How Millionaires Spend, Save, and Invest

Nike’s (NYSE: NKE) direct-to-consumer sales now make up more than 40% of the company’s revenue. In this podcast, Motley Fool analysts Auri Hughes and Asit Sharma discuss:

Nike’s earnings beat and global strategy.
Okta‘s hack, and what it means for the cybersecurity company.
How rising fertilizer prices could cause wider-spread inflation.

Motley Fool host Alison Southwick and Motley Fool retirement expert Robert Brokamp discuss how millionaires save, spend, and invest.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on March 22, 2022.

Asit Sharma: [MUSIC] Coming up, Nike exceeds expectations. A cybersecurity company suffers an embarrassing breach, and so much more Motley Fool Money starts now. I’m Asit Sharma sitting in for Chris Hill. I am joined by Motley Fool Senior Analyst Auri Hughes. Auri welcome to Motley Fool Money.

Auri Hughes: Hi Asit. Thanks for having me. Hope you’re doing well.

Asit Sharma: Pretty well for a Tuesday. [laughs] Auri is laughing because I say this almost every time we talk. Nike Incorporated reported fiscal 2022, third-quarter results this morning, shares were up. Nike had an earnings speed. What do you make of this report?

Auri Hughes: Looking into this, Nike is, obviously a large dominant company and I think for a really large-cap company, global business starts to be really important. From my research to a lot of the conversation was around China and the expectations there, and a lot of people are starting to be happy that business is turning around essentially. The China business is improving, despite recent backlash against Western brands and shortage of merchandise. Maybe like this cultural version, and then obviously the supply chain issues normally. But essentially the sales were down only eight percent when analysts anticipated they would be down 12 percent. Then last quarter, as far as China those sales were down 24 percent. Even though declines aren’t great, that’s still substantially less than where it was before.

Asit Sharma: Still plenty of room for Nike to make that ambitious push to be this global retailer even stronger than it already is. I noticed the company enjoyed a pretty brisk direct-to-consumer sales. Already looks like Nike direct sales were up 15 percent year-over-year to $4.6 billion. That’s a pretty big market now for this company selling direct-to-consumers.

Auri Hughes: Yeah, that’s really interesting, you bring that up I didn’t read about that. But I think that strategy makes a lot of sense because if you can take out middlemen or different parts of the supply chain. Ideally, I think that would increase your margins. Even if you’re selling to the same consumers. Supposedly that we should take out some unneeded steps in the supply chain. I think there’s been a lot of other brands that have had success going directly to consumers as well.

Asit Sharma: I think as they expand that global footprint, it becomes more important to start to brand the product. Even though this Nike trademark is incredibly strong, Nike still has to invest in its marketing, and you had pointed out to me when we were chatting about some steps the company is taken to try to win over its shoppers favor from overseas.

Auri Hughes: The steps the company is taking is they’re partnering with two Chinese retail distributors, top sports and Pou Sheng. If I’m pronouncing that right. My Chinese is rusty because I don’t speak Chinese. [laughs] They also recited a recent brand campaign that was tied to the Beijing Olympics. Definitely a lot of focus to continue to win business in this area. As you can see, some definitely, which seem to be some smart strategic moves on Nike SPAC.

Asit Sharma: Reports today that fertilizer prices are coming in at record highs. Auri this is something that frankly isn’t on my radar screen. Maybe it should be, this is a note that caught your attention. Why do we need to worry about the price of this commodity class?

Auri Hughes: I think it’s interesting. Obviously, a lot of talk around inflation. I think it’s interesting because agriculture is just so essential to probably the global economy in the world because we need food after all. These inputs that go into growing food are up significantly 30 percent since the beginning of the year for such things as ammonia, nitrogen, nitrates, phosphates, potash, if I’m pronouncing that right, and sulfates, which are I guess these chemical components that help grow food. It’s just really interesting because I guess more so than you would think. A lot of these things are produced in the Russia and Ukraine area. From reading Russia, which accounts for around 14 percent of global fertilizer exports, has temporarily suspended outgoing trade. Obviously, I think that would probably put some pressure on these items that are just so essential to the economy.

