How do you spot a millionaire?
They aren't necessarily swaggering tycoons with stately mansions, flashy cars and big gold watches.Richard Kerns, who owns a junk yard south of Atlanta, is more typical. Kerns figured out that buying wrecked 18-wheelers and reselling their parts could be a lucrative business. His company, Richard Kerns Truck Parts, now generates about $5 million a year, out of which Kerns pays himself a salary of around $500,000. His net worth: "well over" $2 million.
A glamorous image notwithstanding, the average millionaire is more apt to work on Main Street than Wall Street these days. Most millionaires make their money in unremarkable businesses like funeral homes, bowling alleys and small manufacturing firms. And most live relatively inconspicuously, according to two college professors who have studied the wealthy for the past 20 years.
"The people we surveyed are not rock stars. Time and time again, they picked businesses that were not high-status," says Thomas J. Stanley, a former business professor at Georgia State University, who now speaks and writes about the rich. In a new book, "The Millionaire Next Door," Stanley and co-author William D. Danko, who teaches marketing at the University at Albany, take a rare look at the working lives, investing priorities and spending habits of Americans who have a net worth of $1 million or more. Their research included in-depth surveys of more than 1,000 rich people across the country, identified by address and dividend and other income.
Most millionaires, it turns out, didn't inherit their money; 80 percent are first-generation wealthy. Their median household income is a respectable, but not lavish, $131,000 a year. Their homes are valued, on average, at $320,000. More than 90 percent have a net worth of $10 million or less; on average, they're worth $3.7 million. They invest about 20 percent of their annual income.
And their numbers appear to be growing rapidly. The Internal Revenue Service estimated that there were about 1.3 million millionaires in 1989, the last year official figures are available. Stanley says that there are 3.5 million of them today.
Of course, $1 million doesn't go as far as it did 50 years ago, when it might have financed a life of leisure by the pool. That lifestyle "is more likely to be the deca-millionaire," says James R. Hedges IV, an investment adviser in Naples, Fla., which boasts one of the highest concentrations of millionaires in the country. Indeed, existing solely off the interest on $1 million, it would be difficult to live lavishly today.
But few modern millionaires are so passive. The average millionaire works 45 to 55 hours a week, according to Stanley and Danko. And while the majority say they have saved enough money to quit working for 10 years, most don't report to a boss. Two-thirds are self-employed.
Ed Anderson noticed people lining up at state fairs to buy tiny donuts. The donut-making machines, he recalls, were outdated and hard to find, so he spent a year building a prototype in his kitchen. Once he had a workable model, he founded a company, Lil' Orbits, and advertised business start-up kits in entrepreneurial magazines. For about $5,000, customers could buy the donut machines, mixers, ingredients, aprons, hats, serving trays and other items.
"I always catered to the blue-collar guy who wanted his own business," says Anderson. His big break came in 1987 when an entrepreneur in Brussels ordered a kit and put it in various European trade shows. "It took off like grassfire," says Anderson, who went on to win the President's Export Award, with sales to 78 countries.
As old-fashioned as it sounds, many millionaires also owe their fortunes to sheer hard work. Bill Rucker, president of Tracom Inc. in Fort Worth, Texas, was able to cover his expenses and make money selling diesel engines and parts domestically. But his business didn't really take off until he started staying up until the wee hours of the morning to cold-call potential customers all over the world. "I figured they would buy in large quantities to reduce their shipping costs," says Rucker, 39 years old.
And the typical self-made millionaire is thrifty. Three-fourths of those surveyed by Stanley and Danko have never spent more than $600 for a suit, more than $200 for a pair of shoes or more than $1,125 for a watch. Nearly 40 percent of the millionaires drive a car that's at least three years old. According to a recent survey of high-net-worth individuals by Strategic Directions Group Inc., 81 percent still clip coupons on a weekly basis.
Haskel "Hack" Ayers says his early experience in the auction business in LaFollette, Tenn., taught him not to squander much of his money on possessions. "Every day you're looking at estates that people have worked for all their lives and mean everything to them. And in an hour and a half, you can liquidate that to the four winds of the world," says Ayers. He started out selling second-hand furniture on Friday nights and is today one of Tennessee's most prolific developers of subdivisions, shopping centers and hotels in addition to auctioning property.
One of Ayers few indulgences is travel, and on his frequent trips to Boston, his wife "loves to go to Filene's bargain basement," he says. The couple finally built a sprawling 8,500-square-foot home in 1992, but they ran it as a bed-and-breakfast until last year, when they decided that that business "was too complicated," says Ayers. He rises every morning at 5:30 to exercise in the athletic club of one of his hotels. After that, he visits his other properties before settling in at his desk by 8 a.m.
That kind of self-discipline may be the strongest indicator of a future multimillionaire. "No boss has to tell them what to do. These people are self-motivated," says Stanley. Other typical qualities include excessive energy and a need to prove something, he says: Many self-made millionaires did poorly in school and weren't part of the popular crowd, and many experienced an early business failure.
Good luck doesn't hurt, either, when it means hitting on the right idea at the right time. "Anybody who went into dry cleaning in the 1950s probably did pretty well," Stanley says.