For Anna, Ryan, and Kate

List of Tables

Homeowners in America: High Income versus High Net Worth? 44

Homes of Millionaires in America: Average Value by Augmented Net Worth 48

Neighborhood Defined Consumption Lifestyles Where Millionaires Reside 50

Wealth-Producing Characteristics of Selected Occupations: High Income versus High Net Worth 53

Top 20 Ancestry Groups Who Own/Occupy Homes Valued at $1 Million or More: Total Number versus Concentration 57

Price Paid by Millionaires for Their Most Recent Haircut 60

Top 10 Brands of Watches Worn by Millionaires 91

Price of Wine Served by Millionaires 153

Prices Paid for Wine Contained Inside the Homes of Millionaires 154

Wine Inventory Owned by Millionaires 155

Price Typically Paid by Millionaires for Their Dinner at the Restaurant They Dine at Most Frequently 157

Stores for Clothing and Accessories Patronized by Millionaires According to the Most Recent Make of Motor Vehicles Acquired 199

Makes of Motor Vehicles Acquired by Millionaires 203

Popular Models of Motor Vehicles Acquired by Millionaires 205

Profile of Happy versus Unhappy High-Income-Producing Baby Boomers 224

Preface

Thirty years ago, I first defined the blue collar affluent, aka the millionaire next door, in a speech and paper that I delivered on behalf of the New York Stock Exchange. This began a lifetime journey of identifying and profiling the myths and realities of the rich.

I discovered that not all millionaires have high social status. In fact, those who are among the least productive in transforming their incomes into wealth are in the higher-status occupations. In a 1980 national study of multimillionaires, I found that half of the millionaires in America do not live in upscale neighborhoods. In 1988, I wrote my first book, Marketing to the Affluent, which essentially discussed how to market to the “millionaire next door.” After reading it, one of my colleagues at Georgia State University, Dr. David Schwartz, author of the perennial mega-bestseller The Magic of Thinking Big, suggested that I broaden my work to appeal to a much larger general audience. I followed Dave’s advice and wrote The Millionaire Next Door (1996), which answered the question: Who is the typical millionaire in America? This bestselling book exploded many common myths about the wealthy in America, revealing that their low-profile and frugal lifestyle were pervasive among this group.

After the success of The Millionaire Next Door, I continued my research with The Millionaire Mind (2000). In this book, I revealed the factors that millionaires, who had three times the wealth as those in The Millionaire Next Door, reported as being most important in explaining their economic success. Among those factors were integrity, discipline, social skills, a supportive spouse, leadership qualities, and having a love for one’s vocation. Among the least important were luck, investing in the stock market, and having high academic achievement. I responded to the numerous queries I received from women about their lack of representation in my books by writing Millionaire Women Next Door in 2004. Women in business succeed because they work harder and are more frugal than their male counterparts. Women who fail in business typically love their product but not their business.

In Stop Acting Rich . . . And Start Living Like a Real Millionaire, I detail why so many people who are not rich hyperspend on luxuries. Often they think that collecting these expensive toys will enhance their overall satisfaction with life. But, as you will read in detail, happiness in life has little to do with what you wear, drive, eat, or drink. The people with the greatest satisfaction are those who live below their means. Even during the recent peaks of income production, the residential real estate market, and the bull stock market when the main survey for this book was undertaken, these millionaires maintained their habits of thrift and frugality. (See Appendix A for the survey details and Appendix B for the profile of millionaires.) In other words, increasing asset values did not cause the majority of wealthy people to hyperspend.

So who are hyperspenders really emulating? They are merely mimicking the behaviors of people like themselves, who are not rich but act in ways they think the economically successful people act.

Why is it that some people worth $10 million, $20 million, or even $30 million own few or no luxuries whatsoever? They know that satisfaction in life is not a function of what you can buy in a store. As you will come to learn in these pages, these people were conditioned by their parents to live below their means and were taught how to invest and manage money effectively. Accordingly, the billions of dollars poured into the marketing hype associated with promoting status products have had little effect on their consumption lifestyle. Also these people tend to associate with others who have similar attitudes, interests and activities, and beliefs.

The reason why so many homeowners today are having a difficult time making ends meet goes way beyond mortgage payments. When you trade up to a more expensive home, there is pressure for you to spend more on every conceivable product and service. Nothing has a greater impact on your wealth and your consumption than your choice of house and neighborhood. If you live in a pricey home in an exclusive community, you will spend more than you should and your ability to save and build wealth will be compromised. My research has found that most people who live in million-dollar homes are not millionaires. They may be high-income producers but, by trying to emulate glittering rich millionaires, they are living a treadmill existence. In the United States, there are three times more millionaires living in homes that have a market value of under $300,000 than there are living in homes valued at $1 million or more.

