More Millionaire Secrets Disclosed

If there is one theme that I cannot resist writing about, it is the sharing of the alleged secrets of millionaires. Smart Money recently gave us a typically insipid example with 10 Things Millionaires Won’t Tell You. (Credit where credit is due, I found it via Free Money Finance.)

I am not sure if I have said this unequivocally before, but I am a millionaire. So, using the level of scientific inquiry typical of Smart Money and its ilk, let’s validate their secrets using this sample of one.

1. “You may think I’m rich, but I don’t.”

The "I don’t" part is basically true, but I’m not so sure about the "you may think I’m rich" part. When you get down to it, a million dollars ain’t really that much money. Something like 1 in 16 US households has a net worth north of a million. Equating millionaire with rich made sense a hundred years ago, but today I think the lifestyle most would associate with rich would start at around $10 million in net worth.

2. “I shop at Wal-Mart . . .”

Basically true, but I’m more of a Target guy. And I live in an under-Wal-Marted part of the country. That said, if you’ve never been to Wal-Mart at 5am on Black Friday you’ve never really seen America.

3. “. . . but I didn’t get rich by skimping on lattes.”

Well, duh. (See my clever discussion of lattes here.)

4. “I have a concierge for everything.”

Is this a joke? They are talking about a paid agent who will score you tickets and dinner reservations. I have never used such a service, have never considered it, and frankly wouldn’t know where to find it if I wanted it. As far as I know, nobody I know has ever used such a thing.

5. “You don’t get rich by being nice.”

This one doesn’t feel right to me, but it is so vague it is hard to mark it down as false. Certainly, guys like Warren Buffet made their fortunes by buying stock from some people for less than it was worth and then selling it to others for more than it was worth, and that is not very nice, is it? But in my experience, being a charming guy people don’t mind spending time with will get you pretty far in life. I, on the other hand, am unemployed.

6. “Taxes are for little people.”

The person who said this went to jail for tax evasion. In fact, much as they may resent what they pay, the little people account for just a small slice of federal income tax revenues. As SmartMoney concedes, 1% of taxpayers account for 40% of taxes, and the top 10% pay 70% of the total. Moreover, contrary to popular assumptions, this has been getting more skewed (i.e. progressive) over time. In 1980 the top 1% paid only 20% of taxes. (See interesting chart here.)

7. “I was a B student.”

True. I my GPA was only slightly above a B. But it was at Harvard. That’s brand equity on my resume that has been paying dividends for 20+ years. Where you went to college means less here than it does in just about any other developed nation, but it still counts for a lot. Maybe too much.

8. “Like my Ferrari? It’s a rental.”

Again, this one is so alien to me it sounds like a joke. I used to know one guy who had a Ferrari. He drove it very occasionally on perfect summer days, but mostly just enjoyed having it in the garage. Renting something like that might be a fun splurge, but it is probably a poor investment. Assets such as exotic cars, fine art, and high-end jewelry don’t depreciate much, so owning is relatively cheap.

9. “Turns out money can buy happiness.”

It hasn’t for me. Not yet, anyway. Perhaps I need just a little more of the stuff. Entirely too thoughtful discussion of this here.

10. “You worry about the Joneses — I worry about keeping up with the Trumps.”

The Trumps? Seriously? On what planet is Donald Trump an attractive role model for anything other than implausibly successful self-promotion?

Of course, there is truth to this in that no matter how successful you are, the grass is always greener on the lawn next door. That’s just human nature. And it folds back into the point made above in item #1. Being a middle aged millionaire in America feels common and ordinary because it is common and ordinary. Just being above average does not fill a person with a serene feeling of success. Until you get to the true wealth stratosphere of the billionaires, there will always be plenty of people around you who are more successful.

Final score: 3 true (2, 3, 7) 2 kinda true (1, 10) 2 dubious (5, 9) and 3 off-the-wall-wrong (4, 6, 8).

[Photo – William Helsen]

Media | Frank Curmudgeon | February 23, 2010 12:59 pm

No Comments

By jim, February 23, 2010 @ 4:14 pm

“Moreover, contrary to popular assumptions, this has been getting more skewed (i.e. progressive) over time. In 1980 the top 1% paid only 20% of taxes. (See interesting chart here.)”

Top marginal tax rate in 1980 was 70% and today’s top rate is 35%. That is not more progressive.

In 1980 the top 1% earned 8.46% of the income. By 2007 the top 1% earned 22.8% of all income. (#’s also from Tax Foundation)

So the income of the top 1% as a % of total income went up 2.7 x times and their tax as % of total taxes went up 2 x times. So the higher tax amount paid by higher income people is a reflection of their income increasing at a faster pace. I’d take that deal.
By Ron, February 23, 2010 @ 4:38 pm

It’s more progressive because the total percentage of all taxes paid by the higher earners (key word there) keeps going up up up. I made just under that “magical” $250k this year and despite the promises, saw my taxes increase substantially this year — even with MORE deductions than last year.

