used to be a much simpler process. But fast-forward to today and things are very different. Interest rates are much lower than they were years ago. Pensions are rare. The future of Social Security isn’t as certain. Adding to this, we’re also living longer. So, how do we plan for a successful and comfortable retirement? It is vital to begin with comprehensive financial planning. And then stick to the plan that’s been set.
A financial plan should include your actual numbers to make sure you can actually afford the lifestyle you want to PIVOT into. Using real numbers can also help support the decisions you make between now and retirement. Without a financial plan to guide your efforts, it’s easy to take too much risk or move down a specific path without considering potential downsides. Or even overextend yourself with a large purchase you maybe shouldn’t have made.
A financial plan can also help you remove the emotions from managing your money and provide an action plan to keep you on track to reaching your goals. But it has to be the right type of plan. It should be built around your needs and spending habits.
When getting started, here are a few things to be cautious about:
- Beware of anyone who offers “free” financial planning services. The person promising this is paid somehow, and it’s usually by you – you just don’t know it.
- Beware of computer-generated models. While they may be easy, these one-size-fits-all plans are generally not comprehensive. They aren’t typically comprehensive enough to deal with all the variables involved in real life, such as funding your retirement while saving for your child’s education or other competing goals. And they usually cannot prepare you for certain common events either, such as a job change or divorce. Worse, these plans may create a false sense of security. You may not discover deficiencies for decades; when you’re not in a position to make up lost ground.
- Beware of financial advisors who do not work in a fiduciary capacity. Fiduciaries are legally required to put your interests before theirs. This will ensure you don’t get a product solution instead of a real financial plan. Sadly, not all advisors are legally bound to put your interests first.
We recommend working with a firm that offers comprehensive financial planning. This is a significant process designed to look at all aspects of your financial life. You and a financial advisor should work together to define your goals and evaluate your vulnerabilities.
Remember to keep an eye on any fees associated with this. While it is worthwhile to pay for these services (and again, very dangerous if you get them for “free”), you also want to work with an advisor who is up-front about their fees. It should be no mystery what you pay for any financial advisory services, and it should be disclosed to you up front.
If you’re ready to get your finances on track, create a comprehensive financial plan to follow and want to work with a financial planner San Antonio, contact us to see how we can help.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.