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6 Characteristics of the Millionaire Next Door

26 Sep

shutterstock_355260554Just how many millionaires does America have? By the latest estimation of Spectrem Group, a research firm studying affluent and high net worth investors, it has more than ever before. In 2015, the U.S. had 10.4 million households with assets of $1 million or greater, aside from their homes. That represents a 3% increase from 2014. Impressively, 1.2 million of those households were worth between $5 million and $25 million.1

How did these people become rich? Did they come from money? In most cases, the answer is no. The 2016 edition of U.S. Trust’s Insights on Wealth and Worth survey shares characteristics of nearly 700 Americans with $3 million or more in investable assets. Seventy-seven percent of the survey respondents reported growing up in middle class or working class households. A slight majority (52%) said that the bulk of their wealth came from earned income; 32% credited investing.2

It appears most of these individuals benefited not from silver spoons in their mouths, but from taking a particular outlook on life and following sound financial principles. U.S. Trust asked these multi-millionaires to state the three values that were most emphasized to them by their parents. The top answers?

  • Educational achievement
  • Financial discipline
  • The importance of working.2

Are these people mostly entrepreneurs? No. The aforementioned Spectrem Group survey found that millionaires and multi-millionaires come from all kinds of career fields. The most commonly cited occupations? Manager (16%), professional (15%), and educator (13%).4 

Here are 6 Characteristics That a Majority of the Millionaires Share

  1. Education is a solid first step toward wealth. There may be a strong correlation. Ninety percent of those polled in a recent BMO Private Bank millionaire survey said that they had earned college degrees. (The National Center for Education Statistics notes that in 2015, only 36% of Americans aged 25-29 were college graduates.)3
  2. Interestingly, a lasting marriage may also help. Studies from Ohio State University and the National Bureau of Economic Research (NBER) both conclude that married people end up economically better off by the time they retire than singles who have never married. In fact, NBER finds that, on average, married people will have ten times the assets of single people by the start of retirement. Divorce, on the other hand, often wrecks finances. The OSU study found that the average divorced person loses 77% of the wealth he or she had while married.3
  3. Most of the multi-millionaires in the U.S. Trust study got off to an early start. On average, they began saving money at 14; held their first job at 15; and invested in equities by the time they were 25.
  4. Most of them have invested conventionally. Eighty-three percent of those polled by U.S. Trust credited buy-and-hold investment strategies for part of their wealth. Eighty-nine percent reported that equities and debt instruments had generated most of their portfolio gains.2
  5. Many of these millionaires keep a close eye on taxes & risk. Fifty-five percent agreed with the statement that it is “more important to minimize the impact of taxes when making investment decisions than it is to pursue the highest possible returns regardless of the tax consequences.” In a similar vein, 60% said that lessening their risk exposure is important, even if they end up with less yield as a consequence.2   
  6. Here is one last detail that is certainly worth noting. According to Spectrem Group, 78% of millionaires turn to financial professionals for help managing their investments.4

Julie Newcomb, a Certified Financial Planner™ in Orange County, CA, specializes in financial planning for women.  As a wife, mom and business owner, Julie understands the pressures and challenges most women feel on a daily basis as they juggle many important priorities. Julie’s favorite thing about her job is the ability to give women peace of mind when they entrust her with their finances. To learn more about Julie Newcomb Financial, go to julienewcomb.com.

Sources:

1 – cnbc.com/2016/03/07/record-number-of-millionaires-living-in-the-us.html [3/7/16]

2 – forbes.com/sites/maggiemcgrath/2016/05/23/the-6-most-important-wealth-building-lessons-from-multi-millionaires/ [5/23/16]

3 – businessinsider.com/ap-liz-weston-secrets-of-next-door-millionaires-2016-8 [8/22/16]

4 – cnbc.com/2016/05/05/are-you-a-millionaire-in-the-making.html [5/5/16]

 

4 Smart Financial Moves to Finish 2015

4 Dec

Decembe 2015There are just a few weeks left in December! And, while your mind might be filled with holiday parties and gift shopping, this is also the time of year to tie a neat little bow on your financial picture so that you’re not kicking yourself in 2016.

