Recently, somebody asked me how millionaires make money. And then, another person was sharing their thoughts on how millionaires make money.
It got me thinking about this episode, and I thought, well, this would be fun.
Common responses are that they invest in stocks and bonds and are entrepreneurs.
What do people with a $1 million net worth do differently than those with $10 million or $100 million?
Because let’s face it, the level of thinking that gets us to a million-dollar net worth (meaning assets minus liabilities equal net worth) is very different than what brings us to a $10 million or even $100 million net worth.
What if there were a formula you could apply or a career you could choose that would dramatically increase your odds of becoming a fulfilled millionaire on your terms?
Well, get ready, my friends, because today I am pulling back the curtain and showing you how.
So, let’s dive into:
Transcript: Wealth Inside and Out® Podcast – How Millionaires Make Money and Create Wealth
Hi, my name is Annette Bau (bah oo), your Wealth Inside and Out® Podcast host. I’m a Certified Financial Planner™ and founder of The Millionaire Insider®.
For over 30 years, I have been advising and researching the top 1% of millionaires.
I am passionately obsessed with money, mindset, the intersection of self-worth and net worth and how the two connect and allow us to live fulfilled and wealthy lives on our terms.
From Humble Beginnings
Growing up in the Midwest, I had a dream. I began investing $25 a month 35 years ago, and today, I have a multimillion-dollar net worth.
You will learn the tried-and-true principles that only someone with over three decades of experience advising millionaires would know. This podcast is different – it’s about much more than money. We talk about mindset, success, money blocks, worth barometer, and all aspects of money and topics from practical manifestation, real-world how-to, and everything in between to make your journey easier and more fun.
Think of this as coffee, actually, matcha tea, learning real-world, common sense, money, and life advice from a BFF that you can start applying today. If you want to create a financially free life you love, my friend, you are in the right place.
This is the Wealth Inside and Out® Podcast.
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Today’s topic is
How Millionaires Make Money and Create Wealth
So we’ll be discussing
- The big picture of how most millionaires make money and build wealth.
- What is the average gross income of millionaires?
Because a lot of people have misconceptions about that. On a side note, you must understand that becoming a millionaire does not mean making millions.
In fact, very few millionaires do it because most of them are more focused on accumulating wealth and reinvesting their money than taking it out and spending it. That’s so important to understand.
It probably takes about $3 to $5 million to amass a $1 million-dollar net worth. So just be aware of that.
Many people do not understand that, so I want to clarify that.
- Insight on becoming a decamillionaire.
That’s somebody with a $10 million net worth and then a centimillionaire. People refer to them as super-rich.
The bottom line is they have a net worth above $100 million. They have money.
- Why did my goal change from wanting to be a centimillionaire to instead focusing on becoming a decamillionaire? Powerful insight.
How Millionaires Make Money
Most millionaires make their money in various ways, meaning there’s no one-size-fits-all. A millionaire has accumulated a million dollars or more in assets.
In the past, your personal residence was excluded from that.
Because the real estate market has gone so crazy, many experts now include the value of a person’s personal residence when calculating their net worth.
You just have to decide; if you include it, you will be more aggressive. If you don’t include it, you’re more conservative in calculating your net worth.
Ideally, you have a million dollars outside of just your residence. But if that’s not the case, you may want to include it.
Now, there are career choices that dictate where on the spectrum of millionaire you’re likely going to be landing.
Average Income of a Millionaire
And one of the things, as I mentioned, that most people don’t understand is they think that wealthy people have higher gross incomes. They don’t.
The average is like $77,000. And maybe it’s grown a little bit, but it’s not a lot because they are reinvesting their money. We’re much more focused on accumulating wealth than on the income we can earn and spend.
On the other hand, rich people with high incomes and generally high debt, including credit card debt, are often not millionaires. They might be a millionaire in theory because they live in a million-dollar house, but when you take the liabilities out, they’re not. So just be aware of that.
One of the most common ways in which millionaires make money is as an entrepreneur. They start, and they grow a business.
Follow Your Passion
The key here is you’ve got to follow your passion.
You’re going to be spending a lot of time doing this. So you got it and choose something you enjoy. Now, my youngest son is a sophomore in college, and he’s majoring in chemical engineering.
Right now, he’s in organic chemistry and doing very well. He has an A average. I’m so proud of him.
