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Wealthy Americans often like to claim that they’re self-made. There’s a stigma around coming from money or being a “nepo baby” who succeeds because of family connections.
A Bank of America Private Bank study earlier this year looked at how common it actually is to be a self-made multimillionaire. It surveyed 1,007 respondents with at least $3 million in investable assets in their brokerage accounts and other financial accounts. Here’s what it found.
Here’s how many multimillionaires are self-made
One-quarter (25%) of multimillionaires are self-made, according to Bank of America Private Bank’s survey. Self-made, in this case, refers to those who self-identified as having a middle-class or poor upbringing and who had no inheritance.
Here’s the story on the rest of the multimillionaires surveyed:
- 32% have legacy wealth. They had a wealthy upbringing and an inheritance. An average of 20% of this group’s assets came from their inheritance.
- 43% had a head start. They had either a wealthy upbringing with no inheritance or a middle class upbringing plus some inheritance. Those with an inheritance received an average of 11% of their assets from it.
This is a stricter, and I’d say more accurate definition of being self-made. Other studies still consider people with wealthy upbringings and family connections self-made, despite those being massive advantages.
The number of self-made multimillionaires is an encouraging sign
It was already common knowledge that having rich parents makes life much easier. The fact that most multimillionaires are either legacy wealth or got a head start isn’t surprising.
But it’s promising news that 25% of the people with at least $3 million are self-made, with no inheritance and a middle-class or poor background. That’s impressive. Saving millions of dollars requires a lot of financial discipline, especially when you’re starting from $0.
It’s also worth acknowledging that a head start doesn’t necessarily mean that becoming a multimillionaire is a breeze. Plenty of people grow up middle class and inherit some money. That helps, but you still need to work hard to make the most of those advantages.
What can you do to build wealth?
The first step toward building wealth is spending less than you earn. The only way to get ahead is by saving and investing money for the future. Ideally, your essential expenses should cost about 50% to 60% of your income. If you can do that, then you’ll have enough to save, invest, and spend on yourself.
Here are a few tips to spend less of what you earn:
- Look for opportunities to increase your income. A raise, a new job, or building a profitable business can all make a huge difference in your finances.
- Be careful about how much you spend. You don’t need to track every dollar, but you should avoid committing to large monthly expenses you can’t afford. If you’re overspending on your home or car, it’s much harder to make progress.
- Avoid unnecessary debt. Two of the most common examples are credit card debt and buy now, pay later (BNPL) services. These hold you back, because your income gets tied up making monthly payments.
When you have money leftover every month, you’ll need to decide what to do with it. One of the most effective ways to build wealth is to invest in stocks. You can do this through a 401(k), individual retirement accounts (IRAs), a traditional brokerage account, or all of the above. It makes sense to start with a 401(k) plan and an IRA if possible, because these help you save money on taxes.
Savings is also important. Everyone needs money in savings for an emergency fund, and it’s a good idea to save for future financial goals. Luckily, you can earn a competitive rate on your savings right now — top high-yield savings accounts are offering rates as high as 5.31%.
To sum it up, building wealth starts with spending less than you earn. Use some of that leftover money to contribute to savings and investments. If you get into the habit of doing this, your account balances will grow more and more. Give it enough time, and you could join the ranks of those multimillionaires.
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