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What do millionaires have in common? This question really is key to understanding wealth building. If we want to become wealthy we should study the habits of those who have achieved financial freedom.
How do we do this?
We turn to the experts who have studied the habits of millionaires and share with us how to build wealth. Which brings me to this book The Millionaire Next Door which is a great read. It is also available as an audiobook.
In The Millionaire Next Door, by Thomas Stanley and William Danko, we read that the authors spent 20 years interviewing millionaires. The authors define millionaires as those who have at least $1 million as their net worth. Throughout the book, there is the theme that anyone can accumulate wealth, if they are determined, disciplined enough, live below their means, and a stroke of good luck.
Here are the 7 characteristics that the authors found millionaires to have in common with each other:
1. They live well below their means.
Millionaires spend less than they make but develop over time an identity that is synonymous with being frugal. They pay for quality, but not for image. Typically, millionaires don’t spend more than $399 to buy a suit. About half of the surveyed millionaires spent $140 or more in buying a pair of shoes.
If you’re not wealthy and want to be wealthy someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income.
2. They allocate their time, energy, and money efficiently in ways that are conducive to building wealth.
Millionaires plan their investments and budget. They keep money on hand for a rainy day (read: an emergency fund). They invest early in life. Millionaires spend more time or about 8.4 hours per week planning and managing their investments than non-millionaires who spend about 4.6 hours per month planning theirs.
3. They believe that financial independence is more important that displaying high social status.
The authors point out on multiple occasions that millionaires don’t have fancy cars. Millionaires drive the same vehicle for years.
“There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one’s financial future.”
- Over 80% of millionaires purchase their vehicle while the rest lease.
- Only 23.5% of millionaires interviewed owned a brand new car.
- A typical millionaire only spends on average $24,800 for his or her most recent car purchase.
- About half of the millionaires surveyed never spent more than $29,00 for a single vehicle.
- Most American millionaires like to buy American-made vehicles such as Ford, Chrysler, Chevrolet, and Cadillac.
4. Their parents didn’t support them financially.
The correlation was: the more dollars an adult child received from their parents, the fewer they accumulate. On the other hand, those who were given fewer dollars accumulated more. Perhaps this has to do with understanding the value of money when one earns a dollar verses when one gets a dollar. Goes back to the whole give a fish or teach a person to fish type thing.
Those who received help from their parents tend to manage their money in a poor manner, invest less, and spend more. Giving a child a cash gift or financial assistance is not always the best solution to helping that child have a better financial life. Sometimes, parents enable the very behavior they are trying to correct by gift-giving to particularly irresponsible kids.
5. Their adult children are economically self-sufficient.
The authors clearly indicated millionaires believed that giving money to adult children damages their ability to succeed. Of interest is that the sons and daughters of millionaires are more likely to become doctors and lawyers in society than those who had non-millionaire parents.
Here are some of the guidelines of those who are wealthy on how they raised their children:
- Never tell your children their parents are wealthy.
- No matter how wealthy you are, teach your children discipline and frugality.
- Assure that your children won’t realize you’re affluent until after they have established a mature, disciplined, and adult lifestyle and profession.
- Minimize discussions of the items that each child and grandchild will inherit or receive as gifts.
- Never give cash or other significant gifts to your adult children as part of a negotiation strategy.
6. They are proficient in targeting market opportunities.
The authors discuss how one of the best ways to make money is to sell products needed or desired by those who already had money. Those who provide accounting, tax, and legal services fall into this category. What kind of services do you provide? Are you targeting successful people that are trying to do better or are you feeding off of people that can’t get a leg up.
7. They chose the right occupation.
There is not magical list of businesses from which those interviewed became wealthy.
Among the list: those who build cabinets, sell shoes, make boxes, become dentists, plastic surgeons, dermatologists, psychologists, chiropractors, etc. The book notes that self-employed individuals are four times more likely to become millionaires than those who are working for others.
“Most of the affluent in America are business owners.”
If you are interested in discussing this book further, we’ll be going through this book chapter by chapter in the Facebook group Book Worms – Book Club.
Are you interested in the habits on millionaires on your journey to financial freedom? Have you read or are you interested in reading the book? Do you agree or disagree with the authors of the book? Leave a comment!