How Do Millionaires And Billionaires Make Their Money?

How Do Millionaires And Billionaires Make Their Money?

If You Don’t Win the Birth Lottery, You’ll Have To Earn It Yourself

Every millionaire in America falls into one of two categories: those who are self-made and those who became rich through that oh-so-important original roll of the dice when they were born into money. The latter, of course, is the easier of the two options — but it’s not the most common.

According to the 2021 Wealth-X World Ultra Wealth Report, the vast majority of ultra-high net worth (UHNW) individuals — those worth at least $30 million — are self-made, 72%, to be exact. Granted, that percentage is for the entire world, not just the United States, but America is the land of UHNW individuals.

And of these individuals, 101,240 of them live in the United States. The next closest competitor, China, is home to fewer than 30,000 despite the country’s enormous population advantage. The U.S. hosts three of the world’s top five UHNW cities (New York, Los Angeles and Chicago) and six of the top 10 (add on San Francisco, Washington, D.C. and Dallas).

Be Aware: $1M Is No Longer the Standard Nest Egg – Here’s How Much Most Americans Think You Actually Need To Retire

What other ways can real estate make you a millionaire?

We just discussed how rental properties can make you a millionaire, but there are many other ways to make a lot of money with real estate. I wrote a couple of articles about how to make millions with real estate below.

Besides flipping and being a real estate agent there are more ways to use real estate to make a lot of money.

  • Development: Probably the way to make the most money the fastest in real estate is by developing land into residential or commercial projects. This technique is also extremely risky and takes a lot of money and experience. I know a couple of real estate developers in my area who are worth close to or over 100 million and many of the billionaires who used real estate are developers.
  • Building homes: Building goes hand in hand with developing and is another way to make a lot of money, but can be very risky if the markets turn.
  • Owning raw land: Raw land can be developed, but it also can make you rich without development. Many farmers have become millionaires because they owned large plots of land close to developing areas. The closer the towns get to their land the more it is worth. Mineral rights can also be extremely valuable if oil, natural gas, or other resources are found on your land.


Millionaires Are Made, Not Born

Despite what society might believe, only a small number of wealthy people inherited their money.

The overwhelming majority (79%) of millionaires in the U.S. did not receive any inheritance at all from their parents or other family members. While 1 in 5 millionaires (21%) received some inheritance, only 3% received an inheritance of $1 million or more. In fact, the majority of millionaires didn’t

In fact, the majority of millionaires didn’t even grow up around a lot of money. According to the survey, 8 out of 10 millionaires come from families at or below middle-income level. Only 2% of millionaires surveyed said they came from an upper-income family.

What do millionaires do with their money?

When it comes to investment strategies, self-made millionaires were more likely to add equity investments, while those who were born wealthy typically had more real estate investments, according to the study. Diversifying those investments is key among many millionaires.

Millionaires put their money in a variety of places, including their primary residence, mutual funds, stocks and retirement accounts. Millionaires focus on putting their money where it is going to grow. They are careful not to invest large sums into items that will depreciate. A car for everyday driving, for example, will most likely lose value over time.

The key for most millionaires is to save money before spending it. No matter how much their annual salary may be, most millionaires put their money where it will grow, usually in stocks, bonds, and other types of stable investments. 

Key takeaway: Key takeaway: Millionaires put their money into places where it will grow such as mutual funds, stocks and retirement accounts. 

About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for, a financial publication in the heart of Wall Street’s investment community in New York City.

How Can I Get Rich With No Money?

Unless you come from a very wealthy family, are expecting to win the lottery, or are on the verge of getting a patent on the next great invention, there's very little chance that you can become rich by doing nothing. You'll need discipline, a plan, and, in some cases, good advice from a registered professional who can help push you in the right direction to reaching your goal of becoming a millionaire.

Where The Rich Make Their Money Business

The IRS offers a good look into where people make money but it tells an incomplete picture. We only know about realized gains and with such a large population, there are enough of those realized events to draw a broad conclusion. We also don’t know a lot about the net worth of family.

Fortunately, there is better data from the Federal Reserve’s Survey of Consumer Finances. I love this survey!