Given the recent reversals in the market value of stocks and homes, you may be asking: Is the millionaire market dead? While completing this book, a newspaper writer called and asked me what I thought about a published study claiming that the number of millionaires had significantly declined during the 2008-2009 period. I told her that I disagreed with these findings. Since 1980, I have consistently found that most millionaires do not have all of their wealth tied up in their stock portfolios or in their homes. When the investment gurus talk about diversification, they show how very parochial they are. Real safety is not in a diversified stock portfolio. One of the reasons that real millionaires are economically successful is that they think differently. Many a millionaire has told me that true diversity has much to do with controlling one’s investments; no one can control the stock market. But you can, for example, control your own business, private investments, and money you lend to private parties. Not at any time during the past 30 years have I found that the typical millionaire had more than 30 percent of his wealth invested in publicly traded stocks. More often it is in the low to mid-20 percent range.These percentages are consistent with those found in studies conducted by the Internal Revenue Service, which has the best data set on millionaires in the world.

In a way, the credit crisis of 2008-2009 is serving as something of an intervention. But for the treatment to work, you must take a cold hard look at your balance sheet and at your life, and determine if you would be wealthier if you would stop acting rich. It is my hope to show you that you can stop acting rich and still enjoy life to the fullest by living like a real millionaire.

Disclaimer

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, investment, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

This entire project was underwritten by the author. His views and interpretations of the findings may not necessarily be the same as those of the organizations that market the brands that are mentioned in this work. Except for two speeches given to BMW dealers in the late 1980s and a summer job at a Chevrolet dealership in his youth, the author has never been employed or compensated in any way by these organizations.

The Difference between Being Rich and Acting Rich

Anyone who lives within their means suffers from a lack of imagination.

—Oscar Wilde

While in his early teens, my dad worked as a paperboy, covering two newspaper routes: the blue route and the white route. Most of his “blue” customers lived in working- or lower-middle-class (blue-collar) neighborhoods located to the east and south of his parents’ home. The “white” route included middle- to upper-middle-class (white-collar) customers who, for the most part, occupied nice and neat single-family homes to the west and north. Both routes contained roughly the same number of subscribers. Contrary to what you might think, my father found that the “blue” route was the more financially lucrative of the two. Customers were significantly more likely to pay on time, tip their paperboy, and provide him with a Christmas bonus.

Why? My father theorized that many of his “white” route customers were perpetually strapped for cash, as they were supporting expensive homes and all that goes along with them. He felt that many of his customers along his “blue” route lived below their means. As a result, they always seemed to have cash on hand with which to pay him when he collected.

The lesson in this story, according to my father, was there was a difference between looking rich and being rich, and that most people who looked rich weren’t—they lived above their means and therefore usually had little money with which to be generous to others. By and large, my dad was right, though I learned that there are some people—although a small percentage—who are truly glitteringly rich. If you read The Millionaire Mind or have ever heard me speak about the rich, you will recall me mentioning a Halloween experience I had when I was 9 years old: Instead of trick-or-treating in our own blue-collar neighborhood, we ventured into Fieldston, one of the wealthiest neighborhoods in NewYork City.We were rewarded by treats of money from the likes of James Mason, the distinguished British actor, and bags of money from a home with an ill resident who had left coins for groups of children in the milk box. I proudly showed off our loot to my dad, making the counterargument that people who live in big beautiful homes are rich. He maintained that we got lucky and accidentally hit on a few of the cash-rich households that do exist.

Subsequent experiences and much study have shown me that, overall, my dad was right about those who look rich versus those who really are rich. More people look richer than they really are, and the really rich often don’t look anything like what we think they should look like.

Meet the Aspirationals

From the age of 13 to 17, I caddied, carrying a lot of golf bags between early April and mid-September. This helped fund my passion for model airplanes and boats, but I received a lot more than money from caddying. I learned a great deal about people. In fact, much of the knowledge I gained on the golf course provided a base for my lifelong career studying rich people—and those who only act rich.

As a caddy, I alternated between two distinctly different golf courses. One was a public course; the other was part of a private country club. The public course was not typical of most public courses that were open to anyone. It had a natural terrain that was both demanding and rather spectacular. Half of the holes bordered a large reservoir and horticultural institute forest. Judging golf courses is subjective, but in my view the public course was way above the norm, better even than many private country club courses.

