One of my other favourite personal finance books is “The Millionaire Next Door” by Thomas Stanley and William Danko. It’s backed by years of research that includes statistics and case studies from profiling people who have already become millionaires in America. I remember reading this back in university and was surprised to find that the typical millionaire is completely different than what I had imagined them to be.
The typical millionaires aren’t the surgeons and lawyers that make $300k a year, live in $5 million houses, or drive a $100,000 Porsche. They won’t end up with much after spending everything they make. So who are the millionaires?
The typical millionaire:
1. Live well below their means
The typical American millionaire has never spent more than $399 for a suit, more than $140 on a pair of shoes, or $29,000 on a car.
We have learned to be comfortable with spending less than half of whatever we make. It’s enough to cover our mortgage payments, monthly bills, groceries, and vacations so we can set aside the other half to invest.
2. Allocate their time, energy, and money efficiently, in ways conducive to building wealth
They budget regularly and invest often. They take the time to learn the basics and follow a systematic approach (no get rich quick schemes) to building wealth.
We’ve found a way to keep tabs to ensure we’re not overspending. Since, we pay ourselves first every month by setting aside half of whatever we make to invest, we know we’re free to spend the remaining half however we need to. I’ve personally read countless personal finance books, worked in the investment brokerage industry, graduated with an accounting and finance degree so this has helped with us developing a basic plan to retire by 40. We know what to invest in, how much to save, and how to retire with $80,000 a year in perpetuity.
3. Believe that financial independence is more important than displaying high social status
I was surprised to learn that for all high-income earners (those earning at least $100,000 annually), the relationship between education and wealth accumulation is negative. In other words, the more schooling one completed, the less wealth they accumulated. Part of the reason for this anomaly was attributed to “lifestyle creep”. High-grade doctors, lawyers, accountants, and so on are expected to live in large expensive homes. They also are expected to dress and drive in a style congruent with their ability to perform their professional duties.
What often happens is they end up having to heat, clean, and provide furnishings for areas in the home they don’t need. They end up having more cars than they can drive. They end up living in affluent neighbours where salespeople know they are “whales” (high rollers) so they are constantly being pitched sleazy investment opportunities (think ads you see about pre-construction condos with 20% return on investments, stocks that can double over night, etc) that never materialize. In short, people around them know they can afford it so they are constantly being surrounded by people that try to charge/squeeze them for more including their “friends”. They get embarrassed to use coupons and haggle for lower prices because of their professional status so they end up paying full price for everything.
Amanda and I are just an ordinary couple that don’t really care about a big house or nice car. No ego whatsoever and we’re not competing to have the nicest anything on our street. We’re not embarrassed to price match to save $2 on yogurt and anything else so that we don’t have to spend our entire life working. We’re on track by 40, to retire and have complete freedom to do whatever we want, whenever we want. We’re frugal and we’re proud of it.
4. Their parents did not provide economic outpatient care
Studies have shown most millionaires did not receive any substantial economic gifts and “acts of kindness” from their parents or grandparents. They did it on their own.
Got to give our parents credit for this one. They’ve been pushing us to be responsible with our own money ever since we were young and we were kind of forced to establish good savings habit early. We paid for our own tuition, our own down payment on our house, and our own wedding.
5. They chose the right occupation
They choose a profession where the ability to make money is apparent. In other words, getting a college degree in Geography is not necessarily the most marketable skill to enter the job market with. They typically work and study in areas such as business, finance, real estate, education, government work, healthcare, specialty healthcare, consulting, etc. which gives them a much higher chance of building a career where they can make a good income to grow their wealth to millionaire status.
We both studied business and work in public service. We’re not making tons of money but we make enough so that we can adjust our lifestyle accordingly to live comfortably on half our incomes.
Although we aren’t real millionaires yet, we hope you continue to follow our journey as we continue living like millionaires and see it become reality by the time we turn 40. Stay tuned!