The word millionaire conjures up different images to different people. Some assume millionaires are all born with a silver spoon in their mouth and carelessly spend money on lavish material goods like diamonds, sports cars, and mansions.
It’s this line of thinking that could lead you to believe millionaire status is completely out of reach. But this definition represents the iconic millionaires you see in the news and featured in People magazine. The fact is, most millionaires don’t fit this definition at all.
Dr. Thomas J. Stanley (The Millionaire Next Door) was known for his research on how the typical millionaire actually lives. What he found is that many millionaires practice stealth wealth, making it hard to differentiate them from your next door neighbor (maybe your neighbor is a millionaire!). Most millionaires don’t inherit their wealth, but tend to live thrifty, nondescript lives, spending intentionally and investing strategically.
You can learn from the success of these millionaires no matter what stage of life you are in, financially and otherwise. I say, fake it ‘til you make it – imitate their behaviors to get ahead in life. Act like a millionaire.
How to act like a millionaire
Focus on the long term
Begin with the end in mind (this is one of Steven Covey’s The 7 Habits of Highly Effective People.) Millionaires typically know exactly where they want to be 5 years, 10 years, and 20 years down the road. Most importantly, they evaluate what actions they need to take each and every day to get there. What do you need to do today (and tomorrow, and the next day) that will get you one step closer to your long term goals?
Be deliberate. Instead of being reactive, take the time to respond in ways that will get you to your long term goals. This often takes the form of delayed gratification. For example, if you are driving an older model car, take the time to save money each month to pay cash for a new(er) car a couple of years from now, rather than just going out and borrowing for a new car today.
Make saving and investing a habit
Make it automatic. Saving and investing should be a requirement, not an option. Have automatic deductions taken directly from your paycheck and invested in your 401k, or set up an automatic transfer to your investment and savings accounts on payday. Treat this just like you would any other bill and pay it each and every month. (Take it a step further – when you get a raise, increase your automatic savings at the same time.)
Most millionaires habitually save and invest their money. For them, there is no alternative – they save and invest first, and only spend what’s left.
You don’t stop learning when you get out of school. At least you shouldn’t. Learning is part of what gives you purpose in life. And if you don’t understand something, or need to find a solution to a problem, seek out the answers.
Read books and articles (or listen to podcasts and audio books) to find answers to your questions. Take a class. Learn from the expertise, experience and mistakes of others.
Get help when you need it. Don’t hesitate to enlist the help of people with specialized knowledge and understanding.
Most millionaires are lifelong learners. And they wouldn’t hesitate to ask for the help and opinions of others when faced with a tough problem or decision.
Only spend on what you understand
Research indicates those with high wealth potential track their own spending and do most of their own investing (rather than hiring someone to do it for them). They have taken the time to understand their own financial situation and gained enough knowledge to be confident in their investing decisions.* (This relates back to the previous point about learning.)
There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is when you are a ‘know nothing’ investor but you think you know something.” – Warren Buffett
*Investing isn’t difficult. If you don’t think you have enough knowledge, research index funds. It’s the simplest, most effective way to invest (that anyone can learn and do).
Be Thrifty and Spend Intentionally
Differentiate between wants and needs. If you constantly keep the end in mind, this is easier to do. Do you really need that brand new car? Will that $25,000 loan and $450 monthly payment help you reach your 10 year goals?
Related, don’t judge the cost of something by it’s monthly payments. Always, and I mean always, look at the total cost. Maybe $100/month for new furniture fits nicely into your monthly budget…but do you know exactly how much you will be paying for it in the end ($1000?, $2000?, more?)? And is it worth it to make payments on furniture that won’t seem quite so new and amazing 6 months from now?
Eat home cooked food and drink domestic beer (or brew your own – see this tutorial from Mr. Crazy Kicks). Contrary to what some may think, most millionaires aren’t going out to fancy restaurants and drinking $500 bottles of wine. When you do go out, save for it and plan ahead.
Wear classic non-trendy clothing. Quality is nice, but that doesn’t mean it has to be a designer label in the latest trend. Focus on quality, timeless pieces that will last for a decade or more.
Keep up on the maintenance of your car and home to extend longevity. Take care of what you already have to make it last longer (this will save you big time!).
Learn to DIY. Related to maintaining your possessions, learn the skills necessary to do maintenance and home improvements yourself. For example, you can paint a room yourself for $50 and a few hours of moderate labor or hire it done for $500+. I know what I would do.
Value your time and loved ones
The smartest millionaires place a high value on their time and the people in their lives. Though you might not want to spend on a destination vacation (I would guess many millionaires don’t), do take the time to relax, enjoy life and spend quality time with your friends and family.
Begin with the end in mind. When you’re 95, will you look back and have regrets about not spending more time with the people you love?
Do you act like a millionaire? What habits of millionaires did I miss here?
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