-Caveat Lector-
~~for educational purposes only ~~
How to become rich
by Walter Williams
LET'S DEFINE BEING RICH as having a million dollars of
net worth. To become a millionaire, according to
Professors Richard McKenzie of the University of
California-Irvine and Dwight Lee of the University of
Georgia, is almost a cakewalk.
In their August/September Futurist article, "How Almost
Anyone Can Become a Millionaire," McKenzie and Lee
write, "Most people in America got rich because they
chose to do so, and they pursued a path to wealth that
is wide open to most of the rest of us." In other words,
becoming rich is a matter of choice. Let's look at it.
Suppose a 22-year-old college graduate, earning $30,000
a year, makes a one-time $2,000 investment in the stock
market. With a 10 percent compounded rate (which is the
stock market appreciation over the last 50 years), that
$2,000 would become $194,000 at age 70. The person
wouldn't be rich; but neither would he have sacrificed
much. Suppose our 22-year-old was more serious about
becoming rich and invested $2,000 each year. At age 70,
his wealth would exceed $2.1 million. Thus, the first
step toward being a millionaire is to save consistently.
In order to save consistently, you must avoid
'irresistible' temptations; make do with less expensive
cars and clothing, and cheaper entertainment.
Another factor in becoming rich is education. Graduate
from high school and attend college or some other form
of post-high school training. But you have to choose
your education wisely. Teachers can expect to earn
half as much over their careers as engineers, so
teachers will find becoming rich tougher than engineers.
Among what McKenzie and Lee call auxiliary rules for
becoming rich are: marry someone with an equal or
higher education, and stay married. Marriage seems to
provide a stable institutional setting that promotes
greater earnings, which affords greater savings. Married
people not only earn more than single people, they also
economize on the costs of running their households,
which allows for greater savings.
The operative term is marriage, not shacking up. The
binding legal contract at the foundation of marriage
reflects the couple's personal commitment to each other
that gives them added incentives to pool resources.
Survey data shows that married couples build up more
assets than two single people or couples simply
living together.
Becoming a millionaire takes time and requires some
risk-taking. If you start out non-rich, don't expect
to be rich before you're 50. While you're young, plan
to take 'reasonable' risks through investment vehicles
like index mutual funds (which buy shares of all companies
in the Standard and Poor's stock index) or one or more
of the 8,000 mutual funds.
McKenzie and Lee point out that the process of becoming
rich normally takes decades, sacrifice, dedication and
perseverance. Becoming rich is not for everybody. Some
people quite rationally may not choose to make the
sacrifices of current consumption and enjoyment. Nothing's
wrong with that. What the authors stress is that it's
one thing to make a conscious choice not to pursue great
wealth, and another not to know the choice exists.
McKenzie and Lee demonstrate that greater wealth is
possible for most Americans. That's a vital point,
particularly for black Americans whose political leaders
preach that they can't make it because of discrimination.
The fact that 4 percent, nearly 11 million Americans, are
millionaires, most starting out with little or nothing,
points to one aspect of America's greatness: By knowing
where a person ended up, it's a risky proposition to
speculate about where he began.
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