He loves it, and he’s explaining it to me. I want to understand, but it’s like my brain’s exploding.
But it’s fascinating to learn the fundamentals of chemistry. It’s fascinating to me because he loves it, is interested in it, has a passion for it, and it excites me. But I’m also reminded that I got my BS in finance, and because I didn’t take chemistry in high school, I was one of those business majors who had to take remedial chemistry. I got a B, and I’ve never been so happy. And I never want to take another chemistry class as long as I live.
But it’s just funny because we were having a conversation, and I said, you got to figure out what you’ll be doing in your career and make sure you love it because you’ll be spending a lot of time doing that.
So, take the time to figure out what you want. Choose a career that’s going to work for you and your passion. I said, “Like me, I love what I do, and I’m so blessed, and I’m doing something I love, and I want you to do that too.
I hope you get that and apply it in your life.
One of the things I often hear from people, and I find this fascinating. They share that they want to be entrepreneurs because they don’t want an eight-to-five. Well, I just want to tell you that there are many struggling and broke entrepreneurs. If you want to be a millionaire entrepreneur, you’re not working 8 AM to 5 PM. You’re working from 6 AM to 6 PM or 6 AM to 9 PM. You must understand that.
You probably won’t make much money if you aren’t putting in the time, especially early in your career.
Long Term Focus
You have to understand that the entrepreneurial journey requires a long-term focus. It’s more like a marathon with a 15 to 20-year commitment before you start reaping the rewards.
Many people want it to be a 100-yard dash but rarely is it. It doesn’t feel like working when you are passionate about your work. You can then make the money and do what you want to.
You must understand that if you can’t make money at what you’re doing, that’s called a hobby, not a career. So, you have to differentiate the two.
Investing in Stocks, Bonds, and Real Estate
Another way that millionaires make money is by investing in stocks, bonds, and real estate. Typically, you’ll find that one of the significant advantages of millionaires, especially in stocks, is they benefit from compounding returns, meaning compound interest. I will link to that in the show notes.
Compound interest is essential because that’s when you’re earning money, not just on the principal but also on the interest.
And over time, it’s just exponential. It’s so vital that you understand that.
Sometimes, they invest in startups, venture capital, and even private equity. In higher interest rate environments, many millionaires will invest their money in certificates of deposit, also known as CDs.
Real Estate Investments
Some of the real estate options people can invest in. Millionaires may also be into things such as REITs, which are real estate investment trusts.
But most millionaires are invested in actual real estate, whether rentals, commercial properties, residential properties, or even undeveloped land. You understood that real estate, especially raw land, can be really high risk.
Some even invest in syndications. They can also be really risky. So, make sure you have significant cash flow. You’ve got to have money for property taxes, liability insurance, and the HOA, if applicable.
I’ll just share about the two lots we own. It costs us over $10,000 a year and is generating no income. So be aware of it.
I’ve met many people throughout my career who’ve invested in rentals. When they couldn’t rent it out and didn’t have the cash flow to pay the mortgage, they went bankrupt. So don’t let that be you.
You need to research before you invest in the stock market.
Ideally, you’re working with a qualified advisor. You can earn significant yields, and over time, that money grows. But you want to make sure that you’ve got somebody qualified so you can determine if it’s appropriate for you to invest in stocks, mutual funds, exchange-traded funds known as ETFs, or other vehicles.
There are a lot of choices, and you must determine your risk to determine what’s best for you to invest in.
Some millionaires earn their money through professional careers. They have high-paying jobs in medicine, law, technology, finance, and entertainment.
These careers may involve earning substantial salaries, bonuses, and even equity, like in the case of a startup or some corporations.
But many of these people are rich, meaning they have high incomes and high spending but insignificant net worth. They’re not wealthy.
Wealthy people have high net worth and typically lower incomes.
We’re much more focused on accumulating money than taking it and spending it.
Passive Income Streams
Millionaires also generate income from multiple sources, such as guaranteed income, like a guaranteed annuity, which is my absolute favorite. If you’re unfamiliar with annuities or how they can help you in retirement, I’ll link to the article on the different types of annuities for retirement in the show notes.
They also may get royalties from books, music, patents, intellectual property licensing, and other passive and residual income streams of revenue that continue to generate money.
