Occasionally I am asked “What does it take to be a millionaire?” or “How did they get to be a millionaire?”
Authors Thomas J. Stanley and William D. Danko surveyed more than 700 American millionaires over 20 years. Their findings might surprise you.
They found that 80% were self‐made, accruing all the wealth in one generation and they were doing a number of things you and I probably are not.
First, research showed that most millionaires are self‐employed. They want the profits going into their bank account, not into their employer’s. Starting their own business is risky, but they have the confidence to take the chance and believe they will succeed. Most millionaires choose their careers strategically. They start this career because they think they are going to make money. They seek areas of big demand and small supply. In the book The Millionaire Next Door, the authors report that many of the types of businesses these millionaires are in could be classified as dull‐normal, such as welding contractors, auctioneers, rice farmers, owners of mobile‐home parks, pest controllers, coin and stamp dealers, and paving contractors.
We often assume millionaires must be geniuses. How else could they be smart enough to make all that money? Well, they work hard. Many of them were told they didn’t have what it takes for medical school, law school or an MBA program. The research, however, shows no statistical correlation between net worth and SAT’s, class rank in college or degrees earned. T. Harv Eker’s study in 2005 found that social skills were more important than IQ. In fact, 94% of millionaires said “getting along with people” was key.
Additionally, most millionaires live below their means. Their survey responses indicated that they are thrifty, not very materialistic and they think a great deal about how much they spend. 50% stated they would not pay more than $399 for a suit and over half have never paid more than $30,000 for a car. While those numbers may be a bit lower than today’s, the concept is the same. Stanley and Danko suggest the following:
“The moment you earn more than you need to live, save as much as you responsibly can and avoid spending cash on things you don’t need.”
Approximately 55% of all millionaires attest their wealth simply to being deliberate about their finances and disciplined saving.
It turns out, becoming a millionaire is not rocket science. It is a matter of planning well, working hard and most importantly living below your means.
From the desk of Bill Trahan, CFP®, CRC®, RFC®Investing & Saving