Several years ago Thomas Stanley wrote the book the Millionaire Next Door. Stanley had done an extensive study of millionaires. He documented what he found in the book. The surprising thing that he found was that most millionaires do not fit the stereotypical profiles of what we see glamorized on TV. Most are first generation millionaires, which means they started with nothing and built their fortune from scratch. They also tend to lead a much more modest life than you might think. In fact the premise of the title of the book, is your next door neighbor could be a millionaire and you’d never even know it.
In the beginning of the book, Stanley identified 7 factors that he found were common amongst a majority of these millionaires.
1. They live well below their means.
One of the most basic requirements of financial success is you have to learn to spend less than you earn. While obviously it is easier to build wealth with a larger income than a smaller one, a larger income doesn’t necessarily guarantee financial success. Sometimes those with high incomes are also very good at spending the money as fast as it comes in. At the same time, those who must make do with less sometimes are more frugal and also are better savers. The high income earner assumes they can out earn any bumps that come their way, whereas the one with the more modest income knows how important it is to have savings to cover the times when life sends some lemons our way. The result is that surprisingly the level of income doesn’t necessarily equate to how much wealth a person has. Many times a person with a more modest income may have saved much more than the one with a greater income.
The millionaires Stanley studied understood this point well. Regardless of their income they consistently lived well below their means and were able to consistently save.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
The average millionaire that Stanley studied probably couldn’t tell you who got voted off the island, or recite the list of the winners of American Idol. But they could probably tell you fairly accurately the current state of their retirement accounts. They probably don’t know who was on the cover of the most recent issue of People or Rolling Stone but they consistently read books that help them grow as a person and learn new skills.
The point is not that entertainment is bad. I’m sure most of those millionaires probably have a favorite TV show. The point is they pay attention to where their money is going. They work hard to build their skills. They do the things that will leave them in a better place 5 years from now than where they are today.
3. They believe that financial independence is more important than displaying high social status.
Keeping up with the Jones’s just doesn’t really enter into their thinking. They don’t really care if you are impressed with their home or their car. Their sense of self-worth does not come from their stuff.
4. Their parents did not provide economic outpatient care.
One of the stereotypes of the typical millionaire is that the wealth has been inherited from previous generations. As I mentioned previously the truth is most millionaires did not inherit wealth from their parents. In addition to that most millionaires did not receive much assistance from their parents. They were forced from a very young age to be responsible and stand on their own two feet. As a result they built the character and the skills to be successful.
While certainly as a parent I want to help my child to be successful. Occasionally circumstances occur where they may need a little help. That’s ok in moderation. But continually bailing your children out does not help them, for they never learn how to be responsible adults.
5. Their adult children are economically self-sufficient.
The flip side of factor 4 is these millionaires understand the gift that was given to them by their parents of forcing them to learn to be responsible for their own actions. They have passed these characteristics on to their own children so that their children have learned how to be economically self-sufficient.
6. They are proficient in targeting market opportunities.
These folks are very good at seeing opportunities and taking advantage of them. I think there are a couple of reasons for this. First, we already talked about how they allocate their time and energy into things that help them build wealth. That means they are paying attention. They see opportunities around them that many may just pass by. Second because they are savers and because they live below their means, when they see those opportunities they have enough in reserve that they can take advantage of them.
7. They chose the right occupation.
It is very hard to succeed in a job that you hate. You will find yourself feeling like you are swimming up-stream your entire life. And right occupation doesn’t mean that these millionaires all chose to be doctors or lawyers or other occupations that are typically seen as high income. Many millionaires are small business owners. A key trait though is most are doing something they really enjoy doing.
Do what millionaires do
If you want a good marriage, find someone who has been married 50 years and do what they did. If you want a successful career, find someone who has been successful in your profession and learn from them. In the same way, if you want to be more successful financially, study what those who have done well, and do similar things.