In his 1996 best seller The Millionaire Next Door, Thomas Stanley detailed the traits of the average millionaire. Notice I didn’t say rich person. I said millionaire. These are people who have a net worth over seven figures who are also “financially free.”
I see these people every day of the week. They drive Toyotas, Hondas, Kia’s -- and the occasional Jeep Cherokee. They have saved for a long time and finally find themselves in a position to quit their job and live life on their own terms. Twenty-one years after The Millionaire Next Door was first published, the traits described in it still ring true. Here’s 10 things millionaires have in common.
1. Job Stability – They tend to stay with one employer for a very long time -- sometimes 30 or 40 years. Being a company man or woman can offer huge rewards, including a very nice ending salary, significant pension benefits and hefty 401K balances. I know it’s almost unimaginable in this day and age to work for the same employer for a couple of decades, but there are still people who do it, including teachers and other government workers.
2. Steady Savers – I’ve rarely met a rich retiree who didn’t start making the maximum contribution to a 401k in their 20s or 30s. This year you can save $16,500 in a 401k or 403b, and $23,000 if you are over the age of 50. That doesn’t count your company’s “free match” if they are generous enough to give you one.
3. Save the Raise - One trick I’ve seen these savers use is saving at least half of pay raises. Instead of going towards a new boat or vacation, those added dollars end up in retirement or brokerage accounts.
4. Investors – Millionaires who own stocks tend to hold their investments for decades (not just years). They let their dividends re-invest over time and thus participate in the long-term growth of our economy. This makes them different from “savers,” who only invest in CDs or money markets.
5. Owners – Business owners, partners and other employees who are “fully vested” in a company tend to end up with substantial savings.
6. Mortgage – One key “rich” person move is to get rid of the mortgage by age 65. This may take two or three extra payments per year.
7. No Fancy Toys – Very few millionaires own BMWs, Mercedes, $3,000 watches, or $5,000 suits. Nearly 40% of the “rich” buy their cars used.
8. Credit –The better your FICO score, the lower the interest rates you will pay on your mortgage and car loans. The “rich” do this by carrying low debt loads.
9. No Lotto – Rich people don’t buy lottery tickets. It’s a fact. I’ve never seen a millionaire buy a lottery ticket and I’ve never met anyone who won the lottery and still had the money three years later.
10. Own real estate - They bought homes that were not overly priced or extravagant in rentable areas. They would maintain them appropriately, rent them out consistently. They paid down their mortgages and ended up with cash-flowing assets that built their net worth slowly over 30 years.
The lesson: An average income, carefully managed, can generate considerable wealth over a period of time. To borrow a line from radio’s Dave Ramsey, “Live like no one else today, and one day you’ll be able to live like no one else.”
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