Most of the golfers at the private course were of a different sort from those I worked for at the public course. Most of the private club members were lawyers, physicians, dentists, accountants, and corporate middle-level managers. In the minority were business owners and senior corporate executives. Nearly all private club goers drove prestige makes of cars. At the time, members had to employ and pay for the services of a caddy—even those who drove electric carts. Not all of the members liked that rule.

Things were different at the public course. Golfers there had the option of hiring a caddy or carrying their own bag. About half paid for a caddy. Many of those who did were self-employed types, ranging from craftsmen to owners of small- and medium-size blue-collar businesses such as plumbing firms, hardware stores, contracting, and the like. Some of my best clients were sales and marketing professionals. Few golfers at the public course drove luxury cars or wore top-of-the-line golf attire like those who played at the private club.

As a work environment, there were certain advantages as well as disadvantages associated with each golf course. The fee for a caddy was 25 percent higher at the private club, but it took less time for me to commute (by bicycle) to the public course. This was not the only advantage of caddying at the public course. In my four years caddying, during each loop around the course, each and every customer at the public course offered to buy me a hot dog and a Coke for lunch. Only about one in four players at the private club made such an offer. In addition, about two-thirds of my public course clients tipped. Most of the golfers at the private club never tipped their caddies, although those who did tipped very well.

During my first two years of caddying at the private club, the caddy master never assigned me to a big tipper. Early in my third season, I asked the caddy master why.

“Stanley,” he said. “You are not a great caddy. Big tippers demand great caddies.”

His comments were perplexing to me, since some of the caddies who regularly got the big tippers were anything but great. About halfway through my third season, I figured out what made caddies “great” in the caddy master’s eyes. I ran up a sizable tab on the caddy master’s IOU ledger for sandwiches, soft drinks, and other snacks. Once my tab exceeded those of all the “great caddies,” the caddy master finally saw the light. He discovered that I was the best caddy in the county after all! All of a sudden I was assigned almost exclusively to the country club’s small group of big tippers. He nearly wore me out with all the big tipper business he sent my way. Often I carried two bags for 36 holes in one day. Every time I finished a round, I would pay off about 10 percent of my tab. Then the next day that I showed up, I put at least that same dollar amount or more back on my tab. (It is important to maintain—or, even better, enhance—one’s reputation as a great caddy.)

Just who were those extraordinarily generous people at the private course, the big tippers? How did they differ from those members who never tipped a caddy or even offered him a hot dog for lunch? Today I have a clearer understanding of both of these types of people.

Most of the big tippers were classic big spenders in the genre of Vanderbilt, Rockefeller, Gould, or any number of modern-day megastars such as Buffett, Soros, Madonna, P Diddy, and thousands of glittering rich names you’ve never heard of. At the top were very successful owners of privately held corporations. Some were senior corporate executives of public corporations. My best client was a physician and his wife.The couple owned several hospitals and a variety of other commercial real estate.They were always in good spirits, even though neither one could hit a ball very well. And they were certainly generous!

The glittering rich had the economic means required to generate considerable wealth and simultaneously support a high-consumption lifestyle. Paying club-related fees and buying lunches for caddies didn’t put even a minor dent in their financial statements.

What about the other type of golfer I encountered at the private course? I believe that a lot of them were, in fashion and retail parlance, “aspirationals”—people who act rich, want to be rich, but actually aren’t rich. Aspirationals have two “highs”: high occupational status and a high-consumption lifestyle. They often try to imitate the big-spending, glittering rich, but it is nearly impossible to do it all—from home to car to clothing to drinking and dining with an income that is only a fraction of what the typical glittering rich generates. Much of the aspirational income goes toward consumption categories that supposedly denote high occupational status and prestige: homes, cars, clothing, designer-grade golf equipment, and, of course, country club memberships.

But what about those consumption items that are not badges or symbols of socioeconomic success and superiority (real or imagined)? Here is where aspirationals go ultrafrugal. So what if your caddy got soaking wet three times retrieving your balls out of the lake during your round of golf? So what if he gave you some pointers that helped you shoot an all-time low score? No one will know if you stiff the caddy. Tell him you are “just a bit short on cash today” and will “catch up with him next time.” It takes a lot of money, relative to income and net worth, to be an aspirational. Perhaps that is why more than two-thirds of those who are country club members are not millionaires.

How very different the aspirationals I encountered were from the business owners I caddied for at the public course. The business owners always seemed to have a good amount of cash with them, often in rolled up wads.They could afford to be generous with their hired help. Most had no interest in emulating the consumption patterns of the big-spending, glittering rich. Unlike the aspirationals, they didn’t feel the need to display a variety of expensive badges that are supposed to indicate socioeconomic superiority. They bought what they could afford within their value system of priorities and were happy to pay for it. If they used the services of a caddy, they paid the caddy. If they didn’t want to pay a caddy, then they didn’t hire one. They didn’t pay to belong to a private club when the nearby public course was so much better.

