7 Ways Millionaires Turn Income Into Assets, Explained

Intro

Seven ways millionaires turn income into assets, explained: what each is, how it works, its first step, what it takes, and its limits. These millionaires are families in the top 10% by net worth, each worth at least two and a half million dollars. Every number comes from a central bank's newest family survey in one country. Henry only points at what it shows.

Number seven is the quiet one, the asset an official investor page lists before any investing. Number one: they own the home they live in.

1. A home of their own

A home of their own is the house or apartment a family lives in, owned outright or with a loan. In the survey, about 96% of families in the top 10% by net worth own their home. How it works: you pay part of the price yourself, the down payment, and borrow the rest. Each monthly payment then splits in two: interest, the cost of borrowing, and principal, which reduces the loan balance.

The central bank counts the home's value minus the debts it secures as net housing value. So each principal payment turns part of a paycheck into a bigger share of the home, if its value holds. The first step, from a consumer protection agency's home loan guide: define what affordable means to you. The guide says only you can decide how much you are comfortable paying for housing each month.

Later, it says to shop with several lenders and compare their offers in writing. What it takes: a down payment, a monthly payment you are comfortable with, and room for other costs. The guide names appliances, repairs, and maintenance, and says to budget and save for them too. The central bank adds insurance and association fees to the possible costs of owning a home.

Its limit: the survey shows what these families own, not how each one got there. Loan, tax, and property rules also differ from place to place, so check the rules where you live. Subscribe, because next we break down retirement accounts: who pays into them, and how they grow. Number two turns part of each paycheck into savings for later, sometimes with help from an employer.

2. Retirement accounts

Number two: they hold retirement accounts, money set aside now for life after work. In the report, these include individual retirement accounts and certain accounts offered through an employer. About 89% of families in the top 10% by net worth hold one. That is far more often than families overall, the same survey shows.

How it works: the report says these accounts grow through your contributions, your employer's, and rising values. Inside the account, the report notes, the money can usually be invested in stocks, bonds, funds, and more. The first step, from a markets regulator's investor page: consider a workplace retirement plan first, if your job offers one. It notes that an employer may match your contributions up to a certain amount.

A second building block, it says, is a retirement account you can set up yourself. The page suggests automating contributions, so you keep building each time you get paid. An example: a fixed share of each paycheck moves to the account on payday, before everyday spending. That is how a slice of income becomes an asset, payday after payday, without a new decision each time.

It also suggests raising contributions when your income grows or your expenses fall. What it takes: time and regular contributions. The page talks about investing over your entire career. The page also says investing may carry more risk than money kept in the bank.

Its limit: account types, tax breaks, and withdrawal rules differ from place to place, so check locally. Quick check for number two: a workplace plan where one exists, automatic contributions, and rising contributions with income. Number three is owning pieces of companies, directly or through funds.

3. Stocks and funds

Number three: many of them own stocks and funds, pieces of companies held directly or through a pool. The investor page says a stock gives its holder a share of ownership in a company. In the survey, 53% of families in the top 10% by net worth hold stocks directly. Many also hold pooled investment funds, which the survey counts apart from directly held stocks.

How it works: a stock can gain when its price rises, or pay dividends from the company's earnings. Companies issue stock to raise money, for example to launch new products or expand. A fund pools money from many investors and invests it in stocks, bonds, or other assets. Each fund share is part ownership of everything the fund holds, with its gains and losses.

The page says spreading money across many companies helps lower the risk if one company fails. The first step, from the regulator's investor page: look up any broker or adviser before you invest. Make sure they are licensed and registered, it says, and review their work history. Before buying a fund, the page says to read its prospectus and its most recent shareholder report.

What it takes: money you can leave invested over time, and a clear look at fees. Fees vary from fund to fund, the page notes, and small differences can mean large differences over time. Its limit: prices move down as well as up, and the page says you can lose money. The investor page says funds are not insured like a bank deposit.

Licensing, registration, and tax rules differ from place to place. The page also says to check any offer that promises high returns with little or no risk. Number four moves from public shares to owning all or part of a private business.

4. A business of their own

Number four: many of them own a business, all of it or a part of one. In the survey, that covers businesses wholly or partly owned that are not traded on a stock market. About 44% of families in the top 10% by net worth own one. That is far more often than families overall, the same tables show.

How it works: the owner puts in money and work, and customers pay for what the business sells. An example: a small bakery, a repair workshop, or part of a design studio. In the survey, what the business is worth after its debts counts as the owner's business equity. The report notes a private business is harder to sell quickly, but gives its owner more control.

The first step, from a small business agency's guide: market research, starting with whether there is demand. It also asks what potential customers already pay for the alternatives. Next comes a business plan, which the guide calls the foundation of your business. A lean plan, it says, sums up only the most important points of each key element.

