Monday, July 16, 2007

How to Make a Million Dollars

A million dollars just isn't what it used to be. Thanks to inflation, there are more millionaires today than ever before. Last year, the Wall Street Journal reported that there were 7.5 million millionaires in the world in 2004 -- a record number.

At the end of 1999 there were 2.8 million Americans with $1 million in investable assets (meaning the value of their homes is not included among those assets). These are high-net-worth individuals (HNWI). About 2.5 million people had $1 to $5 million of investable assets; 200,000 had $5 million to $10 million, and the rest had more than $10 million. That's not counting the number of people in this country who have a million-dollar net worth if you include their principle residence.

Before we get into becoming a millionaire, let's define the target. What makes someone a millionaire? Is it having a million dollars in the bank? Sure, unless they also owe a million. Is someone who owns a house that's worth a million dollars a millionaire? Not if there's a mortgage on it.

Most people define a millionaire as someone with financial assets that add up to a million dollars -- in other words, someone with a net worth of a million dollars. There are different ways to determine net worth, however. Some count the value of the person's primary residence, while others do not. For many of us, our primary residence is our most valuable asset, so not counting it as part of our net worth significantly lowers our personal bottom line.

Because money that's tied up in real estate or trust funds isn't easily accessible (known as non-liquid assets), some only consider a person a millionaire if they have 1 million dollars in liquid assets, like cash or stocks. For this article, we'll consider anyone a millionaire to be anyone with a net worth of at least 1 million dollars, including the value of their primary residence.

But how do you figure your net worth? That's simple (sort of). Just add up the value of your assets, which includes your house, all of its furnishings, your cars, your bank accounts and your investments. Then subtract all of your liabilities, which includes the balance of your mortgage, car loans, credit card balances and other outstanding debts. What's left is your net worth. (Try this online calculator to simplify the math.)

Next, we'll look at the millionaire lifestyle and find out what most millionaires have in common.


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