With the knowledge that I have today about wealth, particularly in America, including what I learned from my caddy experiences, what do I conclude? Most people who act rich are not rich!

The Sobering Statistics

The financial crisis of 2008-2009 has certainly cost many people a great deal of money. A lot of wealth has evaporated, and all of a sudden wallets have slammed shut. Recent statistics indicate that people are saving like they haven’t saved in decades. Neiman Marcus sales are plummeting, while Wal-Mart sales are growing somewhat. The New York Times publishes stories on trading down in clothing and make up with tips and leads. It’s hip to be frugal. For the moment.

Time will tell if society and people have really changed or are simply taking a sick day, if you will. My research indicates that people—for generations—have become so accustomed to consuming that it is second nature, and I am fairly certain that they will resume their spendthrift ways once outward symptoms of the financial flu have passed. In other words, what we are experiencing is fear. Once the fear passes, it will be back to business as usual. In the United States, in particular, we have a long history of spending big and often frivolously. We like stories about people who make gobs of money and then spend it all—usually lavishly and with great aplomb—from the fictional Gatsby to the real-life antics of rappers draped in bling. To look at all the things we have—from iPhones to custom suits to new cars every year—it would seem as though we are rolling in dough, even in these tough times.

But are we really rich, or have we just been acting the part? The numbers tell a sobering story. More than $70 trillion in realized or reported income was generated by U.S. households between 1997 and 2006, yet only 3.5 percent of these households were in the millionaire category (i.e., having investments valued at $1 million or more).

In 2007, about 2.2 million American seniors passed away. What did they do with the more than $2 trillion in income they earned during their lifetimes, given that only 2.6 percent left behind a gross estate (all assets included) of $1 million or more, and 75 percent of these estates were valued at under $2.5 million? What about the other 97.4 percent of decedents? If they did not save their income, invest it, or allocate it to things that appreciate or at least hold some of their value, where did the money go?

The answer: Beyond the basic necessities, an awful lot of it was spent on things, many things that now reside in landfills or thrift shops.

Ours is a culture of hyperconsumerism. Not only can and do we buy nearly anything (except for the truly outrageously expensive), but we seem to have come to believe that we can and should have it all and that who we are is dependent on the ability to live in the right neighborhoods, with appropriately sized homes filled with brand-name appliances, with prestige cars parked in the driveway with expensive golf bags and clubs in the trunk, and so on. And so we spend. We may be spending somewhat less after the 2008 financial crisis, but we are still spending. Savings may have increased to its highest levels in decades, but the reality is that that is not saying much, since the savings rate has been so abysmally low.

We seem to have become fairly good at generating an income, enjoying (for the moment) a very high standard of living. But it is fleeting because we have not accumulated wealth—for our retirement, for our children’s educations, for emergencies. What kinds of trade-offs are we making? In America, the proportion of people who owned boats in 2005 exceeded the proportion who left an estate of $1 million or more in 2007 by a ratio of nearly 5 to 1. Even more pronounced is the ratio between the number of cell phone subscriptions and the number of households with $1 million or more in investments: nearly 60 to 1. The cold, harsh reality is that most people live well today, but they will pay for it tomorrow when their standard of living falls off the proverbial cliff due to a lack of resources to pay for retirement, healthcare, or even the cost of a trip to visit the grandkids.

The True Measure of Wealth

When I use the term “millionaire,” I refer to those with investments of $1 million or more. “Investments” include such items as stocks, bonds, mutual funds, equity shares in private businesses, annuities, net cash value of life insurance, mortgages and credit notes held, gold and other precious metals, certificates of deposit (CDs), T-bills, savings bonds, money market funds, checking accounts, cash, and income-producing real estate. Basically, anything of value that is reasonably liquid.

This is not the traditional way of expressing a household’s level of wealth. For many years, I defined net worth as the current value of all of one’s household assets minus all of its liabilities. But things have changed. I now refer to this measure (assets less liabilities) as augmented net worth, or embellished net worth, or enhanced net worth, or even nominal net worth. Why the change? Embellished net worth includes, for example, the equity in one’s home. Home values exploded between 1997 and 2007. As a result, so did the population of enhanced millionaires. What percent of American households had an augmented net worth of $1 million or more due to real estate appreciation? The answer is more than twice the percentage of those with investments of $1 million or more (8 percent versus 3.5 percent) did—but now they don’t. So much of their augmented wealth was invisible. If your net worth was $1.5 million with 85 percent of that from your home, and the value of your home depreciated by 50 percent (which it has in many areas), then your wealth wasn’t real.