To sprinkle in a little humor …

Homer Simpson: Mr Burns, you’re the richest man in the world. You own EVERYTHING.

Mr Burns: Ah, yes, Homer I do, but I’d give it all up for just a little bit more.
By jim, February 23, 2010 @ 5:55 pm

If your income goes up and up and up then your taxes go up and up and up. Thats true with a flat tax too and isn’t evidence of more progressive tax system.

“I made just under that “magical” $250k this year and despite the promises, saw my taxes increase substantially this year — even with MORE deductions than last year.”

They didn’t raise taxes. If you paid more then it is entirely due to something specific to your situation. Income tax brackets increased due to inflation, so if nothing else changed then your tax would go down.
By Neil, February 23, 2010 @ 6:37 pm

6 – the increase in the percentage of taxes paid by people at the top is related to the increased concentration of income at the top. This does not make a system more (or less) progressive. In order to be more progressive, higher incomes would have a higher marginal rate, which is not what has been happening.

8 – while the Ferrari example may be silly, a math-oriented person who feels that the it’s worth the cost to keep a recent model car in the garage would probably favour leasing. If you’re going to replace your car every 2-3 years anyway, the lease payments are probably cheaper than depreciation. So there’s some logic to the statement.

Still, I’d rather buy a recent-model used car and drive it for a decade.
By Hibryd, February 23, 2010 @ 7:07 pm

Thank you Jim. Someone was going to have to dig those numbers up.
By Rick Francis, February 23, 2010 @ 7:38 pm

I agree that the Ferrari example is strange… however for things that are expensive and not used much renting makes a lot of sense. A good example is a boat- why buy it, pay to store it, and maintain it when you could just rent one? Owning only makes sense if you are using it pretty frequently.

-Rick Francis
By Patrick, February 23, 2010 @ 10:03 pm

To complement Jim’s numbers on taxes, effective tax rate of the top 400 households (by income) was ~16% in 2007, roughly half of what it was 2 decades ago (due to capital gains taxed at 15%) while income grew 5x: http://www.cbpp.org/cms/index.cfm?fa=view&id=3090

On education: “Where you went to college means less here than it does in just about any other developed nation”. I don’t know all of the other developed nation, but I was born and raised in France and nobody cares where you go to the university there. There are only a few elites schools, the rest is leveled as the State funding is the same (per student). My contacts with other Europeans universities through my research activities showed a similar uniformity. The US system of private funding is not common in developed nations, at least not in (socialist) Europe. Where you go to college matters a lot more here, it’s so much fun when I interview people and tell them I had never heard of Stanford before

Patrick
By Frank Curmudgeon, February 23, 2010 @ 10:45 pm

Okay, perhaps I misused the term progressive. Is skewed still okay? The numbers I cited are correct, as far as I know. And I didn’t say that the top 10% shouldn’t pay for 70% of the government, only that the degree of that skew and the fact that it has been increasing is not well known.

Patrick: France would be the first place I would point to as a nation where which college you went to is vastly more important than it is in the US. Maybe nobody cares where you went once you set aside the elite schools, but that is like saying that luge is a perfectly safe sport except for the occasional fatality.
By drphil, February 24, 2010 @ 6:41 am

“but today I think the lifestyle most would associate with rich would start at around $10 million in net worth”
Really? Rich is a relative term. If your *household* (not individual) income is north of $200,000 you are in the 95th percentile or above in the US (2007 data). If your net worth is more than $1.9 million your are above the 95th percentile. How can you not consider anyone rich who is more well-off then 95% of the rest of the US? These data are from the latest (2007) Survey of Consumer Finances. The pdf is a good read, btw.
By Kosmo @ The Casual Observer, February 24, 2010 @ 10:05 am

“Certainly, guys like Warren Buffet made their fortunes by buying stock from some people for less than it was worth and then selling it to others for more than it was worth”

Sometimes they buy a company for what it’s worth, fix the problem that cause the company to underperform, and then turn around and sell the company for what it’s worth – it’s just that the “what it’s worth” has increased.

But, yes, sometimes they do as you indicate.
By Craig, February 24, 2010 @ 1:35 pm

“As SmartMoney concedes, 1% of taxpayers account for 40% of taxes, and the top 10% pay 70% of the total.”

Not so. Unless I misread, the research cited refers to exactly _one_ of the myriad of taxes we enjoy: the Federal Income Tax. This obfuscation–transforming Federal Income Tax into “taxes”–is an outright falsehood and completely unworthy of this blog. Payroll taxes, for example, are sharply regressive–and let’s stop pretending that the Social Security “trust fund” is ever going to be redeemed. That’s general revenue, funded out of a regressive payroll tax.

In short: bad millionare; no biscuit.
By jim, February 24, 2010 @ 2:16 pm

“Is skewed still okay? The numbers I cited are correct, as far as I know.”

Yep. No argument or nitpicking on that one from me.
By Kitty, March 2, 2010 @ 12:39 pm

Thank you so much for writing that D. Trump is NOT a good role model for anything past self promotion! Love this site! Keep blogging!
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