Okay, before you get excited and start spending money like it grows on trees, the idea behind this post is that you should emulate the frugal habits of millionaires because that is what helped them accumulate their wealth.
We often see the glamorous lives of celebrities on TV and forget that many millionaires in our country are actually self-made. They didn’t inherit their wealth or strike it rich with a hot business. In this day and age, it’s still possible to become millionaires even if you’re not born into wealth.
The book The Millionaire Next Door by Thomas Stanley really opened up my eyes to the lives of people who saved and invested their way to millions. The encouraging thing is that they’re just like you and me! We can all learn from how they achieved their wealth and put some of that knowledge into practice. It’s not easy to reach millionaire status but it’s comforting to know that it’s possible.
Drive a Modest Car
You might think that millionaires really live it up and drive around town in fancy sports cars. That image is stuck in our heads because of what we see in movies and on TV. However, many millionaires actual lead fairly ordinary lives and that includes driving modest cars.
Growing up, my dad knew a man who owns a chain of clothing stores. He was very well to do but you wouldn’t know it by looking at him. He had a full beard and long straggly hair that was a mix of gray and white, and he rarely dressed up. Whenever we saw him, he was always in jeans and sneakers.
Most importantly, he drove a beat-up truck. If you didn’t know who he was, you might mistake him for someone who fell on hard times. I think that’s so great. When you’re content with your life, you don’t feel like you have to flaunt your wealth.
Stanley writes in The Millionaire Next Door that most millionaires drive used cars, and they’re rarely foreign or luxury models. The point isn’t that you should shun certain cars but that to build wealth, but that it helps if you aren’t spending most of your money on cars.
Live Below Your Means
Millionaires don’t make their money by living beyond their means and trying to keep up with the Joneses. They accumulate wealth by spending less than they earn. You’d be surprised to learn how many people in high-earning professions such as law and medicine aren’t “wealthy.” Some are lucky just not to be in debt.
It’s important to distinguish income and wealth. Income is what you bring home in the form of your paycheck but wealth is what remains in your bank account after you pay off your expenses every month. You can make $100,000 a month and not be wealthy if you’re spending it all and not saving anything. Your net worth is determined by the money you actually hold on to and not by the number on your paycheck.
That’s why you don’t necessarily have to earn a high salary to build wealth. If you’re able to build up your savings and invest wisely, you can accumulate wealth.
Millionaires don’t tend to spend their time and money chasing after name brand items. Again, this may be very different from the stereotypical perception of what rich people are like. The millionaires next door described in Stanley’s book are normal people just like you and me.
They don’t buy stuff to impress other people. When they do choose to buy name brand goods, they do it because they genuinely want to and because they find value in the items they’re buying. Society tends to expect wealthy people to behave a certain way and to live a certain lifestyle. But, if you can avoid acting how society wants you to and only do what you feel is right, you’re on your way to financial success.
The most important thing is, you should live your life the way you want to and not based on what others expect of you.
No Economic Outpatient Care
I really love this point in the book. Economic Outpatient Care (EOC) is another way of saying that you receive financial assistance from your parents. One would think that millionaires achieve their financial status because they had a head start in life thanks to the bank of mom and dad.
But, at this illustrates, that’s not necessarily the case. This actually further demonstrates that the lack of EOC can help build a strong financial basis because you’re motivated to make your own way because you know you have no one to bail you out.
I’m all for parents helping out their kids but financially bankrolling your children’s lifestyles does them a disservice. They don’t learn the value of a dollar and when it comes time to face down adversity, they won’t know how because they’ve never had to. I encourage you to live life independently and give it everything you’ve got. That’s how we learn and grow.
Choose Financial Independence Over Looking Wealthy
This point really resonates with me. In essence, you can choose to be wealthy or try to appear wealthy. There is so much we don’t know about what goes on behind closed doors. That neighbor who seems to get new cars every year and always has the latest toys? They LOOK wealthy but they could very well be financing their lifestyle out the wazoo.
Block out the noise and distractions and focus on wealth building, not so much on keeping up with the Jones. Millionaires didn’t get to where they are by spending money like crazy. You don’t have to earn a high salary. You need to be willing to save and invest what you do earn rather than spending your money to impress others.
Are you surprised by any of the things you learned about how millionaires live?