Many people have become experts in exaggerating the value of their assets while underestimating their liabilities, and some assets can be prone to bubble inflation during certain times. In the late 1990s, we saw lots of dot-com millionaires with tremendous assets—at least on paper. Once that bubble burst, many of those millionaires exited the millionaire club. In the latter part of the most recent decade, real estate valuations exploded, only to come back to earth in 2008. Many real estate millionaires are no more. It is as if many people have been filling out loan applications where their lives depended on the bank’s approval. It usually takes a certain degree of discipline, proactive planning, prioritizing, and investing to become a true millionaire. Conversely, many of those who reached the $1 million embellished level of wealth did so because of some temporary asset bubble, such as the value of their homes, got them there—for a moment. In both recent cases, the dot-com bubble and the real estate craze, many won the lottery but didn’t even have the presence of mind to lock in their gains. In the case of housing, the majority of people who live in expensive homes (valued at $1 million or more) are not millionaires—they are (or were) “house rich.” And many of them, as we’ve come to see all too painfully, are now house poor because their real estate debt exceeds the current value of their property.

My dad had it right.

As I have been writing and lecturing about for over 30 years, studying the ways and means of true millionaires is very enlightening. Think of the millionaire population as a continuum. At one end are the glittering rich. They generate extremely high incomes, have vast sums of wealth at their disposal, and spend accordingly on high-prestige cars, mansions, dinner every night at $300-plus per person restaurants, couture attire, and the like. No matter what they spend their money on, though, it’s just a fraction of their overall net worth. In other words, even the glittering rich spend below their means. They are a very small minority, about 2 percent of U.S. millionaire households; no more than 80,000 in total. As of the first quarter of 2007, in order to qualify as glittering rich, one needed to generate an annual realized household income of over $2 million, have a net worth in excess of $20 million, and live in a home valued at over $2 million (at least $3 million in California). At the opposite end of the millionaire continuum are millionaire households that are extremely frugal and live in homes valued at under $300,000. These people became millionaires because of their frugality and their fastidious saving and investing habits.They are at ground zero in terms of their inventory of luxury products. Note that aspirationals are not found anywhere along this continuum; they are not millionaires.

So why are we talking about the glittering rich, and why do they even matter, as they make up such a small percentage of the population? They matter because they are rich, and they act rich—by driving top-of-the-line (usually European) makes of cars, by shopping at exclusive stores, by extravagantly vacationing internationally, often to exotic places, and by consuming the most expensive of everything, from watches to vodka to vintage wine. They really matter to us because, sadly, we have become a society that seeks to emulate their consumption lifestyle to the detriment of our financial health. We have been acting rich but we aren’t rich—by any means.

But don’t we deserve to enjoy the fruits of our labors? Most of us would like to be rich in order to spend like and act like glittering rich people, but we aren’t taking steps to become financially secure or financially independent. Why? Because to do so would require a drastic change in our habits. We would have to plan, cut back, be prudent, maybe even shop at Wal-Mart, invest, and even downsize. We lack the discipline, the guts it takes to become rich.

Most people will never earn $10 million in their lifetime, let alone in any single year. In fact, most households are unlikely to ever earn even $200,000 or more annually. Currently only about 3 percent of American households are in that category. So what if you will never hit the top 3 percent mark? What if you are unlikely to become rich by playing extraordinary offense (i.e., generating an extraordinarily high realized income), as the glittering rich do? The only way you will become rich is to play extraordinary defense like those millionaires at the other end of the continuum: by living well below your means, by planning, saving, and investing. We need to stop acting rich, and you need to adopt the values and lifestyles of self-made millionaires. Why? To be happy, to achieve the most satisfaction you can get from life. But you say that having that special car will make you happy, that living in a certain home in a specific neighborhood will make you happy. I say: Not so fast. It turns out that what we say and what actually brings us happiness are a bit different.

For years, many of my clients insisted that I ask respondents to my surveys and focus groups about their goals. I tried to discourage them from doing this for one reason:The goals that people report do not discriminate very well between hyperconsuming high-income/low-net-worth types (the aspirationals) and millionaires/soon-to-be millionaires. Both groups will tell you that their goal is to be financially independent someday. But talk is cheap. In studying millionaires and those who merely act rich, I have determined that it is much more productive and insightful to ask people about their actual behaviors, habits, and real lifestyles than to ask them about their stated intentions and conjured goals.