Asit Sharma: It’s like one more thing [laughs] we need to worry about when we think of rising inflation. I know from personal experience, listeners have this experience too, food is getting more expensive every time we go to the grocery store. But this also has an impact, not just on developed countries, but also some emerging markets as well. They may be a little less equipped to handle this type of dysfunction versus countries like the US.

Auri Hughes: Essentially, Wells Fargo expects the food impact to be felt globally, but they anticipate that to be more fell among emerging countries. I guess if you’re developing, you don’t have, probably all the resources or luxuries as a developed nation. Obviously these substantial increases to the inputs of the cost of food would probably be felt more as what I would imagine.

Asit Sharma: Today, news emerged that Okta is investigating reports of a possible digital breach. Now, Auri this story. [laughs] Here we have a company that specializes in providing verification, authentication of sign-ons to the Cloud, to various websites. It’s heavily used by enterprise customers. This is not the reach you want to have, am I right? [laughs]

Auri Hughes: Yeah, I think it’s ironic to say the least, probably for me, it’s something you read and check over. I guess your business specializes around security and yet there’s this group saying, it’s almost like they’re taunting a little bit like, “Oh we had access to your systems.” But the message from the CEO is that it’s not currently an issue and he says that they are investigating and he didn’t see the activity going on, but it is a chuckle because that’s your business. Maybe that’s not going to reinsure your clients or folks that are maybe interested in using your solutions. But definitely interesting that and it’s arms race in the security business.

Asit Sharma: Not the publicity you want. Okta is an interesting story. This company had a phenomenal run after its IPO. Like other tech stocks Auri, it’s well off its highs. But the story on Okta seems to have cooled a bit, they’ve got great revenue growth. The last quarter they reported had 63 percent year-over-year growth. But I don’t know about that income statement.

Auri Hughes: We’re looking at this and it’s been a big winner significantly.

Auri Hughes: If you look at the financials, the company is definitely getting larger and it’s growing, but we’re not seeing a lot of that translate to the bottom line necessarily in some of the net income losses. We have actually gotten worse year-over-year, especially this last fiscal year and a lot of that looks to be driven by some stock-based comp and I would imagine for a company like this, maybe like marketing is well. But it has high gross margins, has a lot of potential. We’re just not seeing a lot of that growth fall to the bottom line ideally.

Asit Sharma: We’re looking at $1.3 billion of revenue in their fiscal 2022 and already they had an operating loss of $760 million on that. You point out, even though this is a book loss in terms of cash flow, much of this is going to that stock-based compensation. They have big investment in R&D, in sales and marketing that’s been really ramped up, but that’s been the history of Okta for, I would say the past few years. Instead of pulling those losses in, they just seem to be getting wider. You did point out to me when we were chatting that the company does have positive operating cash flow. It looks like they generated about $104 million worth of operating cash flow in the last 12 months. What do you make of a story like this when you’ve got a company which has increased its sales at such a big rate, but still has trouble making that bottom line turned green?

Auri Hughes: It’s really interesting because this is exactly the type of company that the market has not been in favor of these last few months when we saw that big drawdown for growth oriented stocks because the company is growing, getting bigger significantly, but we’re just not seeing that growth fall to the bottom line or result in profits. I would imagine this is exactly the type of stock that sold off. Eventually, with these type of businesses, I like to see, and I think most investors would like to see, you do want to see the business eventually transition to profitability and then being significantly cash flow positive after a while. [MUSIC] There’s probably demand for the product apparently, but we’re just not seeing that fall to the bottom line yet.

Asit Sharma: Investors are saying, Okta, show us the money. Auri Hughes, thanks a lot.

Auri Hughes: Thank you [MUSIC].

Asit Sharma: Who wants to be a millionaire? Who doesn’t want to be a millionaire? Allison Southwick and Robert Brokamp breakdown how millionaires spend, save and invest on this week’s Answers. They discuss how important or maybe unimportant hitting seven digits really is.

Allison Southwick: Who wants to be a millionaire? Chances are just about everyone would raise their hand unless of course, billionaires on the table, in which case I choose that. There are about 56 million millionaires in the world today. How did most of these people find their way into the dose commerce club? What traits do they most have common? That’s what we’re going to talk about today.