From the 2016 survey, here is the breakdown of income based on the percentile of net worth:

Percentile of net worth
Wages 76.479.470.264.947.1
Business, farm,self-employment
Capital gains*.2.31.911.5
Social security/retirement11.712.71921.78.6
Transfers or other9.

† means less than 0.05%* Ten or fewer observations in any of the types of income.

As you can see, the highest 10% of Americans by net worth have a sizable percentage of their income come from a business, farm, or through self-employment (which is again a business).

Additionally, we see a high percentage of income from interest/dividends and capital gains. Only 47.1% of their income comes from wages, which is also probably from their business too but just structured as wages.

Want to see something really fascinating? This isn’t that much different than the numbers from 1989:

Source of incomePercentile of net worth
Wages 78.682.076.372.344.2
Business, farm,self-employment
Capital gains*.41.92.612.3
Social security/retirement7.
Transfers or other11.

The biggest difference is interest/dividends and Social Security/retirement were much a higher percentage of everyone’s income in 1989.

We get at this most directly when we look at the percentage of households with business equity:

  • 0-25 (percentile of net worth): 2.4% hold business equity
  • 25–49.9: 6.2%
  • 50–74.9: 13.6%
  • 75–89.9: 20.3%
  • 90–100: 43.9%

The median value of the asset (for those families that hold the asset) is also enlightening:

  • 0-25 (percentile of net worth): $2,000 of business equity
  • 25–49.9: $10,000
  • 50–74.9: $30,500
  • 75–89.9: $100,000
  • 90–100: $700,000

Millionaires Go to College, but Not to Elite Schools

The National Study of Millionaires showed that it’s the degree itself that matters, not where the degree comes from. Almost two-thirds of millionaires (62%) graduated from public state schools, while only 8% went to a prestigious private school. But the bulk of millionaires did get that piece of paper. Eighty-eight percent of millionaires graduated fro

Eighty-eight percent of millionaires graduated from college, compared to 38% of the general population.2 And over half (52%) of the millionaires in the study earned a master’s or doctoral degree, compared to 13% of the general population.3

How much time self-made millionaires devote to new income streams

If you have a consuming 9-to-5 job and/or other sorts of commitments at home and at work, carving out the time to devote to starting another income stream might seem daunting. Based on what I've learned from my research, you can start small:Set aside no more than five hours each week and begin slowly building something new. 

If you're not sure where to start, think about the subjects, skills, and activities you are most passionate about, and explore the ways that you could monetize one of those

In my research, other than consistent saving and investing, passion was by far one of the most important shared attributes of the self-made millionaires in my study. 

VIDEO 2:45 02:45 Barbara Corcoran: How your hobby can become a side hustleEarning

Video by Stephen Parkhurst

The Four Paths to Seven Figures

In writing for CNBC, financial expert and author Tim Corley outlined the results of research he conducted for one of his books. The results revealed that people tend to follow one of four paths to becoming millionaires.

Make Your Money Work Better for You

The easiest way, and the only way that comes with something like a guarantee, is what Corley calls the saver-investor path. Around 1 in 5 millionaires in his study banked their first million in their mid-to-late 30s despite their middle-class incomes. They did so by living frugally and by saving and investing at least 20% of their income consistently from early on in their working lives.

The hardest path — followed by about 28% of millionaires — is the so-called dreamers path. These millionaires strike it rich by beating the odds at a high-reward, low-probability endeavor like becoming a successful actor, athlete, musician or millionaire business owner. The lifestyle is defined by long hours, lots of stress and years of toiling without a steady paycheck. When they hit, however, they hit big — their average net worth is $7.4 million, the highest in the study by far.

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About 1 in 3 millionaires made their money through what Corley calls the company climbers path. Ascending the corporate ladder into executive territory lands the average climber $3.4 million after 22 years.

Finally, there’s the virtuosos path, which is Corley’s name for the tradeoff of money for knowledge and expertise. About 1 in 5 millionaires takes this route and earns $4 million after 20 years of doing so. Many of those years are spent learning and becoming one of the best in a highly competitive and complicated field like law or medicine, where they’re paid a handsome sum for their standout skills and knowledge.