Then it says to calculate startup costs, so you can request funding and estimate when you turn a profit. It also says to open a business bank account as soon as money starts moving through the business. What it takes: time and startup money. The guide notes some companies may take years to turn a profit.

Its limit: compared with other assets, the report calls private business equity high-risk. Licenses, permits, and fees vary with the activity and the location, the guide adds. Quick check for number four: demand first, a lean plan, startup costs, and a separate account. Number five is property again: a second home, or a place rented out to tenants.

5. Other real estate

Number five: many of them own other real estate, beyond the home they live in. In the report, that means second homes, time shares, small rental properties, and similar homes. About 46% of families in the top 10% by net worth own some. That is far more often than families overall.

Some also own commercial property or land. How it works: tenants pay rent to the owner, who pays the property's costs and any loan on it. One tax authority's page defines rental income as any payment received for the use or occupation of property. It lists expenses that may be deducted, such as mortgage interest, property tax, operating costs, and repairs.

The central bank notes that large commercial-property loans often appear to be paid from the property's own revenue. A second route is a fund that owns property, called a real estate investment trust. The investor page says these trusts let individuals invest in large-scale, income-producing real estate. In the survey, those trusts count as funds, not as property.

The first step, from the tax authority's page: keep good records of every rent payment and every expense. Good records, it says, help you monitor the progress of the property and prepare your tax returns. For a trust, the investor page says to verify its registration and check the broker who recommends it. What it takes: money to buy, plus repairs and maintenance that keep the property in good condition.

Its limit: some trusts are not traded on an exchange, and the page says those generally cannot be sold readily. Landlord duties, permits, and tax rules differ from place to place, so check the local rules. Number six flips the roles: instead of owning something, you lend money in return for promised interest.

6. Bonds

Number six: bonds, loans that investors make to governments and companies. The investor page calls a bond a debt security, like an IOU. Borrowers issue bonds to raise money from investors willing to lend it for a certain time. In the survey, bonds held directly are the least common of these seven, even at the top.

Bonds can also sit inside funds and retirement accounts, which the survey counts separately. How it works: the issuer promises a set interest rate and repayment of principal when the bond matures. The page says bonds typically pay interest on a regular schedule until they mature. Held to maturity, bondholders get back the entire principal, unless the issuer fails to pay.

The page adds that bonds can help offset the swings of stock holdings. The first step, from one regulator's investor page: check that a publicly offered bond is registered, which can be verified. It also says to check anyone who offers bonds that are not registered. What it takes: money you can lend until the bond matures, and a look at its credit rating.

The page explains that a higher credit rating implies less credit risk. Its limit: sold before maturity, the page says, a bond may be worth more or less than face value. Rising rates can mean selling an older bond at a discount. Inflation also reduces what fixed interest buys.

Registration rules and the tax treatment of bond interest differ from place to place. Quick check for number six: registration verified, a credit rating you understand, and money that can wait until maturity. Number seven is the quiet one we promised: the asset the investor page lists before investing.

7. Cash reserves

Number seven: cash reserves, money kept in checking accounts, savings accounts, and similar accounts. In the survey, these transaction accounts are the most commonly held financial asset of all. Some families at the top also hold certificates of deposit, which keep savings in place for a set time. How it works: the investor page says savings go into safe places you can reach at any time.

A certificate of deposit holds a fixed amount for a fixed period, and in exchange the bank pays interest. When you cash it in, you receive the money you put in plus any interest. The first step, from the investor page: start an emergency fund in a savings account at your bank. Then automatically deposit a set amount into that account each pay period.

That money, the page says, can help when an unexpected expense arrives. On that page, the emergency fund comes before investing regularly, just as promised at the start. For a certificate of deposit, the page says to check the disclosure for the rate and the maturity date. It also points to any penalties for taking the money out early.

What it takes: a set amount each pay period, kept somewhere you can reach at any time. Its limit: the page says savings earn a low interest rate, a trade-off for security and availability. And if interest does not keep up with inflation, the same money can buy less over the years. The page adds that many people keep some money in savings and look to investing over longer periods.

Deposit insurance and its limits differ from place to place, so check what covers your account. Here are all seven together, each with its first step.

Recap

Number one, a home: start by defining what affordable means to you. Number two, retirement accounts: a workplace plan and automatic contributions. Number three, stocks and funds: check that sellers are licensed and registered. Number four, a business: market research first, then a lean plan.

Number five, other real estate: records of every rent and every expense. Number six, bonds: verify the registration and read the credit rating. Number seven, cash reserves: an emergency fund with automatic deposits. Which one is already working for you?

Tell us in the comments. Results vary, rules differ where you live, and this is information only, not financial advice. Next on Wealth Filings, watch five habits millionaires share, linked on screen. Subscribe so you see the next list first.