 You can start here: Consider the tax impact of 2015 transactions.

  • Did you sell real property this year?
  • Did you start a business?
  • Have you exercised a stock option?
  • Could any large commissions or bonuses come your way before January?
  • Did you sell an investment held outside of a tax-deferred account?

Any of this might significantly affect your 2015 taxes. So, here are some strategic ways to offset your earnings.

#1 Make a charitable gift before New Year’s Day. You can claim the deduction on your tax return, provided you itemize your 2015 tax year deductions with Schedule A. The paper trail is important here.1

If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation. If you pledge $2,000 to a charity in December but only end up gifting $500 before 2015 ends, you can only deduct $500.1

Are you gifting appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from simply selling the investment and then donating the proceeds. (Of course, if your investment is a loser, it might be better to sell it and donate the money so you can claim a loss on the sale and deduct a charitable contribution equal to the proceeds.)2

Does the value of your gift exceed $250? If you gift that amount or larger to a qualified charitable organization, you will need a receipt or a detailed verification form from the charity. You also have to file Form 8283 when your total deduction for non-cash contributions or property in a year exceeds $500.1

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

#2 Contribute more to your retirement plan. If you haven’t turned 70½ this year and you participate in a traditional (i.e., non-Roth) qualified retirement plan or have a traditional IRA, you can cut your 2015 taxable income through a contribution. Should you be in the 35% federal tax bracket, you can save $1,925 in taxes as a byproduct of a $5,500 regular IRA contribution.3,4

If you are self-employed and don’t have a solo 401(k) or something similar, look into whether you can still establish and fund such a plan before the end of the year. For the tax year 2015, you can contribute up to $18,000 to any kind of 401(k), 403(b), or 457 plan, with a $6,000 catch-up contribution allowed if you are age 50 or older. Your 2015 contribution to a Roth or traditional IRA may be made as late as April 15, 2016. There is no merit in waiting, however, since delaying your contribution only delays tax-advantaged compounding of those dollars.4,5

#3 See if you can take a home office deduction. If your income is high and you find yourself in one of the upper tax brackets, look into this. You may be able to legitimately write off expenses linked to the portion of your home used to exclusively conduct your business. (The percentage of costs you may deduct depends on the percentage of the square footage of your residence you devote to your business activities.) If you qualify for this tax break, part of your rent, insurance, utilities and repairs may be deductible.6

#4 Practice tax loss harvesting. You could sell underperforming stocks in your portfolio – enough to rack up at least $3,000 in capital losses. In fact, you can use this tactic to offset all of your total capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled over into 2016 (and future tax years) to offset ordinary income or capital gains again.8

Julie Newcomb, a Certified Financial Planner™ in Orange County, CA, specializes in financial planning for women.  As a wife, mom and business owner, Julie understands the pressures and challenges most women feel on a daily basis as they juggle many important priorities. Julie’s favorite thing about her job is the ability to give women peace of mind when they entrust her with their finances. To learn more about Julie Newcomb Financial, go to julienewcomb.com.

Sources:

1 – irs.gov/uac/Newsroom/Six-Tips-for-Charitable-Taxpayers [5/19/15]

2 – philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14]

3 – irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [3/18/15]

4 – turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/4-Last-Minute-Ways-to-Reduce-Your-Taxes/INF22115.html [10/20/15]

5 – forbes.com/sites/ashleaebeling/2015/10/21/irs-announces-2016-retirement-plans-contribution-limits-for-401ks-and-more/ [10/21/15]

6 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction [10/16/15]

7 – bankrate.com/finance/insurance/health-savings-account-rules-and-regulations.aspx [10/7/15]

8 – fidelity.com/viewpoints/personal-finance/tax-loss-harvesting [9/9/15]