Do you save first, set priorities and live well below your means? If so, you exhibit the characteristics and values of the majority of self-made millionaires.

Do you save first, set priorities and live well below your means? If so, you exhibit the characteristics and values of the majority of self-made millionaires.

John A. Wilde, DDS

Do you desire financial independence? Do you want to enjoy the material possessions, peace of mind and behavioral freedom that accompanies the knowledge that you will never need to work again?

Few deserve wealth more than dentists after exhausting years and thousands of dollars invested in education, enduring the lonely struggle required to develop successful, independent businesses and the continually demanding efforts needed to provide excellent dental care. Even after overcoming these daunting barriers, few within our profession ever achieve complete financial freedom. Why is this so?

Invaluable information recently has been published to instruct those who would like to become wealthy or who wish to provide care for the affluent. This best-selling, compelling book, The Millionaire Next Door, is by Thomas J. Stanley, PhD and William D. Danko, PhD, and is available at any bookstore. It is the source of much of the information contained within this article.

Let`s begin our efforts to understand how wealth is achieved with a study of this species called "millionaire."

The typical millionaire

Of the existing 100 million American households, 3.5 million have a net worth in excess of $1 million dollars. The typical millionaire is 57 years old, male and married with three children. The average, taxable income of the millionaire is $131,000. (This is approximately the average income for American dentists. Are most of us, then, destined to become millionaires?)

The average income of all U.S. families is $33,000. The average total income of millionaires (including investments and other unearned income) is $247,000. Their median net worth is $1.6 million. These wealthy individuals typically work 45 to 55 hours per week and dedicate an average of eight hours per month to investment matters. They invest 20 percent of their income on average and tend to make their own investment decisions.

Are you as wealthy as you should be?

Enough abstraction; let`s get personal! Doctor, are you as wealthy as you should be? Performing the following simple calculation will provide the answer:

Multiply your age by your pretax annual income and divide by 10. This number is what your net worth should be. For example, if you are a 40-year-old dentist whose pretax income last year was $140,000, your net worth should be: 40 x $140,000 ÷ 10 = $560,000.

Take a moment to complete this calculation on your own income. Is your net worth consistent with your age and income? The Millionaire Next Door predicts many doctors will fail this test. The authors` studies found the relationship between education and wealth accumulation to be negative. The higher one`s level of formal education, the lower one`s net worth tends to be! Why?

Part of the answer is the lost years of income production forfeited to schooling and the accompanying education-related debt. But another significant factor is that higher education leads to an elevated lifestyle (better known as "big hatism!"). Society seems to expect excessive spending from its "educated elite," and many well-educated, high-earners comply with these expectations.

Not only is money consumed no longer available for wealth accumulation, but spending increases the largest single expense for most American families - income tax. Consumption = taxation. Income tax must be paid on all money spent.

An integral portion of achieving financial independence is reduction of taxation, as through tax-sheltered savings and investing. The United States taxes earned income, but does not tax accumulated wealth until death in the form of estate taxes.

Why do so many high, annual income-earners forfeit a chance to achieve accumulated energy, in the form of wealth, by indulging in the deadly combination of spending and the resultant taxation? They trade financial well-being for social status - working, planning and sacrificing for the short-term goal of purchasing to impress others.

In contrast, the greatest joys of the millionaires interviewed were not possessions, but self-satisfaction derived from their achievements and freedom from fear. Attaining great wealth - achieving greatness in any venue - is difficult and involves more than inner or outer focus. Evidence exists to indicate that the key traits required to accumulate money or excel in many endeavors exist by age four.

The marshmallow test

A famous psychological study conducted years ago can shed light on key behavioral choices that accompany achievement. Preschool children were offered a marshmallow that they were allowed to eat, but told that if they would wait to consume it until the adult returned from "running some errands," they would receive a second marshmallow. Their conduct during their few minutes alone with this sweet treat was filmed.

Many ate the marshmallow, often within a few moments of the adult`s leaving. The ones who waited and "doubled their return" visibly suffered, often putting their hands over their eyes, singing or walking around in brave efforts to delay gratification.

