The Millionaire Myth

You could say rugged individualism is the American way. It's the story we see all around us. It's the ethic behind Hollywood's power hitters, and it's behind the Horatio Alger mantra that, no matter what, we can all pull ourselves up by our own bootstraps. We're told all we have to do is buckle down and work hard, and eventually we'll succeed.

That's the story we're told -- and it's the story we believe when we read about John D. Rockefeller, Henry Ford, Bill Gates, Warren Buffett and a few women such as Mary Kay, Martha Stewart and Oprah, or any of the millionaires and billionaires whose stories surround us on television and in magazines.

The usual line is that these people struggled against terrific odds, alone against the world. They achieved the American dream and became extremely wealthy because they were extraordinary individuals. To make it in this world, we're told, you've got to make things happen on your own. We've all been taught that the way to make money is through individualism. To get ahead, you have to do it on your own -- it's all up to you.

There's only one problem with this story: It's not true. The financially successful people you see all around you did not get there on their own.

I'm going to tell you in this book exactly how people in the Millionaire Zone got there. And I'll tell you exactly how to make this solution work for you, just like the real-life stories you'll read.

After years of working with, talking to and observing very wealthy individuals, I began to see a common theme. Successful people don't get there alone. That's the revolutionary message behind this book.

There are thousands of theories espousing the next great way to get rich, but you have to execute them on your own. You have to get into real estate on your own, you have to daytrade on your own, you have to do X or Y or Z on your own. It's always all on your shoulders. The experts say, "Here's how, now go out and get 'em!" That's very simplistic and of little real value. You either get it or you don't. Good luck!

The typical working American rarely achieves anything substantial by going it alone. We're too busy with our kids, dragged down by our jobs, fearful of the risk, unsure of what to do, or confused. Sound familiar to you? You're not alone. According to my research, 53% of Americans say they'd like to supplement their income or start their own business but feel anxious about venturing out on their own.

The Rules Have Changed

Even when I attended business school, the fundamental philosophy seemed to be to just go out, find a job and make money. That usually meant to go work for someone else.

But these days, that's dicey advice. Who wants to be at the mercy of a company for the rest of their working lives when jobs are being sent overseas, mergers and buyouts are wreaking havoc with employees' lives, and "right-sizing" (i.e., slashing jobs) is the name of the game?

It's harder than ever to get ahead, now that the loyalty bond between employer and employee that was there during our parents' generation has evaporated -- the victim of a global economy, the technological revolution, disappearance of pensions and corporate America's never-ending search for higher quarterly earnings.

Companies such as United Airlines (UAUA - Cramer's Take - Stockpickr) and Bethlehem Steel, which promised generous pensions and medical benefits in retirement to the workers who were loyal to them for decades, have since reneged on those promises.

These days, even financially healthy companies such as IBM (IBM - Cramer's Take - Stockpickr - Rating) and Verizon (VZ - Cramer's Take - Stockpickr - Rating) are freezing their pensions, meaning that workers will end up with far fewer guaranteed benefits than they were expecting. Meanwhile, half of American workers don't have any kind of pension at all, and most of the rest are relying on a 401(k) plan -- the very epitome of go-it-alone.

With a traditional pension your benefits are guaranteed, but with a 401(k) all the risk is on the individual to save enough (your employer's matching contributions notwithstanding), make the right investment choices and figure out how to make your nest egg last through your retirement.

And trust me, even if you did save through your 401(k) during your career, chances are you wouldn't be close to having what you need for retirement: A 32-year-old who makes $30,000 a year until age 67 would have only $102,750, assuming he or she contributed 3% of salary to a 401(k) and received a company match of 1.5%, according to Vanguard. So much for the golden years.

Here's another sign that it's only getting harder to get to the Millionaire Zone, especially if you're trying to do it on salary alone: The inflation-adjusted income of the median household in 2004 was 3.8% lower than in 1999, according to the Economic Policy Institute's analysis of census data.

The reality of our wages situation, combined with disappearing pensions, higher college costs and rising health-care costs, is hitting our savings rate hard: Personal savings has been running negative for 16 straight months. How do you get a negative savings rate? By borrowing money or selling assets to support your spending habits.

Now take a look at the returns on your own money. How have you done? Have you handled your savings like millions of others, leaving it in a checking or savings account at, maybe, 3%? Are you among those who, even if you've stashed money aside through your 401(k), didn't carefully choose which funds you're invested in? Is what you're stashing in your retirement account going to get you through retirement? Get your kid to college? Enable you to start that nonprofit you always dreamed of?

Obviously it's important to keep some money invested in low-risk, low-return investments. You want a balanced portfolio, and you want to invest according to your risk tolerance. But you also need to consider your future and decide whether moving yourself closer to the Millionaire Zone requires taking some steps toward higher returns.

Yes, these statistics are depressing. But rather than letting these numbers beat you into submission, consider them a wake-up call. The American dream is still very much attainable. The impact of the economic dislocation our society has undergone in the last 20 years just means we need to change the rules of the game, so that the dream remains ours.

What about turning $5,000 into $1 million? Many have done it, and you'll hear some of their stories in this book.

My experience is that average working Americans are severely disadvantaged. Even if they've dedicated 20 or 30 years of their life to one company, it's unlikely they'll ever create a seven-figure fortune. And many of them seem to know it: 50% of employed Americans surveyed for this book said they are "very" or "somewhat" pessimistic that they will make a lot of money in their lifetime. For most of us, to achieve real financial independence, the only way up is out!