Taken from Black Enterprise online.
So You Want to Be a Millionaire?
This deputy district attorney achieved his dream by living a frugal lifestyle and mastering the art of wealth-building
By Lee Anna Jackson
Long before the popular game show Who Wants to Be a Millionaire? asked the rhetorical question, Paul Henderson, once a self-proclaimed “financially restricted” child, set out to become a millionaire. The 36-year-old principal deputy district attorney lives in a house in Oakland surrounded by million-dollar homes and knows what it's like to be wealthy. But it did not happen overnight.
As a twenty-something-year-old Tulane University law student, Henderson was living a hard-knock life, sleeping in cars and hotels for several months until he received financial aid and student loans. His financial aid check was delayed and the scholarship that he received had to be applied to tuition. When he went away to law school, he had no money to survive.
Henderson took a job as an undergraduate doing administrative work for a financial consultant company. While at the company, he acquired a wealth of knowledge that he used to aggregate wealth-building and investing. During the purchases of his first three properties, he took advantage of government-assisted programs for low-to-moderate income individuals such as Resolution Trust Corporation (RTC), Fannie Mae and the low market rate program, and First Time Buyers Program. The first was a foreclosed condo for $11,500, which started him on the road to financial independence.
By the age of 32, Henderson had acquired four properties in New Orleans and San Francisco and stocks, bonds, and artwork that pushed his net worth over the million-dollar mark. Net worth is defined as the difference between total assets and total liabilities.
He proved that it is possible for an ordinary person to become wealthy. Sounds too easy? The truth is, the number of millionaire households in the United States grew to 3.8 million as of the middle of this year, the highest level in 20 years. Nevertheless, this group makes up just 3.4% of the 111 million households in the United States. So how can you, too, become a millionaire?
The first is not to confuse conspicuous consumption with wealth. In fact, according to the authors of The Millionaire Next Door by Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.(Pocket Books, $7.99), a book Henderson highly recommends, the average millionaire is often a first generation, self-made prosperous person who lives next door to someone with a fraction of his wealth. This affluent person could maintain his or her current lifestyle for years and years without earning even one month's pay.
But it is more than likely that they accomplished this feat not through lotto, inheritance, or a game show, but through discipline, hard work, and sacrifice. They have accumulated their wealth slowly, as a compulsive saver and investor.
You won't find the typical millionaire donning Armani, Versace, or driving a Mercedes or Jaguar. “I have a client who left my office this morning who paid millions in personal income taxes in one year. He drives a Toyota,” says John Bernard, senior vice president with Smith Barney.
On the flip side, Bernard witnesses what happens to those who are not as frugal. “There are many African American professionals-in the medical and legal profession-who don't fund pension accounts,” he says. “One client-a prominent doctor -- died [owing money on] three cars and two houses. If he had lived [much longer], he would still be working to pay off these debts.”
Next, he warns not to confuse income with wealth. Bernard admiringly refers to a married couple that he advises. “They married at 18 and 23 years old and worked for a telephone company. Between them, they were only making $49,000. But they bought into their employer's stock purchase plan,” Bernard says. Also, the wife received stocks as a child instead of toys. By adulthood, after reinvesting the dividends, she had 22,000 shares in Detroit Edison worth $400,000 [at that time]. Now, almost 20 years later, they are multimillionaires with three homes. Research conducted by Stanley and Danko found that typical millionaires invest at least 20% of their household realized income each year. Bernard warns the novice investor to be moderate in the beginning, pointing to the 85% tax exemption for dividends from common stocks as incentive.
“I like today's economy in terms of investing. There's always something to invest in. Many companies have thrived in this environment,” adds Bernard. “We've had a down market for three years. We've had these cycles before and they've all reversed themselves. In any case, if the market is not doing well, there's always the bond market or real estate,” he says.
Henderson suggests wealth building is largely about money management. “I was very good with my money. [Initially] I saved. I moved back in with my grandmother after [graduating from law school],” he says. He also saved almost every dime from his starting salary of $48,000 and the rent collected from the condos he owned in New Orleans for six months before buying another piece of property. “Every other person in my graduating class bought a brand new BMW. They all bought new suits and they went to nice restaurants. I was still driving an old Daihatsu,” he adds.
Six months later, he moved out of his grandmother's house and into a third home in San Francisco. Today, Henderson lives in a million-dollar home in Oakland that he got for a steal after the contractor walked off the job. When he first moved in, he was collecting approximately $2,000 in rental income off of the three other properties, which he eventually sold to pay off his $80,000 student loan debt and avoid significant tax consequences.
Things have changed for Henderson. After achieving his goal of becoming a millionaire, he has more than tripled his starting salary, now making $136,000. Now in the market for a Porsche Carrera, he says “I've got to live my life. I didn't want to live as frugally as I was. The bigger picture is you want to enjoy your life as well.”
While he has certainly mastered the art of wealth-building, Henderson is no longer a millionaire. He has a current net worth of under $750,000. “[Today] it's more important to me that my lifestyle reflect that I'm able to do what I [want] to do, [than] having the title of millionaire.” It just goes to show you that just as fast as you can make a million dollars, you can quickly lose it. So before you answer affirmatively to what may seem a silly question “Who wouldn't want to be a millionaire?” Keep in mind being wealthy and staying that way can be a full-time job.