The Common Traits Of Millionaires

The Common Traits Of Millionaires You Should Follow

When I hear people talk about building wealth, or more commonly stated, becoming a millionaire, I often hear more aspirations and dreams, than actionable steps they are taking.

People talk about all of the things they would do with the money once they had it.

The problem is, most of the time, the things people talk about doing aren’t the things that help the average millionaire achieve that level of wealth.

They are focusing on the wrong actions…

IS YOUR NEIGHBOR WEALTHY?

In the famous personal finance book, The Millionaire Next Door, the authors paint a picture of the prototypical millionaire.

Over a number of years, they did research to find out what the typical millionaire “looked” like, and what characteristics defined them – how they lived, the cars they drove, the clothes they wore, types of beer they drank, etc.

The performed focus group interviews, had people fill out surveys, and spoke to as many millionaires as they could find.

The goal was to create an avatar of the typical millionaire in the U.S. so people understood what it really meant to build wealth.

BREAKING THROUGH THE FACADE

So often, our society portrays the typical millionaire as a fast-car-driving, designer-clothes-wearing, big spender, who shows off their money at any chance they get.

But this isn’t true.

If you were to “look under the hood” of these people’s financial lives, you’d see that they barely have any money saved up, they are living paycheck-to-paycheck, they have lots of debt, and they are stressed out about the future.

This isn’t to say there aren’t super-rich individuals who can live this type of lifestyle and still maintain a high level of wealth. But those are the exception to the rule.

The average millionaire doesn’t go around touting their wealth. And they certainly don’t go around spending it at a rapid pace. If they did, they wouldn’t be millionaires…

ANATOMY OF A MILLIONAIRE

So, to shed some light on the characteristics of a typical millionaire, I want to list off some of the traits that were discovered by the authors of The Millionaire Next Door.

As the name might imply, they could be living right next to you without you even knowing it…

(Note: This book was published in the 90’s. Granted, some things have changed since then, but the fundamentals of how people accumulate wealth haven’t changed all too much.)

CHARACTERISTICS OF A MILLIONAIRE

  • Spending habits are a big decider of results. You could be making $45,000/year and be wealthier than someone making $600,00/year. Millionaires build wealth because they aren’t spending all of their money.
  • Millionaires spend less than they earn. They budget out their year in advance and make sure they aren’t over-extending themselves.
  • Millionaires avoid “status objects” or “status lifestyles.” Designer clothes, fancy cars, high-priced jewelry – These are ways to spend wealth, and will only be a barrier to building wealth.
  • Millionaires focus on investing strategies that maximize unrealized (nontaxable) income and minimize realized (taxable) income. This allows you to continue to build up your earnings overtime.
  • On average, millionaires invest nearly 20 percent of their household realized income each year. That’s double the suggested 10% savings rate you hear recommended by the finance industry. (Link to my article about saving 10%)
  • About 80 percent of millionaires are first-generation affluent. They built their wealth and didn’t inherit it.
  • About two-thirds of millionaires work between forty-five and fifty-five hours per week.
  • When it comes to car-shopping, a millionaire will typically purchase an older model, will often buy used, and doesn’t rely on financing to make the purchase.
  • Millionaires don’t smoke or drink, much. Smoking or drinking are referred to as “Million dollar choices” because if the choice hadn’t been made to engage in those activities, you would have in excess of a million dollars. Instead of saving and investing that money, you are spending it on horrible habits.
  • On average, millionaire’s total annual realized income is less than 7 percent of their wealth. So, they are spending less than 7 percent of their wealth each year. (This number is a bit skewed, because when you’re first building wealth, you normally can’t live on just 7% of your wealth, because you don’t have any!)

NOTHING IS WITHOUT FLAW

Without a doubt, there are some issues with the book.

Many finance experts have criticized the book for various reasons. But at the end of the day, the core principles that are described are ones that have successfully helped people build wealth for a long time.

  1. Spend less than you earn
  2. Invest a good amount of your money wisely
  3. Avoid financial pitfalls

These are all pieces of advice that are hard to argue with.

YOUNG IMPRESSIONS

I first read this book when I was in my mid-twenties, and it was quite a revelation.

Sure, all of these principles and tips were great. But the biggest thing for me was the realization that most of the people who are showing off their wealth, aren’t actually wealthy in the first place.

Keeping up with the Joneses” is a great way to ensure you never amass true wealth.

So, the next time you see someone you know showing off the new car they purchased, or raving about the designer clothes they just bought, you can sit back and know that they are headed in the wrong direction.

You’ll know, by not buying those things, you’re leap-frogging many of your friends on the road to financial freedom!

Capably Yours,

jareds-signature

[shareaholic app=”share_buttons” id=”27534490″]
10 Tools to Simplify Your Financial Life
10 Tools to Simplify Your Financial Life
SUBSCRIBE: Get updates and grab your copy of our free guide, “10 Tools To Simplify Your Financial Life”