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Jewish World Review /Dec. 21, 1998 /2 Teves, 5759
Walter Williams
How to become rich
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
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