7 Surprising Secrets to Become a Millionaire
The Surprising Secrets of America’s Wealthy from “The Millionaire Next Door” by Thomas Stanley
This is a summary of my notes from the book “The Millionaire Next Door” by Thomas Stanley.
Follow these secrets and you’ll increase your chances of becoming wealthy.
1. Live well below your means
Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.
Believe that financial independence is more important than displaying high social status.
Millionaires can maintain their current lifestyle for years and years without earning even one month’s pay.
On average, a millionaire’s total annual realized income is less than 7 percent of their wealth. In other words, they live on less than 7 percent of their wealth.
They wear inexpensive suits and drive American-made cars. Only a minority of them drive the current-model-year automobile. Only a minority ever lease their motor vehicles.
It is easier to purchase products that denote superiority than to be actually superior in economic achievement.
Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement.
It’s easier to accumulate wealth if you don’t live in a high-status neighborhood.
The popular media enjoy touting abnormalities in buying behavior. As a consequence, our youth are told that buying expensive items is normal behavior for affluent people. They are led to believe that the wealthy have a high-consumption lifestyle. They learn that hyper spending is the main reward for becoming affluent in America.
2. Save and invest your money
They have a “go-to-hell fund.” In other words, they have accumulated enough wealth to live without working for ten or more years. Thus, those with a net worth of $1.6 million could live comfortably for more than twelve years. Actually, they could live longer than that, since they save at least 15 percent of their earned income.
Small expenses become big expenses over time. Small amounts invested periodically also become large investments over time.
Begin earning and investing early in your adult life.
Most experts on wealth agree that the earlier one starts investing one’s income, the greater the opportunity to accumulate wealth.
They are fastidious investors. On average, they invest nearly 20 percent of their household realized income each year. Most of them invest at least 15 percent. Seventy-nine percent have at least one account with a brokerage company. But they make their own investment decisions.
Nearly all (95 percent) of the millionaires they surveyed own stocks; most have 20 percent or more of their wealth in publicly traded stocks. Yet you would be wrong to assume that these millionaires actively trade their stocks. Most don’t follow the ups and downs of the market day by day.
One in five (20 percent) hold, on average, for a year or two; one in four (25 percent) hold for between two and four years. About 13 percent are in the four-to-six-year category. More than three in ten (32 percent) hold their investments for more than six years. In fact, 42 percent of the millionaires we interviewed for our latest survey had made no trades whatsoever in their stock portfolios in the year prior to the interview.
These people invest a minimum of 15 percent of their annual realized income before they pay the sellers of their food, clothes, homes, credit, and the like.
Do not define wealthy, affluent, or rich in terms of material possessions. Many people who display a high-consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights, or timber land. Conversely, those people who are wealthy get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.
Living in less costly areas can enable you to spend less and to invest more of your income. You will pay less for your home and correspondingly less for your property taxes. Your neighbors will be less likely to drive expensive motor vehicles. You will find it easier to keep up, even ahead, of the Joneses and still accumulate wealth.
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
3. Marry someone frugal
Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth if one of its members is a hyperconsumer. This is especially true when one or both are trying to build a successful business. Few people can sustain profligate spending habits and simultaneously build wealth.
Being frugal is the cornerstone of wealth-building.
The opposite of frugal is wasteful. We define wasteful as a lifestyle marked by lavish spending and hyperconsumption.
Under accumulators of wealth allow “significant others” to determine their financial lifestyle. Interestingly, these “significant others,” or reference groups, turn out to be more imagined than real. Are you motivated by “significant others”? Perhaps you should consider a different approach to life. Perhaps you should reorient yourself.
Your spouse’s orientation toward thrift, consumption, and investing is a significant factor in understanding your household’s position on the wealth scale.
A household divided in its financial orientation is unlikely to accumulate significant wealth.
Behind their frugal behavior is a strong set of beliefs. First, they believe in the benefits of being financially independent. Second, they believe that being frugal is the key to achieving independence. They inoculate themselves from heavy spending by constantly reminding themselves that many people who have high-status artifacts, such as expensive clothing, jewelry, cars, and pools, have little wealth. They often tell the same thing to their children.
