How To Become A Self Made Millionaire: A Modern Day Guide
Dear Rich Lifer,
Are the traits that make someone a millionaire today the same as they were 25 years ago?
If you’ve read the classic, “The Millionaire Next Door,” written by Thomas J. Stanley and William D. Danko, you recall there are seven traits of self-made millionaires:
- They live well below their means
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth
- They believe that financial independence is more important than displaying high social status
- Their parents did not provide economic outpatient care (e.g. overbearing gift-giving or hand-holding)
- Their adult children are economically self-sufficient
- They are proficient in targeting market opportunities
- They chose the right occupation
In anticipation of the 20th anniversary of “The Millionaire Next Door,” Stanley and his daughter Sarah Fallaw, Ph.D. decided to take another look at American millionaires, to see what (if any) changes could be seen 20 years after the original publication in 1996.
“We wanted to understand if millionaires’ behaviors and lifestyle – the path that led them to build wealth on their own – had changed given all of the changes in our culture and economy in the past two decades,” Fallaw said.
Tragically, in 2015, Stanley was killed by a drunk driver in a car accident. Sarah, who holds a doctorate in applied psychology and is the founder and president of DataPoints, a company that conducts scientific research on wealth traits, finished her father’s work and published, “The Next Millionaire Next Door: Enduring Strategies for Building Wealth.”
The book expanded on the original traits with six more that the latest research found were required by those seeking financial success.
Based on the book’s latest research (conducted from 2012 to 2017), today’s millionaires have a lot in common with the earlier profiles of the typical millionaire from Stanley’s original book:
- The average millionaire surveyed is a 61-year-old male versus a 57-year old male in 1996
- Their median income is $250,000 versus $131,000 median taxable income from 1996 ($212,000 adjusted for inflation)
- Their median net worth is $3.5 million, versus $1.6 million in 1996 ($2.6 million adjusted for inflation)
- 70% budget and consider themselves frugal, versus “a majority” in 1996
- 91% of millionaires rated discipline as an essential factor in their success, versus 95% of millionaires in 2000
- Further, both sets of millionaires avoid conspicuous displays of consumption and consider themselves frugal
Both sets of millionaires are remarkably similar – even decades apart. The qualities and skills of each group used to accumulate wealth are also almost the same.
Fallaw says, “Despite significant changes in government, social environment, and economic markets in the United States, the advice of the last 20 years to those in early adulthood can be summed up by this statement:
To build and maintain wealth over time, it will be necessary for you to approach all financial management – spending, saving, generating revenue, investing – in a different, more disciplined approach than anyone else around you.”
She continues, “Whether you’re a small business owner, teacher, attorney, or sales professional, a disciplined, methodical approach to building wealth has been proven to work.”
Could this be the end of the middle class? See this financial expert weigh in…
Two Millionaire Myths
Throughout the book, Fallaw demystifies common beliefs held around money.
Two such myths debunked are:
- Income = Wealth
Fallaw writes, “Myths about wealth still abound in this country. Income continues to be confused with wealth by the media, the government, and in the minds of Americans.”
In the book, Stanley and Fallaw’s research finds that a typical millionaire’s income makes up only 8% of his wealth.
- You can judge a person’s wealth by what he drives, buys, and wears.
Findings suggest that people with higher net worths spent an average of $35,000 on their last car, far less than the cost of a luxury automobile.
A better predictor of the price paid for a car is “annual realized household income,” says Fallaw.
#1 Trait Of The Next “Millionaire Next Door”
One of the most significant differences Stanley and Fallaw found between those with a lower-than-expected and higher-than-expected net worth, was their “agreement with statements related to frugality.”
Millionaires in 1996 – and today – are more likely to spend less than they earn on housing, clothing, cars, and status symbols.
“If there is a playbook for who will become the next millionaire next door, it’s not to be found in a specific zip code, in the driver seat of a particular automobile, or with a certain watch or type of portfolio.
Instead, the formula to help find (or more importantly, to become) the next millionaire next door belongs in the patterns of wealth-related behaviors and experiences that make up our daily lives,” the authors write.
Stanley and Fallaw finish the book by pointing out that becoming rich is not easy, but it’s rewarding.
It requires focus, hard work, and self-discipline. They cite millionaires surveyed who describe the satisfaction of setting goals and achieving them on their way to millionaire status.
Often the journey is more rewarding than the final destination.
While there’s no predicting what the next twenty-five years will bring, one thing we can assume is that the qualities required to build wealth will remain relatively unchanged.
To a richer life,
The Rich Life Roadmap Team