I like guaranteed annuities because the money is predictable and guaranteed. It won’t be subject to market volatility.
Create and Follow a Spending Plan
Another thing millionaires do is create and follow a spending plan even once they’ve accumulated wealth. That describes me and my husband perfectly. We pay attention to our bottom line.
My friend chimed in, and she said, “That’s why we’re wealthy. We pay attention to those things.” That’s what I want you to understand.
A lot of them inherit money.
This may be from a partner. It may be that they married someone wealthy or inherited money from relatives or parents.
The Millionaire Types
First, Let’s look at someone who has accumulated $1 million. My research shows that many of these people have careers in the medical profession, law profession, or other higher-paying jobs.
If they have a career they focus on living frugally. They often focus on investing in their 401K plan or other retirement options. In addition, they are very focused on saving, investing, and reinvesting as much money as they can.
That’s one group, and that is one mindset.
The next group is decamillionaires with over $10 million net worth. They focus more on real estate, stocks, and appreciating assets. Now, don’t go out and start buying real estate and stocks until you have consulted with a qualified advisor.
I will give you a link in the show notes if you need more support. But you have to be really careful if you’re investing in stocks. I’ve spent about 30 years investing in real estate and stocks.
They go up and down, and you must be prepared for that; not everyone should invest in real estate and stocks.
If you are in the first camp where you’ve accumulated a million or maybe even 5 million, you may be better off in mutual funds. You’ve got to be aware of that, and you’ve got to have somebody qualified to help you with that.
The final group is the centimillionaires. They have a net worth of over $100 million. The vast majority of them have built a company and then sold it.
So again, this is my research, and it’s also some research I found from looking just to see what other people were saying. But that’s been what I have seen over my career.
My ultimate goal had been to be a centimillionaire. It had actually been to earn $100 million. I share that in one of the episodes, 4 Lessons I Learned from a Centimillionaire, and I’ll link to that in the show notes.
Income vs. Net Worth
I shared with one of my clients, a centimillionaire, that I wanted to earn $100 million. And he laughed in my face and said, that is the dumbest goal I’ve ever heard.
I was like 24, and I was so embarrassed. He said, you don’t want to earn $100 million; you want to accumulate $100 million. So that became my goal. But then I started working with clients who had a $100-million net worth,
I started seeing a gap in many of their lives where their focus was so much on money, and it wasn’t on family; it wasn’t on many other things that I didn’t want just to have money. My goal was to have a fulfilled life.
That’s when I changed my goal. I said, okay, I’d be better off focusing on becoming a decamillionaire than a centimillionaire.
There’s no right or wrong, but you just have to ensure that whatever you want, you’re looking at the big picture, not just the money.
Tips – How Millionaires Make Money and Create Wealth
1. Hire a great team of advisors. This includes a qualified financial advisor, somebody who focuses on wealth management.
Not all wealth managers are good financial planners, so you must clarify that. Most financial planners do wealth management, but not necessarily vice versa.
They also have a CPA, somebody who specializes in taxes and attorney or attorneys, depending on where they are and what they need.
2. Set short- and long-term financial goals.
3. Focus on growing your money, which is what they do.
4. Determine what a fulfilled life looks like and then start making it a reality today; even if you don’t have everything you want, what can you do? What can you do with the house and car you currently have?
Recap How Millionaires Make Money and Create Wealth
1. It’s essential to understand that becoming a millionaire takes time, discipline, and sound financial planning with a qualified financial advisor.
2. Now, success in any area of building wealth requires you to look at market conditions, economic trends, and situations in your life and make adjustments based on those. If you’re able to do that, great. If not, then you have to hire somebody that can help you.
3. There’s no guarantee that these methods will make you wealthy or a millionaire.
4. I can guarantee you that by creating a plan and executing it, regardless of how you feel in the moment, you will dramatically increase your odds of a brighter financial future and retirement. And that, my friends, makes it so worth it.
So, I hope you enjoyed this episode as much as I did. It’s fascinating when you start thinking about how people have made their money and what different levels do differently.
On that note, thank you so much for joining me.
Until our next episode, take one action that will help you create a secure financial future and retirement you love.
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Thank you so much for joining me for
How Millionaires Make Money and Create Wealth.
I’m Annette Bau (Bah oo).
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Bye for now.