So what if your real goal is to act (or continue acting) rich? I suppose I can help you. I will tell you what the glittering rich buy, then, when making brand choices, you can order off the appetizer menu since you cannot pay for the really expensive entrées. You certainly can at the very least display the brands of vodka consumed by the rich and shop in stores patronized by the “beautiful people.”

The buying behaviors of the glittering rich, especially brand selection patterns, are completely opposite to those of the millionaires who may never in their lives have had an annual earned income of $100,000 or more. They invest regularly and wisely. Their entire consumption lifestyle is congruent with the types of home and neighborhoods in which they reside. Bottom line, it is far more attainable to become a millionaire through hard work and saving than it is likely to become a celebrity millionaire, win the lottery, or inherit from a mysterious rich aunt.

However, in a perverse twist on the modern take of the rich, our society gives those who have achieved the greatest success by work and diligence short shrift.We are not interested in emulating the Toyota-driving, modestly attired, bling-less entrepreneur or sales professional. Instead, we take as our role models celebrities and athletes, masters of the universe. Rather than attempt to find their luck, we have come to think that if we act like them, look like them, drive the cars they drive, we are glitteringly rich. In the process of buying into the marketing hype, of getting sucked into the brand advertising, we have frittered away our wealth. It’s not your fault, in a way, as some of the smartest people in the world seem to be working in marketing and advertising, and with the increased media coming at us every day from every angle—print, broadcast, online—it’s difficult to resist the siren song of Grey Goose, Mercedes, Tag Heuer, Hermès, and all the other prestige products around us.

Poor Richard’s Wine Cellar

In a study I conducted of high-net-worth/high-income households in 2005-2006, I uncovered the brand choices of 1,594 respondents, of whom 944 were millionaires. (Appendix A outlines the sample design, and Appendix B profiles these millionaires.) At one end of the millionaire consumption spectrum were respondents such as the fellow who complained that the questionnaire did not have enough space for him to list all five of the $10,000 and over watches he owned and the Ferraris he bought/sold/kept, and the decamillionaire who wanted extra credit for the numerous airplanes he owned (“instead of a yacht”). At the other end were wealthy individuals who were extremely frugal. A word of caution: The data indicates that the glittering rich not only have a very high propensity to purchase certain brands, they tend to buy more of just about everything, from prestige makes of cars to expensive watches to super-premium vodka to expensive suits. In order to emulate them, you might have to allocate more time shopping. The size of one’s inventory is telling.

Store patronage habits are among the strongest measures that define glittering. And where do glitteringly rich people shop for their clothing and accessories? Responses to my national survey indicated that Saks Fifth Avenue and Neiman Marcus are the top two retail discriminators that distinguish the glittering from the others. In fact, the correlation between one’s position on the glittering rich scale and shopping at Saks is even more substantial than one’s choice of makes of automobiles. Stores that also rank high along the scale include Banana Republic, Brooks Brothers, Gucci, high-end independent specialty stores, Nordstrom, and Polo. So if you are not rich, you can fake it by displaying pictures of yourself walking out of Saks and Neiman Marcus overloaded with shopping bags, or by filling up the backseat of your leased prestige make of motor vehicle with shopping bags conspicuously filled with goods purchased at the stores listed above.Then drive around town and give rides to people you are trying to impress! No one will downgrade you because your car is leased; they probably don’t know that 84 percent of glittering rich people purchase their cars versus 94 percent of millionaires in general.

It is not enough to drive just any make of vehicle.What are the makes and variety of makes of motor vehicles that scored highest on the glittering rich people scale? The upper-level (higher-price/true luxury) models of Mercedes-Benz and BMW ranked highest. In fairness, even among the glitteringly rich, there were not enough respondents who drove Ferraris, Rolls-Royces, or other very exotic makes to generate stable estimates of their positions on the scale. But keep something else in mind. For the glittering rich people segment, the number of cars owned begins at three and ends in double digits. The glittering rich almost by definition own at least one trophy vehicle—that is, a top-of-the-line BMW, Mercedes, Lexus, etc. Also, most have at least one SUV. Yet many of the SUVs are not in the luxury class. Full-size SUVs produced by Ford and General Motors as well as variety of Jeeps are extremely popular among the glittering rich. So if you currently drive an Explorer,Tahoe, or Wrangler, you may be acting rich.

Because the glittering rich entertain a lot, they purchase a great deal of both spirits and wines. There is a high correlation between one’s position on the scale and the number of bottles of both spirits and wines in one’s home inventory. Glittering rich people tend to collect wine and many have a well-stocked wine cellar. Plus the higher you are on the scale, the greater the price you paid for the wine served to guests.