Robert Brokamp: To be a millionaire has been a marker of financial success for a long time in. The term’s first appearance likely occurred in France around the 1700s and it literally means a thousand, thousands. To figure out how the typical American millionaire accumulated their thousand thousands, we read several books, surveys articles. Some of these looked at people with a million dollars net worth. That would include assets like home equity, others just looked at investors with million-dollar portfolios. But regardless of how a millionaire was measured, it turns out they have several traits in common and we boiled them down to five. While being an American is not one of those, it certainly helps. We make up less than five percent of the planet’s population, yet have 39 percent of the world’s millionaires, according to Credit Suisse. That’s way ahead of the next country, which is China, with nine percent of the world’s millionaires.

Allison Southwick: Well, let’s get into it with millionaire trait number 1. They save 20 percent of their income. Morgan Housel, author of The Psychology of Money and friend of the Fool, looks to singer Rihanna as a good cautionary tale here. Rihanna went from having $50 million in 2007 to almost declaring bankruptcy two-years later. She sued her financial advisor for mismanaging her money and he responded, “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?” As Morgan Housel writes in his book, you can laugh, but the truth is, yes, people need to be told that. When most people say they want to be a millionaire, what they really mean is, “I want to spend a million dollars.” Which is literally the opposite of being a millionaire, so clever that Morgan Housel.

Robert Brokamp: He is so clever. The various studies found that either the savings rate of a typical millionaire was a little bit below 20. Some found it was closer to 23-25 percent, but regardless, it’s significantly more than what the average American is doing. According to the Federal Reserve, the current U.S. personal savings rate is currently just 6.4 percent and the average contribution rate to a 401K at Fidelity is 9.4 percent, that’s from the employee. Then the employer match gets started in there, so the average total savings rate is 13.9 percent. Certainly these folks who are real-life millionaires are saving more than the typical American. One study found that millionaires actually closely mirror that 50-30-20 budgeting guideline that has become more popular over the last 15 years. It goes like this, 50 percent to required expenses, 30 percent to discretionary expenses, and then 20 percent to savings. Obviously this is easier if you make more money and the typical millionaire definitely has an above-average income. But income only explains about 30 percent of the variation in wealth from one household to the other, according to Thomas Stanley the coauthor of the Millionaire Next Door. The other 70 percent is explained by things like just being relatively frugal, given an income, for example, 55 percent of millionaires buy used cars and the other, they have other money-friendly habits. Perhaps surprisingly, the majority of millionaires live according to our budget. Some people might think, well, if you’re a millionaire, you don’t need a budget, but that’s how they became a millionaire. Of those who don’t have a budget, they have what could be called an artificial economic environment of scarcity. That’s more commonly known as pay yourself first, in other words, they invest a good chunk of their income before they can spend it. Again, according to Millionaire Next Door, almost two-thirds of millionaires can answer yes to this question, do you know how much your family spend each year for food, clothing, and shelter? In contrast, only 35 percent of high-income non-millionaires could answer yes to that question. The bottom line here is, millionaires are more likely to have a plan for where they want their money to go and have a pretty good idea of where it went.

Allison Southwick: Millionaire trait number 2, they own a reasonably priced house and live in it a long time. Look no further than Warren Buffett for this classic example here. Warren lives, Warren as if I’m on a first name basis, [laughs] lives in a quiet Omaha, Nebraska neighborhood in one million dollar plus home that he bought for $31,500 in 1958. Not what most people would expect from someone worth more than a 100 billion. While Buffett is a billionaire, this trait of buying a reasonably priced home and living in it for a long time remains true for millionaires as well. Most of the millionaires had never purchased a home that costs more than tripled their annual income, 56 percent own their homes for at least 20 years. Obviously, if you’re spending less money on a house, you’ll have more money in your bank account, but the psychology and the impact on your wealth of having more house than you need actually goes beyond just the hit of your mortgage, isn’t that right, Brok?

Robert Brokamp: Yeah, and the typical millionaire lives in a neighborhood where she or he has 4-5 times more wealth than the person next door and on average they’re mortgage is less than a third of their home’s value. This is important because housing is by far the biggest expense for the typical American family. The price of the house that you buy is highly correlated to pretty much everything else you spend money on. Your choice of housing affects your budget, your debt, mostly due to your mortgage, your taxes, child care, education costs, insurance, utility cost, plus if you live in a pricey home and neighborhood, you tend to act and buy like your neighbors. Literally living below their means by living among people with incomes lower than there has been a key to financial success for some millionaires.

