When you research the most common thing that millionaires do to build wealth there are a few things that come up time and time again. First, almost all of them grew their wealth by investing in real estate or businesses that they own and control. Second, they become experts at growing money at high rates of return in the areas they invest. There is, however, another more overlooked area of money management in which all millionaires have something in common. This is the subject of this article and it has to do with how they save money.
A recent poll found that 63% of Americans can’t afford a $500 car repair bill or a $1,000 emergency room visit. This is obviously due to over consumption. The other problem that this highlights is the average person’s inability to save money. For many people, keeping up with their peers ranks so high on the list of things to do, that people will go into massive amounts of debt to buy houses, cars, gadgets and other items just so that they appear on par with other people they associate with. This is ludicrous because not everyone earns the same salary or can afford the same luxuries as everyone else. That being said, people still try to make this model work only to fail miserably and end up crippled with debt. Wealthy millionaires behave exactly the opposite way.
Unfortunately, when most of us think of what a millionaire looks like and how they behave, we think of what we call superstars or celebrities. This includes famous athletes, musicians, actors and actresses that make a lot of money for what they do and are frequently in the public eye. Ironically, these people are not really millionaires when you dig deeper. They spend a lot of money on lavish lifestyles and many end up bankrupt when their fame comes to a screeching halt. Real millionaires are people you would never guess are rich by looking at them. In the book, The Millionaire Next Door, the typical stereotype of a millionaire is destroyed. After conducting focus groups on many millionaires, the author comes up with some fascinating conclusions. They are frugal and wealthy many times over from living within their means. They drive Chevy’s, Ford’s and Honda’s. They own an average middle class house and they don’t have a bunch of fancy new gadgets or displays of wealth in their house. I recommend that you read this book if you have the time. It will completely change the way that you view your own wealth building habits.
So besides living within their means and being frugal, what do you think is the one common trait that the author discovered? It was that every single one of them had a high tendency to save money. In fact, most of the millionaires surveyed saved 20 to 25% of their income per month. This includes people who did not have high paying jobs. Some were teachers or worked in vocational fields but still achieved millionaire status after putting in the hard work. Most of this was done because they preferred to buy gently used cars over new cars, less expensive housing and not spend on things that aren’t needed. You won’t see 4 TV’s in a millionaire’s home, one will do just fine. It’s this mindset that helps more people achieve millionaire status and build wealth than any other.
If you’re reading this and are one of the 63% who can’t afford a $500 bill, I encourage you to take action and cut out some things that you don’t need. Even getting rid of the daily cup of coffee can start making a difference. Once you’re able to save 15 to 20% of your income, you can then open yourself up to endless possibilities to start investing your money like the rich but that will be the subject of another article.James Bush, MBA