If you cannot afford to own a fully stocked wine cellar, but you still want to play act the role of a glittering rich person, here is something you can do. Study wine and begin to give informal speeches about wine. No audience is too small. You may convince some, including yourself, that you are really rich and glitter like gold. Designate a room in your basement as a wine cellar. What if you do not have enough money to stock your wine cellar? Do what Jon-Jon, originally from the Gun-Hill Road section of the Bronx, a perpetually relocating corporate middle manager—did. He provided free wine storage to other aspirationals who did not have the necessary space. So technically Jon-Jon told the truth when he bragged about having a fully stocked wine cellar, even though not all the wine was his.

Glittering rich people keep a wide variety of spirits in their homes. But almost all of the brands they have are of the premium and super-premium type. What brand best discriminates glittering rich from the other types surveyed, that is, occupies the highest position on the glittering rich scale? Grey Goose vodka is the winner. In fact, its discriminant score exceeds those of many of the expensive brands of watches as well as prestige makes of motor vehicles. Absolut and Ketel One are high up on the scale.

What can happen when glitteringly rich people compete against each other in terms of conspicuous consumption? The battle is sometimes fought with bottles. Just how many bottles of premium and super-premium spirits and vintage wines can be put on display at a party hosted by glittering rich people? It is not clear, but in my database, it was Richard S. who had the greatest number of bottles on hand. He and his wife love to host parties for friends, neighbors, clients, and suppliers. Plus they frequently attended parties hosted by other glittering rich people. Richard was not always number one in this war waged with bottles, but he—an extraordinarily competitive multimillionaire—figured out a way to beat all his competition.

When Richard has a party at his home, there are cases upon cases of expensive brands of spirit displayed. The cases are positioned around his 30-meter swimming pool, stacked on a series of 4-foot-by-8-foot wooden plywood boards and supported by sawhorses covered with linen table-cloths. It is not unusual for the number of cases of spirits to exceed the number of guests being entertained.

Some might say that Richard’s enormous display of bottles is overdoing it a bit, even for an exceedingly wealthy person. But there is more to Richard’s story. For years Richard designated himself as the number-one customer of a neighborhood liquor store. Shortly after he learned that the proprietor was about to sell out, Richard essentially became his own best customer. He bought the store and kept all of its employees. Today, everything is about the same at the store except for one thing. There are a lot of cases moving back and forth between the store and Richard’s home! Now Richard no longer has to buy all of those cases he displays. Most of them are just on loan from the store. But no matter. His conspicuous display of high-priced brands and vintages helps him qualify as being “beautiful.” Perhaps this is the model for a new type of liquor stores; we need a “rent a bottle” outlet in every town.

Richard may be very successful, but he also has much in common with most of us. He has been conditioned by marketers. Like Richard, too many of us believe that premium and super-premium brands are badges that denote success and that those people who do purchase these brands are successful and, by extension, those who do not purchase those brands are not successful.

Yet from my surveys and studies, I know that this is not true.

It is all right for Richard to display pricey badges, even in grotesque quantities. He is a success, the real deal in terms of both income and wealth. Perhaps he should brag; he certainly can afford to do so.Yet there is a growing danger facing us:What happens when people are conditioned to believe that owning the badge is the achievement? Why work hard to succeed when “success” can be bought (most likely with a credit card)? You can act rich by displaying just the right selection of store-bought symbols.

A Compromise

I know what you may be thinking:

Okay, okay, Dr. Stanley. I get your message. I understand that I can’t be glittering. I don’t have that kind of wealth. But isn’t there some sort of minor league glittering division I can be in? I want to be somewhat wealthy and spend some. I want to at least sparkle a little. After all, I have a fairly high income. I work hard, so I want to live, I want to enjoy my money as well. There has to be a compromise. I don’t need to live in a $10 million home. But I do want to live in a home valued in the high six to low seven figures situated in an upper-middle-class neighborhood, drive luxury motor vehicles, wear expensive suits and accessories, shop at upscale stores, and serve my guests super-premium distilled beverages and vintage wines. I want these types of things. But I also want to be a millionaire even if only of the augmented variety. Is it possible to do so?

In a large part, it depends on your ability to generate income. And, even in the minor leagues, you will need a fairly high income to do both. Those who do both are among the least productive in terms of transforming their income into wealth. I refer to these types as income statement affluent, or IA for short.Yes, they are millionaires, at least of the augmented variety (if we include the value of their homes). But their net worth is, in a statistical sense, significantly lower than what is expected, given their high income. What might happen after you learn just how expensive their high-consumption lifestyle is to sustain? You might not want to be among the IA or even act like one. I hope you may want to follow the ways of those millionaires who are very productive in converting income into wealth: the balance sheet affluent (BA).