Alison Southwick: Millionaire trait number 3, they’re long-term accumulators. Depending on the survey you look at, 75-86 percent of millionaires have created their own wealth, they didn’t inherit it. For most millionaires it didn’t happen overnight. Most millionaires reached the two comma club in their 50s through a slow and steady game of earnings, saving, and investing wisely. If you don’t want to wait until you’re 50 years, options are either make a lot of money quickly or save a lot of money aggressively. Those who do it sooner are either super savers or entrepreneurs. For our impatient listeners out there, this feels like the right time to talk about the FIRE movement.

Asit Sharma: Ooh, yes, the FIRE movement. FIRE stands for Financial Independence Retire Early, although I think these days the FIRE folks emphasize more of the FI than the RE because they still work but they are financial independent and they can do work that they want because they want to and not because they have to. If you’re not familiar with the FIRE movement here are three people to learn a little bit about. First I would say is Vicki Robin, the matriarch of the movement. She was a dissolution actor, basically retired early 1970s along with the guy named Joe Dominguez, who was a former Wall Street Financial Analysts who in 1969 retired at age 31. They wrote a book in 1992 called Your Money or Your Life. Joe has since passed away, but Vicki republished the book in 2018 and updated it. That’s a great start. Two people that I bet a lot of people have not heard as much about it as Billy and Akaisha Kaderli they retired in 1991 at the age of 38 and they are still going. I interviewed them first in 2004 and then I catch up with them every three years or so. They’re almost 70 and they are still living a great life. They’ve been able to do it by living on less than $30,000 a year via GEO arbitrage, which is basically living in lower-cost areas of the world. Over the last 30 years or so they lived in Mexico, Panama, Vietnam, Thailand, the West Indies and they’ve also squeezed into more expensive places like Australia and New Zealand and you can learn more about them at Then the third one is probably the most prominent figure in the FIRE movement, Mr. Money Mustache. He was an engineer who lived on around $25,000 a year, retired at age 30 with a portfolio of about $700,000 in a paid-off house. You can learn a lot at his website. I’ll just provide some back-of-the-envelope math that came from one of his articles. I think it’s a good guideline to give you an idea of how long you’re going to have to work depending on your savings rate. According to these calculations, if you save 10 percent of your income, you’ll have to work more than 50 years. If you can increase that to 30 percent of your income, you may only have to work around 28 years, moving up to 50 percent of their income. Some people do it. Even people here at The Motley Fool that I know are doing this. You could cut that down to only working 17 years. I think these are good guidelines for folks who maybe have gotten a later start or want move up that timeline to join the billion-dollar club. Save a lot more.

Alison Southwick: Millionaire trait number 4, they own multiple businesses. Depending on the study, either a large percentage or most millionaires own their own companies, and most have multiple streams of income, such as real estate or a side hustle. Remember Rihanna, I talked about at the top of the show, while the incredibly successful musician who blew through $50 million in a couple of years. The story does have a happy ending because Rihanna is now worth 1.7 billion despite not putting out a new album in almost six years. Where did all that money come from? Well, for starters, the financial advisor she sued Seattle for 10 million there is that little footnote. Far from there Rihanna went into fashion and partnerships with Puma, Louis Vuitton, and now the bulk of her wealth is from fashion and beauty, and she is not alone. Jessica Alba made estimated 200 million by founding the Honest Company, Dr. Dre, took home as much as 500 million when Apple bought his headphones company. Don’t get me started with every entrepreneurial thing the rock does. Maybe a billion-dollar partnership with Louis Vuitton is not an option for you. It’s not an option for most millionaires. But what is grow?