Make Your Money Work Better for You

Learn More: How Long $1 Million in Savings Will Last in Every State

Types of millionaires 

In his study, Corley identified three major types of self-made millionaires:

The virtuoso

These millionaires make money by first accumulating a wealth of knowledge and skills to become experts in their field. 

The big company climber

This type of millionaire accumulates their wealth by spending several decades working their way up the ranks of a publicly held company. 

The dreamer-entrepreneur

To succeed as entrepreneurs, these millionaires work tirelessly to overcome obstacles and failures before finally making it big.

2. The Dreamers path

This is perhaps the hardest path to building wealth because it requires the pursuit of a dream, such as starting a business, becoming a successful actor, musician or author.

Approximately 28% of the folks in my study were Dreamers, and they accumulated an average net worth of $7.4 million — far more than any of the other groups — over a period of about 12 years.

All of them told me that pursuing their dreams was one of the most rewarding things they had done in their lives. They loved what they did for a living, and their passion showed up in their bank accounts.

Those who want to take this path, however, must be willing to work long hours and able to handle financial stress. The Dreamers in my study worked more than 61 hours per week before finally achieving their dreams. Weekends and vacations were almost non-existent.

Trying to make ends meet was not easy. At first, getting a steady paycheck was "nearly impossible," one Dreamer said. It was even harder for those who had families to support. To finance their dreams, some decided to put off buying a home, while others dipped into their retirement savings.

If you're risk-averse, this path may not be for you.

Most common millionaire myths

With all the speculation about how rich people make their money, some myths are bound to arise.

Here are some of the most common mistakes people make about millionaires:

They inherited their money

This may have been the case a few generations ago, but in recent years, self-made millionaires have been the majority. Only 12% of today’s millionaires inherited 10% or more of their wealth.

They’re lucky

Although business success certainly involves some degree of being at the right place at the right time, most millionaires didn’t just fall into their wealth or get a lucky break on a long-shot gamble. Instead, they carefully analyzed risk versus reward and worked hard to capitalize on rare opportunities.

They live in luxury

Despite the popular image of millionaires living in opulence, the truth is most wealthy people save money by living in homes they can afford and driving modest cars.

They’re all men

In fact, men and women make up almost equal proportions of millionaires. 

They’re all in tech

While there are plenty of famous tech millionaires (and billionaires), other industries produce as many, if not more, wealthy individuals. Health care, finance, law, accounting, engineering, and applied science are just a few of the sectors in which millionaires make their money. 

The Pros and Cons of a Live-and-Rent Approach

This approach does require moving about every year, however.

But if you’re a 22-year-old just graduating from college, that means you will own 10 pieces of property by your early 30s. If a 15-year mortgage is obtained and paid off early, several could be owned free and clear. That would provide for a significant stream of income for the investor. From that flow of funds, more properties can be purchased, too, continuing into the future if you wanted to.

Related: Buy A House vs. Rent An Apartment – The Math

What The Wealthy Own

We can also approach this problem from a different direction and a different dataset.

And since 1989, the Federal Reserve produces a Distributional Financial Accounts report every quarter that measures the distribution of household wealth. It’s a marriage of the Financial Accounts of the United States and the Survey of Consumer Finances (SCF).

From 1989 to 2018, the top 1% of wealth in the United States saw their net worth increase by 650%.

The bottom 50% saw an increase of “only” 170%.

This is what each group owned in 1989:

And this is what each group owned in 2018:

Both charts are in trillions of dollars, though the Y-axis labels are different.

The total amounts give you an idea of how the total wealth has shifted around. It’s indisputable that the bottom 50% have been left behind. (one big reason is stock ownership)

But the fascinating chart is this one, which shows the percentage of wealth components (your stuff) for each category, here in 1989:

And then in 2018:

One thing we know from studying the data from the U.S. Census on net worth is that a lot of American’s net worth is tied up in their home equity. We see this in the data from this report too because in 1989 the bottom 50% had 45.9% of their wealth in real estate (their home). In 2018, that number increased to 52.9%.

As for the top 1%, the percentage is 11.7% in 1989 and 11.5% in 2018. That said, I’d imagine that some of that in investment property because one can only own so many homes they live in.

Assets are truly what separates the wealthy from the rich.

That’s some fun data to chew on when you have the time!

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