Transforming Income into Wealth

Emulate the behavior of BAs and you will likely become financially secure. But first understand how much you should be worth. In order to do so, I developed the Wealth Equation, which I introduced initially in my first book, Marketing to the Affluent (1988):

Simply stated, your net worth [augmented] should equal 10 percent of your age times your annual realized household income (0.10 × age × income = expected net worth). If your actual net worth is above this expected figure, I consider you affluent, given your age and income characteristics.

Interestingly, there is a wide variation, even among the affluent, in terms of what I call the wealth index (WX).Your WX is the ratio of your household’s actual net worth (augmented) over its expected or predicted level as computed from the Wealth Equation. The BAs have indices way above the norm. It is just the opposite for the IAs.

The BAs became wealthy by playing great defense via serious financial planning, wise investing, and being frugal. Most never generated high incomes, yet they became wealthy nonetheless. Their objective was to build wealth.

The focus of the IAs is on maximizing their realized incomes. They became wealthy by playing excellent offense. In other words, they generated high earned incomes. Most IAs fit the definition of minor league glittering rich people by earning just enough money to buy almost anything. Even though they hyperconsume and are lacking in budgeting or financial planning, they have become millionaires.

I computed a WX for each of my latest survey’s 944 millionaire respondents. But the WX that I was particularly interested in determining was not their current WX. I wanted to know at what age and at what corresponding level of annual realized income they first crossed the millionaire (augmented) threshold. All 944 respondents reported what their age and annual income characteristics were when they hit the mark.

With this information, I computed a WX for each respondent. Then I ranked each respondent according to his WX. In turn, the 944 were divided into three groups or categories. The BA group contained those who ranked in the top 25 percent in terms of their WX. The threshold WX for those included in the BA group was 1.84. The median WX for those in this category was 2.49. In other words, the “typical” member of the BA group had an actual net worth that was 2.49 times the expected figure, given his age and income at the time he first reached the seven-figure wealth threshold.

The IA millionaires ranked in the bottom quartile along the WX continuum. The highest WX within this group was 0.880; the median WX was only 0.665. This means that the typical IA had an actual net worth that was only 66.5 percent of what was expected, given his age and income at the time of hitting the millionaire threshold. When he first became a millionaire (again augmented) 11 years prior, the typical BA respondent was 45 years of age and had an annual realized household income of $89,167. Given this age and income, his expected net worth was only $401,252. But it was actually 2.49 times greater than the expected amount. At the time he first reached the million-dollar plateau, the typical BA generated the equivalent of $11.20 of net worth for every $1.00 of his annual realized household income.

The median age of an IA member when he first reached the affluent threshold was 45 years 5 months while his median annual realized household income was $331,250. Thus the typical IA member needed $1.00 of income to generate the equivalent of $3.02 of net worth. Contrast this figure with the $11.20 of net worth accumulated for every $1.00 of income generated by the typical member of the BA club. It becomes clear that the BAs, those who played great defense, were much more efficient than the offense-minded IAs by a ratio of 3.7 to 1 ($11.20 versus $3.02).

Why We Buy

Why do so many people hyperspend? Prior to the economic reversals we have recently encountered, most people had similar sets of beliefs about the positive relationship between spending on products and happiness. But in reality, increased spending does not make one more satisfied with life overall. For many people, it actually has the opposite effect. But, conversely, who are those who are happy? Typically they are those who spend below their means while building wealth and ultimately becoming financially secure.

How is it that some people gravitate toward becoming BA types while others emulate the hyperconsuming lifestyles of the IA affluent? The extraordinarily “e-z” credit terms of the recent past, especially in the mortgage market, helped fuel our gluttonous ways, obviously. Yet even during the heyday of the “nothing down” era, some people never overspent or borrowed heavily. Some were millionaires, some were decamillionaires, and others were on their way to becoming wealthy. How did they remain immune to the marketing and social pressures to spend, spend, spend? We’ll look at those answers throughout this book but I’ll give you a clue: You may be living in the biggest reason of all.

The best and most creative marketers in the world have worked hard to convince many of us that spending heavily will bring us all sorts of joy—we’ll be more popular and admired. They have also conditioned us into believing that “you are what you purchase” and “you are superior to others if you outspend, out display them.” And, accordingly, “the products you own supposedly define you and your achievements in life.” So, why not buy now? Why wait to become financially secure, a genuine socioeconomic success before you significantly upgrade your collection of consumer artifacts?