Sunday, January 30, 2011

Another Break that can make your rich – owning your own business


Thomas J. Stanley has made a career of studying wealthy people. Surprisingly he concluded that most became millionaire in one generation, i.e. they did not inherit the financial spoils of their parents or grandparents .In the "Millionaire Next Door", Stanley and his co-author William D. Danko concluded that neither the millionaires' lifestyle nor their wealth was generated from being highly leveraged financially. "How did they accomplish this?" asked Thomas in his sequel, "The Millionaire Mind". They were not all "work and no play" type of people. They enjoyed life. They were not workaholics. "They spent a lot of time with their families and friends, borrowed little and became wealthy, in most cases before they were forty-five years old."

From Stanley's demographic sketch (book was published in 2000):
Most millionaires are married (92%) and of those, 95% have children. Only 2% were never married. The typical millionaire is 54 years old and has been married to the same woman for twenty-eight years. 25% has been with the same spouse for 38 or more years. Nearly all own their residence often with small outstanding mortgage balances. They purchased their current home 12 years ago. 61% live in homes currently valued over $1 million but bought initially for $558,718 (all in U.S. dollars). Nearly 90% of millionaires are college graduates, with 52% holding advanced degrees.

Nearly 16% of millionaires are senior corporate executives (duuh!), 19% are attorneys or physicians. One third of millionaires are retirees, corporate middle managers, accountants, sales professionals, engineers, architects, teachers, professors and… housewives. Oh... and 32% were BUSINESS OWNERS or entrepreneurs. That is right, many are owners of businesses. That is where you can get a Break too! Business owners are overall the richest millionaires. Before business ownership is discussed in more detail, I would like to give you some other stats as they were reported in Stanley's book "The Millionaire Mind" in 2000:

Average net worth: $9.2 Million – Median net worth $4.2 million. Median annual income is $436,000. The typical millionaire has never spend more than $41,000 on a car or $4,500 on an engagement ring. 25% of millionaires spend less than $1500 on an engagement ring while a full 7% did not even purchase an engagement ring. By the way, $1,000,000 is not what it used to be. These days to be cool, you have to be a decamillionaire ($10 million or more). Investor Economics Inc., as reported by the National Post, shows that in 2006 there were 471,000 millionaire households in Canada (4% of all households). There are "Mass Millionaires" with a net worth of $1 to 5 million comprising 410,000 households. Then there are 36,000 'pentamillionaires' with a household net worth of $5 to $10 million; and there are only 25,000 decamillionaires. With over 36 million Canadians and nearly 11,000,000 households, pentamillionaires represent only 0.3% of all households.

Now you know the stats. And one of the big breaks in life is owning your own business. According to 'Millionaires Next Door', a large proportion of millionaires were immigrant business owners married to nurses or teachers. A very conservative nearly boring bunch, those millionaires; but then most good investments are boring as well.

So it is not that you have to be an employee of a large corporation or a professional to become a millionaire. A whopping 32% are business owners that grew their business from zero to a multimillion dollar operation in one generation. There are basically two types of businesses: operating companies and holding companies. It is the operating company that has made many millionaires wealthy and it can do so for you as well. If you are a plumber, you can start a plumbing company and grow it over time. You may be an entrepreneur that starts a service or gadget production company. For companies to grow, you need a system of running things, something that you can delegate to others (partners or employees); something that you can do over and over again to making ever increasing profits.

It is not easy to start a business on your own and it is hard work. Eighty percent of businesses fail in the first year, mostly due to the lack of financing. So if you plan starting you business do your due diligence. Once past the five year anniversary, business failure drops off dramatically and with a good 'system' you may farm-out the entire operation and focus on other ventures. Holding companies are different, because often they have assets that are held apart from the owner's personal wealth - often for liability or tax management reasons. Real Estate investing maybe the exception because it does not only have an asset appreciating component but it also has an operational component (rental management, fund raising, etc.). In fact real estate valuation and resource company valuations are both about assets and sweat equity – they have a lot in common. That is the topic for one of our future blogs.

3 comments:

  1. thanks for share such a nice money making tips and ideas keep sharing.be a millionaire online

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  2. Guess I need to find a cute girl to marry and settle down for another 34 years...

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  3. Well, marrying/partnering the right woman is one of the most important decisions in your life. A divorce is often one of the worst financial decisions in your life. Just look at the statistics of millionaire households. Those people seem to be married forever - unless they are movie stars :).

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