My accountant told me to read The Millionaire Next Door.
He and I chat about once a week to review my investments and shoot the shit. He’s a cool guy. The a typical dry humored CPA who loves talking about money. We get along great because I do too. :)
Anyway, the book came in yesterday. I’m only 50 pages in, but so far, I am encouraged. As I analyze my own behavior against the behavior of millionaires, it’s clear to me that I have been making good decisions and that I have the right mentality for wealth generation.
It’s a book packed with information, and maybe in the future I’ll do a full write up of it, but here are some of the traits I’ve read about that you can adopt in your life right away.
1. Own a Business or at Least a Piece of a Business
Most millionaires are business owners. The millionaires who are still technically employed have stock in the company they work for, or invest their earnings in other market opportunities.
Millionaires own something.
For example, in the 1990’s there was a man named Jim Smith. Jim was a regional sales rep at Walmart. Having insider access to Walmart, Jim realized that allocating a part of his salary into investing in Walmart was a good financial decision. Jim’s ownership in Walmart made him a millionaire, not his salary.
The lesson of equity ownership is critical.
It is very difficult to become a millionaire unless you own a piece of the upside. You need leverage and scalability. If you’re an employee, you should find opportunities to invest in your company or negotiate your way to an equity position. Especially if your employment gives you first hand understanding of the market you’re working in and the opportunities ahead.
2. Be Frugal
The vast majority of millionaires are frugal.
Most millionaires do not buy status symbols, but rather get their security in the social hierarchy from buying appreciating assets.
Frugality gives millionaires the option to have cash reserves that allow them to buy assets in the future. Millionaires don’t buy watches or expensive shoes. They don’t eat caviar, and they rarely spend money on lavish home décor.
The American social structure paints a picture of millionaires as being materialistic. That’s because no one wants to watch a commercial of an average millionaire cutting out coupons and buying chicken salads at the local deli. But the story we tell is not reality.
Millionaires are planners. They are frugal. They know where their money is going.
The frugality allows some millionaires to “pay themselves first.” Which means that when millionaires generate income, they put around 15 - 20% of their income directly into appreciating assets, and then budget the rest for their lifestyle and living expenses.
3. They Have Healthy and Meaningful Relationships
Most millionaires have been married to the same person their entire life. This made me happy. There’s a lot of psychological and pragmatic reasons for this. Ultimately, the key lesson is that relationships mean more then we give them credit for. Here’s why.
Wealth generation is a family affair - It is very common for millionaires to split the tasks and responsibilities of wealth generation. Most commonly, the husband plays offense (gets the money) and the wife plays defense (does the shopping, the planning, and spends frugally). This is an over generalization, but statistically speaking it is the most successful team structure of wealth creation.
Unhealthy relationships are very expensive - Divorce costs a ton of money. Both from a legal standpoint, but also from secondary expenses that are brought on by waste and stress. Divorce aside, bad relationships are also expensive in the extra resources they consume and the opportunity cost associated with them.
Happy families earn more and enjoy life more - Yes, financially stable families are happier than non financially stable families. Millionaire couples that approach wealth generation as a team share better life experiences, enjoy raising children together and get to share in the satisfaction of their life accomplishments.
As is so often the case in life, becoming a millionaire is a biproduct of habits. Healthy people maintain their health by working out, even when they don’t need to. Millionaires earn and maintain their money in the same way.
It’s not as glamorous as it looks on social media.
Statistically speaking, the men and women who flaunt the social status symbols of wealth are usually in a less advantageous financial position because they are spending their money as quickly as they are making it.
How often do you see stories of the high powered attorney going bankrupt because his lifestyle always stayed directly inline with his income?
Almost everyone I know makes enough money to become a millionaire. Most likely, anyone in their 30’s reading this can become a millionaire in their 50’s if they adopt some simple habits and non negotiable principles around money and finances.
I’ve been very fortunate in this regard. When I got sober, I made a very deliberate and conscious decision to become and entrepreneur for the sole purpose of making as much money as I could. My sobriety has been a gift to me in countless ways. Getting sober gave the courage to dismiss my poverty mindset and say to the world that I wanted to be wealthy and not feel guilty about it.
However, I would not be where I am if I didn’t learn the habits and adopt them into my life. My sponsor and my best friend introduced me to some books and taught me ways of thinking that have allowed me to disproportionately grow my money through cash flowing businesses and investments in appreciating assets.
It may not be easy, but it’s simple.
It’s right in front of you, ready for the taking.