Interestingly enough, the number of millionaires in America is on the rise. In 2018, about 3% of the U.S. population – the equivalent of 11.8 million households – had a net worth of more than $1 million. However, most of these millionaires didn’t make their millions overnight. A recent survey of more than 100 millionaires in the United States has shed new light on how the wealthy made their way into the millionaire class and what they spend their money on today. Although some findings may come at no surprise, others may have you wondering.
Median income, budgeting, and saving
Of all the millionaires surveyed, their median income was $250,000 a year. Sure, this is quite a substantial salary. However, they didn’t make their money from a high salary alone. Of the millionaires surveyed, 62% had diversified income in one form or another. This can be in the form of investing in real estate, having a side business, or dividend investing. By diversifying their income, millionaires were able to grow their net worth exponentially. The biggest advantage these folks landed, which translated to their high net worth, is their savings habits. The median millionaire in the study spent about $90,000 each year. On average, that’s a net savings of $160,000 or 64% annually. What’s more surprising, however, is that many of those millionaires surveyed do not budget any of their income. Of the 63 millionaires who were asked whether they have a budget, 46 of them said they didn’t. If this seems counterintuitive to you, that’s because it is. Many people and personal finance gurus preach the importance of a budget. Yet, here are quite a few millionaires who say they don’t use a budget at all. What gives?
First, it isn’t crazy to think that millionaires saving 64% of their income are operating without a budget. In the grand scheme of things, you’re saving so much of your salary, tracking smaller expenses may seem unnecessary. Other millionaires remarked that they used to operate on a budget and got used to living below their means. By adopting a frugal lifestyle, they were able to maintain penny-pinching spending habits even if their income began to rise. At that point, you don’t really need a budget if your lifestyle mirrors your ideal spending habits. It should be noted, however, that many respondents mentioned they still used money tracking programs like Mint or Personal Capital to measure their spending and net worth over time.
Where does millionaires’ money go?
Now, let’s get down to the nitty-gritty. We know millionaires save a lot. We know many millionaires don’t always budget their other expenses. So, what do millionaires spend most of their money on? Another surprise, most of them spend money on purchases similar to those who don’t have a net worth of $1 million.
Sure, millionaires like to splurge. The top category among those millionaires surveyed was travel, with 60% of respondents mentioning this is where they like to spend their money most. The extent of how much money millionaires will spend on travel is much higher than the average American, but the emphasis on spending income on travel isn’t much different. On average, Americans spend about 10% of their income on travel. Some even spend as much as 15%. This is obviously a priority. While millionaires account for the highest dollar amount, the need to travel is pretty universal over all. Next, we found 35% of millionaires surveyed said one of their favorite spending categories is food. If you haven’t already noticed, spending money on food is pretty universal. We need it to live, after all. While millionaires may spend more on fine dining, the average American spends a decent amount of their income on food, too. According to the USDA, Americans spend 9.9% of their personal disposable incomes on food, with an almost even split between groceries and eating out at restaurants.
The next two categories, we admit, are more for the elite population than anyone else. Coming in third place, 15% of respondents said they like to spend money on cars. Even though roughly 88% of Americans own their own vehicle, not all of them are shelling out the dough for luxury models. Similarly, millionaires like their wine with 9% of those surveyed listing it as a preferred spending category. We’ll let these two categories slide. After all, we are talking about millionaires here. The final popular category on the spending list was clothing. Although just 7% of the millionaires said they like to spend money on clothes, this is a pretty universal category, too. In fact, the average American spends 3% of their income on apparel. Sure, this number is much lower than travel and food, but it was also a lower spending category for the millionaires, too. And, let’s face it, we aren’t all minimalists and need updated clothing for work and play. With the exception of wine and cars, millionaires tend to spend money on the same things the average American does. This certainly puts things into perspective. It’s not so much what items we spend money on, but the amount of money we do not spend – the money we put toward savings and investment accounts – that really makes a difference. So perhaps the real millionaire money management advantage is saving as much of our incomes as possible, versus spending money on different items.