Asit Sharma: Yeah, you don’t have to go out and create your own company, but you do likely have to own one and should own many. The good news is that’s pretty easy to do. Just invest in the stock market. Because when you own a stock, you actually a legitimate part owner of that company. Fact, according to the spectrum, group 72 percent of millionaire said smart investing was a key to their success. Fidelity does an analysis every few years on folks who have accumulated at least a million dollars in the 401Ks. On average these 401K millionaires are in their late 50s, it’s a time when some experts might recommend that they played pretty safe with their portfolios. But according to Fidelity, only 13 percent of their assets are in conservative funds like stable value or bond funds. Another 20 percent in target-date or Hybrid Funds, but the bulk of their money is in the stock market. As Alison mentioned, some studies of millionaires found that they frame their wealth in terms of multiple streams of income. Here’s another celebrity example for you. Arnold Schwarzenegger actually made not most of his money from acting, but from real estate investments, at least according to Thomas Corley the author of Rich Habits. You can apply this to your life as you see fit. It could mean that you get another job, maybe a side hustle. It could mean that you actually invest in real estate and we talked about that a couple of weeks ago. But I think it’s also a good way to look at your portfolio, especially when it comes in determining whether you’re sufficiently diversified.

Alison Southwick: Our final millionaire trait number 5, they keep getting better and better. Millionaires just aren’t ones to rest on their roles. They continually try to improve in all aspects of their life: mind, body, and wallet. In a previous episode, we talked about how healthier people are wealthier and wealthier people are healthier. The cause and effect goes both ways and it turns out that every study of millionaires in the US that looked at health found that they exercise more than the average American. For example, one found that they exercise at least 30 minutes a day, four days a week. Another found that they exercise six hours a week. But self improvement for most millionaires isn’t just limited to health.

Asit Sharma: Yes, it does seem that millionaires also looking to self-improvement and our big readers. According to one study, 88 percent said that they read every day to increase their knowledge about their job and their industry. One study found that people who have above average wealth at least relative to their income, spent nearly twice as many hours per month planning their finances and their investments as under accumulators of wealth.

Alison Southwick: That’s how most millionaires got to where they are at least five traits, but a million dollar is just an arbitrary round number. To quote Chris Rock, “Wealth is not about having a lot of money, it’s about having a lot of options.” What number do you need to reach to give you options, is it a million, a billion?

Asit Sharma: Well, I hope it’s not a billion, it might be a million, it might be a couple of million, it might be less. But really what’s important is how much you need to accomplish your financial goals and obviously that’s unique to you and you should figure it out. Maybe use a good online financial calculator or maybe work with the help of a financial planner to figure out whether you’re on track for your various goals. However, most of us have the goal of eventually retiring. I’ll pass along some benchmarks of how much you should have saved at this point in your life. Many firms provide these benchmarks, probably the most well-known come from Fidelity. JPMorgan actually provides some good retirement savings rules of thumbs in their guide to retirement, which is available for free online. I highly recommend it. But for the show, I will pass along the benchmarks from T. Rowe Price and their express is a multiple of household income and assume retirement age of 65. For example, they think you should have saved up for retirement by the age of 30 half of your household income. If your household income is $100,000, T. Rowe Price, you should have 50,000 saved by age 30. That moves up to two times your household income by age 40, five times by age 50, nine times by age 60 and then by the time you retire, you should have 11 times your pre-retirement income at age 65. A lot of factors will determine what’s the right number for you. One of them will be income, and frankly, the more you make, the more you have to save because of the way social security is designed it’s going to replace less of your income. If you’re a higher income American, you might need 12-14 times your salary saved before you can retire. Again, these are just a generalized guidelines, you should definitely do an analysis based on your own unique circumstances and goals. Finally, if you want to learn more about millionaires, here are some books to checkout. We mentioned the Millionaire Next Door by Thomas Stanley and William Danko. That’s gone through several editions, actually the most recent version is called the Next Millionaire Next Door. Few other books Rich Habits by Thomas Corley, Millionaire Mystique by Jude Miller Burke, and How Rich People Think by Steve Siebold. A special thanks to Fidelity, who was kind enough to send me the most recent stats on their 401K millionaires.

Alison Southwick: Whenever you’re big financial goal is, it’s still the same equation of making good money, saving as much as you can, and compounding your wealth by investing. Only you can decide what number is right for you and wherever your finish line is, a million, a billion, or even a trillion, we’re alongside the path here at The Motley Fool rooting for you all the way.

Asit Sharma: As always, people on the program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. I’m Asit Sharma. Thanks for listening. We’ll see you tomorrow.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Alison Southwick owns Apple. Asit Sharma has no position in any of the stocks mentioned. Auri Hughes owns Okta. Robert Brokamp, CFP(R) has no position in any of the stocks mentioned. The Motley Fool owns and recommends Apple, Nike, and Okta. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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