Teaching your children to be frugal is critical.
No matter how wealthy you are, teach your children discipline and frugality.
Most of our wives are planners and meticulous budgeters. In fact, only 18 percent of us disagreed with the statement “Charity begins at home.” Most of us will tell you that our wives are a lot more conservative with money than we are.
4. Make a budget and set goals
They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.
Millionaires play both quality offense and quality defense. And quite often their great defense helps them outscore/outaccumulate those who outearn/have superior offenses. The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.
Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.
Financially independent people seem to be better able to visualize the future benefits of defining their goals.
Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?
Be goal-oriented. Have a clearly defined set of daily goals, weekly goals, monthly goals, annual goals, and lifetime goals.
If your goal is to become financially secure, you’ll likely attain it. … But if your motive is to make money to spend money on the good life, … you’re never gonna make it.
5. Develop self-discipline
It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes. Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.
Building wealth takes discipline, sacrifice, and hard work. Do you really want to become financially independent? Are you and your family willing to reorient your lifestyle to achieve this goal? Many will likely conclude they are not. If you are willing to make the necessary trade-offs of your time, energy, and consumption habits, however, you can begin building wealth and achieving financial independence.
Have you ever noticed those people whom you see jogging day after day? They are the ones who seem not to need to jog. But that’s why they are fit. Those who are wealthy work at staying financially fit. But those who are not financially fit do little to change their status.
Being a well-educated, high-income earner does not automatically translate into financial independence. It takes planning and sacrifice.
What if your goal is to become financially independent? Your plan should be to sacrifice high consumption today for financial independence tomorrow.
Appearances are much less important than the courage, discipline, and resolve of people who are economically productive.
Kids are looking for discipline and rules. Kids must be trained to take responsibility for their actions. Actions speak louder than rules that are just words, not actions.
Most people want to be physically fit. And the majority know what is required to achieve this. But despite that knowledge, most people never become well-conditioned physically. Why not? Because they don’t have the discipline to just do it. They don’t budget their time to just do it. It is like becoming wealthy in America. Oh, you want to all right, but you play lousy financial defense. You don’t have the discipline to control your spending. You don’t take the time to budget or plan.
6. Work hard
About two-thirds of millionaires work between forty-five and fifty-five hours per week.
Most successful people who are self-employed work ten to fourteen hours per day. In fact, this is why many employees shy away from even considering “going out on their own.” They want something less demanding.
In most of the cases we have examined, Prodigious accumulators of wealth (PAWs) love working, while a large proportion of under-accumulators of wealth (UAWs) work because they need to support their conspicuous consumption habit.
It’s amazing what you can do when you set your mind to it. You’ll be surprised how many sales calls you can make when you have no alternative except to succeed.
The most successful business owners we have interviewed have one characteristic in common: They all enjoy what they do. They all take pride in “going it alone.”
There are more people [employees] today working at jobs that they don’t like. I’ll tell you honestly that the successful man is a guy who works at a job, who likes his work, who can’t wait to get up in the morning to get down to the office, and that’s my criteria. And I’ve always been that way. I can’t wait to get up and get down to the office and get my job under way.
Always strive to be the best in your field. … Don’t chase money. If you are the best in your field, money will find you.
Most people who make it big in business set their own very high standards.
7. Do not accept economic outpatient care from your parents
The more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.
Adults who sit around waiting for the next dose of economic outpatient care typically are not very productive. Cash gifts are too often earmarked for consumption and the support of an unrealistically high lifestyle.
Often those who are not trained to be frugal as children become adult hyperspenders, needing cash subsidies during their young and middle adult years.
People often attempt to shelter their children from the economic realities of life. But such shelters often produce adults who are in constant fear of tomorrow.
Rather than giving cash gifts, invest in their education.
Paying for an education is the equivalent to teaching your children how to fish.
As a group, they believe that education is extremely important for themselves, their children, and their grandchildren. They spend heavily on the education of their offspring.
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