Actually the question I wanted to ask is this: Do you want to be a millionaire or do you want to spend like a “millionaire”? Chances are, most people will answer that they want to be a millionaire but in actual fact, what they really want is to spend like a “millionaire” or spend a million dollars. Notice that I put the millionaire here in quotes. Why is that? It’s simply because the average millionaire spends just like the middle class person. You may not be able to point out a millionaire in a crowd of people. Society gets the wrong impression about millionaires: they think these are people who freely spend their money as if there is no tomorrow. However, most millionaires are frugal. In fact, they became millionaires because of their frugality and savings discipline. You can choose to act rich or you can choose to be rich but you can hardly be both, especially at moderate levels of wealth.
I am a fan of books that have studied millionaires. Why? Because I want to become one and be wealthy too. So I adopt best practices: I try to study what millionaires have done to become wealthy. And then I try to emulate these habits. Just like if you want to lose weight, you try to do what overweight people did to successfully lose weight If you want to be successful at a business, you try to emulate what successful businessmen in your field have done. It’s really that simple. So I have read a few of these millionaire books. By far the greatest one is the work by Thomas Stanley and William Danko, called “The Millionaire Next Door”. This book is a classic. Originally published in 1996, this book helped demystify millionaires in America. It’s because most people have it all wrong about wealth in America. Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier; you are just living high. Wealth is what you accumulate, not what you spend. The book also helped to clarify how ordinary people can become wealthy. It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes. Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and most of all self-discipline.
The word, self-discipline. It’s very hard to have self-discipline but it is extremely powerful. “What do you think is the greatest value in becoming a millionaire?” That’s a question Jim Rohn asked in his book, “7 Strategies for Wealth & Happiness“. He notes that the greatest value is in the skills, knowledge, discipline, and leadership qualities you’ll develop in reaching that elevated status. It’s the experience you’ll acquire in planning and developing strategies. Give a million dollars to someone who does not possess the attitude of a millionaire and that person will most likely lose it. But take away all the wealth from a true millionaire and in no time, he or she will build a new fortune. Why? Because those who earn their millionaire status develop the skills, knowledge, and experience to duplicate the process again and again. So when someone becomes a millionaire, the least important thing is what they have. The most important thing is what they have become.
There is a psychology to building wealth and becoming a millionaire. There are habits that, when consistently practiced, can lead you to becoming wealthy. Nothing captures this concept like the beautiful story I read from a long-form post by Morgan Housel in June, 2018, titled, “The Psychology of Money”. Because the story is so striking, I’m going to reproduce part of the whole story below:
“Let me tell you the story of two investors, neither of whom knew each other, but whose paths crossed in an interesting way. Grace Groner was orphaned at age 12. She never married. She never had kids. She never drove a car. She lived most of her life alone in a one bedroom house and worked her whole career as a secretary. She was, by all accounts, a lovely lady. But she lived a humble and quiet life. That made the $7 million she left to charity after her death in 2010 at age 100 all the more confusing. People who knew her asked: Where did Grace get all that money?
But there was no secret. There was no inheritance. Grace took humble savings from a meager salary and enjoyed eighty years of hands-off compounding in the stock market. That was it. Weeks after Grace died, an unrelated investing story hit the news.
Richard Fuscone, former vice chairman of Merrill Lynch’s Latin America division, declared bankruptcy, fighting off foreclosure on two homes, one of which was nearly 20,000 square feet and had a $66,000 a month mortgage. Fuscone was the opposite of Grace Groner; educated at Harvard and University of Chicago, he became so successful in the investment industry that he retired in his 40’s to pursue personal and charitable interests. But heavy borrowing and illiquid investments did him in. The same year Grace Groner left a veritable fortune to charity, Richard stood before a bankruptcy judge and declared: ‘I have been devastated by the financial crisis…The only source of liquidity is whatever my wife is able to sell in terms of personal furnishings.’
The purpose of these stories is not to say you should be like Grace and avoid being like Richard. It’s to point out that there is no other field where these stories are even possible. In what other field does someone with no education, no relevant experience, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections? There will never be a story of Grace Goner performing heart surgery better than a Harvard-trained cardiologist. Or building a faster chip than Apple’s engineers. Unthinkable. But these stories happen in investing. That’s because investing is not the study of finance. It’s the study of how people behave with money. And behavior is hard to teach, even to really smart people.”
You can go and read the rest of that write up by Morgan Housel, a very beautiful piece. But you get the idea of what I’m trying to say here. Since Thomas Stanley’s book was published in 1996 (which was based on a research study on millionaires), several more books have been written about millionaires. There is one published in 2010 by Thomas Corley, called, “Rich Habits”. The latest one, done by Chris Hogan, is called “Everyday Millionaires” and I actually pre-ordered this book. It is based on a study of 10,000 millionaires in America, by far the largest study of millionaires in America. Almost all of these studies (and books) on millionaires show that wealthy people typically follow a lifestyle conducive to accumulating money. There are several habits that these studies have shown common among millionaires. Here are a few:
#1. They live well below their means
#2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth
#3. They believe that financial independence is more important than displaying high social status
#4. They engage in self improvement, often by reading daily
#5. They exercise and take care of their health
#6. They invest in quality relationships and avoid toxic people
#7. The chose the right occupation and are careful in selecting their spouse
#8. They practice delayed gratification
#9. They have a long-term view to acquiring wealth: it’s a marathon, not a sprint
#10. They volunteer and make giving to charitable causes a part of their life
So, for an ordinary person, reading this, you might wonder, so how can I become a millionaire? Fair question. First, you have to curb your mindset of get-rich quick schemes. For the ordinary, average income earner, it will take at least 2-3 decades of consistently saving and investing to get your 1st million dollars in net worth. The good thing is that after the 1st million, it’s a lot easier to get to the next million because of the magic of compounding. For professionals with high income, it should take 10-20 years. But it all depends on when you actually start and how aggressive you are.
Here are examples. At 8% compounded return, if you save $700 a month, you will cross the million dollar threshold after 30 years. Increase your savings to $1,700 monthly and you will achieve millionaire status in 20 years. To get to a million dollars in 10 years, you will need to save and invest $5,500 monthly. Tall order, yes, but what matters is that you start today and be consistent, regardless of whether you’re making an average income or a high income. If Grace Groner can make it on her secretary income, so can anybody. You just have to get the mindset, be consistent and have self discipline.
So do you want to be a millionaire? Or do you just want to spend like the mythical millionaire? Comments below.