The children of this study were followed throughout their school careers. The ones who earned the second marshmallow outperformed those who ate theirs by significant margins in school grades, test results - virtually every factor measured.

The ability to delay gratification is a key to success, including wealth accumulation. It also is an act of strength and courage.

Take a moment to evaluate your personal history. How have you fared in your life-long battle to deny short-term pleasures, thus securing long-term gain? You may measure yourself by such criteria as a tendency toward debt or savings; choosing exercise over eating; involvement in affairs or working on relationships - in other words, all of the many factors in life where the options are immediate, transient pleasure or choosing suffering in the present to achieve significant rewards later.

If history shows that you`ve been a sucker for immediate gratification and you wish to change, what can you do?

1. Increase awareness. The first essential ingredient is recognizing your behavior pattern and realizing that other options do exist. Without achieving this understanding, chances are slight for meaningful change.

2. Make a determined effort. Being aware and wanting to change will help you work to obtain those desires. Set clear goals, such as saving before purchasing your next car or major office equipment rather than using debt. Or, you might decide to go to the gym four nights a week rather than going home to drinks, a heavy meal and a night spent in a semi-stupor in front of the television.

3. Monitor progress. Measure your debts as they melt away or your savings as they grow. Observe how your body responds to the gym as inches disappear and energy increases. Be ready to adjust your program if you realize change is needed to obtain your goal.

Achieving financial freedom

Returning to The Millionaire Next Door, the authors break financial matters into two categories - 1) offense and 2) defense. Financial offense is earning power. On average, dentists enjoy excellent offense, with average annual earnings in the top few percentage points of American wage-earners. A correlation between earned income (offense) and wealth accumulation does exist, but the relationship is not nearly as direct as one might assume

Financial defenses are spending habits; i.e., how well one can "defend" himself or herself against the urge to spend (delay gratification). Those of you who have participated in any sport know a good defense creates champions. It`s not what you earn nearly as much as what you do with it that determines financial outcomes. In part, due to the American tax system, savings and effective investing are more critical to wealth accumulation than is earning ability.

Cutting through the data and stories, this is the point: will you choose vanity or substance? Few are able to afford both. Will your life`s focus be outside (on the impression you make on others and the fleeting pleasure this provides) or will you concentrate on the inside, on lasting accomplishment, enhanced self-esteem and the substantial well-being of your loved ones.

Reflect on your life`s goals. If financial freedom is a major target - not a wish, but something you are willing to work to obtain - my thoughts in this article and The Millionaire Next Door contain a clear prescription on how to achieve your desires.

The good news? Dentists have average incomes over four times the general population and most have the opportunity to achieve financial freedom.

The bad news? This accomplishment requires courage, strength, persistence and determination - in other words, a two-marshmallow existence! But don`t the above traits describe the very person you want to be when you grow up?

A `humble,` low profile of millionaires

The authors of The Millionaire Next Door repeatedly point to the same theme while studying these wealthy folks. The great majority of self-made millionaires reveal lifestyles of hard work, perseverance, planning and self-discipline.

How are these values illustrated by their behaviors?

- Millionaires live well below their means. They save a minimum of 15 percent of all income and they save first - not what`s left after spending. They typically occupy the same home for years, surrounded by neighbors in similar dwellings who have lower net worths. They understand that "the opposite of frugal is wasteful."

- Millionaires allocate time, energy and money efficiently and in ways conducive to wealth-building. They begin investing and planning early in life, working on a set schedule within their business and personal lives. They have clearly-defined lifetime priorities and goals that lead to wealth accumulation.

- Millionaires believe financial independence to be more important than displaying elevated social status. The book explains a colorful Texas description of someone having a big hat, but no cattle. These are folks with luxury cars, homes, clothes, club memberships and vacations (big hats!) who, despite excellent incomes, often have accumulated little net worth (no cattle). Millionaires typically care little for "hats," but are deeply concerned with the size and health of their "herds."

- Millionaires` wives are planners and budgeters, often more frugal than their spouses. Husbands and wives work as a team, sharing a common goal of wealth accumulation.

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