7 Characteristics of Millionaires

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"To live content with small means, to seek elegance rather than luxury, and refinement rather than fashion, to be worthy, not respectable, and wealthy, not rich, to study hard, think quietly, talk gently, act frankly, to listen to stars and birds,to babes and sages, with open heart, to bear all cheerfully, do all bravely, await occasions, hurry never, in a word to let the spiritual, unbidden and unconscious, grow up through the common, this is to be my symphony."
- William Henry Channing

1. They live well below their means.The key to building wealth is living below your means. On average, the wealthy save 15% of their income annually. Studies indicate that to create wealth, you need both a good offence (a good income) and a good defence (saving and spending wisely).

The strategies that the wealthy use to save are to either work from a budget or pay yourself first and spend the balance. This is pre-paying your retirement through installments. This is not exciting, but it works.

Many people are under accumulators of wealth (UAW) and these are people who spend all their income. There are many examples of people who have had the same incomes over their lifetimes, and one becomes wealthy and the other doesn't. The difference is their saving habits. There is a big difference between those who earn a high income, and those who are wealthy. They do not go hand-in-hand.

2. They allocate their time, energy and money efficiently in ways conducive to building wealth. Although most people have the same goal of becoming financially independent, people who take the time to plan, have a better chance of becoming wealthy. To help with the planning, the wealthy use advisors (accountants, lawyers, financial advisors) that they value, and treat them as employees, and use a formal approach to hire them. Your ability to hire high-grade financial advisors is directly related to your propensity to accumulate wealth.

3. They believe that financial independence is more important that displaying high social status. Many people who are high-income earners never become wealthy because they spend all of their income to support their lifestyle (UAWs). They have the expensive cars, homes, trips and toys, but it is all cash flow. They are too busy earning an income to support an ever increasing lifestyle to build any real wealth. People who become millionaires made trade-offs along the way.

4. Their parents did not provide economic outcare. In general, people who become wealthy received very little financial support from their parents. The reason that they do better than those who did receive money (economic outcare), is that the money was generally used to support a high consumptive lifestyle, such as expensive cars, and a more expensive house than they could buy on their own. In many circumstances, economic outcare leads to a dependence on even more outcare payments to support their lifestyle. In general, "the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars, accumulate more."

5. Their adult children are self-sufficient. In general, this is a by-product of becoming wealthy. The affluent who have raised independent children have taught them values and never focused on their wealth or the lifestyle associated with it.

6. & 7. They are proficient in targeting marketing opportunities. They choose the right occupation. You are more likely to become a millionaire if you are self-employed/business owners, as are 2/3 of the millionaires. Business owners have a good offence (a high income) and are better at hiring advisors. A common question is which industry produces the most millionaires. Studies have concluded that "the character of the business owner is more important in predicting his level of wealth, than the classification of his business." It is important to note that 1/3 of the millionaires are employees of some type, so your behaviour is still key.

Are You On Track?

Use this rule of thumb to determine if you're on track, based on your age:

1. Your age times your pre-tax annual household income from all sources except inheritances.

2. Divide this number by 10. This, less any inherited wealth, should be your net worth.

For example, if you are a 35-year old, and your family's pre-tax income is $50,000, your expected net worth should be 35 times $50,000 divided by 10 for a net worth of $175,000. To be well positioned, you require at least twice your expected net worth. If you have less than the expected amount, you are considered an under accumulator of wealth (UAW).

How Can You Become Wealthy?

The key to becoming financially independent is to modify your behaviour which will allow you to:

Live below your means,
Take the time to plan,
Believe that financial independence is more important than displaying high social status.
As described by millionaires themselves, the key to becoming wealthy is to be "frugal, frugal, frugal." Paying yourself first is not a new concept, as it appears in every financial planning book, but it works. As often in life, the simplest things work the best.

If you don't take the time to plan your financial future, you will not become affluent. Only 26% of Canadians have a written financial plan and this is why most Canadians will not become wealthy.

If it takes all of your income to maintain your social status, you will never become wealthy. To become financially independent, you may need to make some trade-offs with your current lifestyle in order to build your wealth over time. It is not easy to do, but it can be done.

Everyone may not need to be a millionaire, but most people will want to make working optional at some point in their lives. To become financially independent, it takes modifications of your behaviour. An excellent financial advisor can act as your coach to help develop and monitor your financial plan and assist you in developing the behaviour required to become wealthy.

© Thomas J. Stanley, Ph.D. & William D. Danko, Ph.D.


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6 Secrets To A Rich Life

1. Make Your Own Lifestyle Decisions
I gave up a lucrative, very demanding electrical contracting business for a simpler life. Nancy left a fast-track foundation job in New York City for country living. Gerri gave up a high profile position to go it on her own, as a writer, consultant, and speaker on consumer credit issues. We each made our major lifestyle decisions after a good deal of soul searching, along with some very practical "testing the waters" experiences.

While we firmly believe that the key to financial happiness is spending less than you earn, only you can determine what's really "right" when it comes to how you earn, invest, and spend your income. You can have piles of money, but if you're not living the life you want to live, you won't be able to buy enough things to make up for it.

Up until now, have you made your lifestyle decisions by default, or by consciously deciding what your priorities are? It's your choice from here on out.

Look at your lifestyle alternatives -- and the financial consequences of making major changes, like going from a dual income family to a one income household (so one spouse can stay home with the kids) or pulling up stakes and leaving the big city (or small town) behind. When done hastily, without a good deal of thought and planning, the emotional and financial consequences of adjusting to a new life -- perhaps without a job and the support of family and friends -- can turn a dream into a nightmare.

Of course, you don't have to give up your job or move cross country to change your lifestyle for the better. Small steps can make a world of difference. But we're convinced that first you need to consciously set priorities and figure out what makes the most sense-- for you and your family.

2. Put Your Family First
As a nation, we're working longer hours and spending less time with our families, leaving our kids by the wayside (or in front of the TV or Nintendo). Data show typical Americans spend hardly any time talking to their kids. It's easy to fall into this pattern -- and surprisingly easy to change it -- by putting yourself and your family first.

You know the project that's sitting on your desk? Chances are, it can wait until tomorrow (really!), but kids grow up all too quickly. Those school plays and Little League games you missed will be remembered, and regretted, for a lifetime. Family camping trips or treehouse construction will also be long remembered. Which kind of memories do you want your kids to have?

3. Wherever You Work, Be in Business for Yourself
The last decade has changed our notions of job security. These days, while you're expected to be creative, resourceful, on top of the latest innovations, and dedicated to the workplace, you can't even count on being employed come tomorrow. While your goal may be to improve your job satisfaction and financial well-being, you've got to be prepared for cutbacks, downsizings, and mergers-- in other words, the old heave-ho.

Our favorite game plan for hedging your bets is having an Ace in the Hole, a very small business (or two) that you start on the cheap. For some, it becomes the stepping stone to a new career, for others it's a sideline that offers both extra income and welcome tax deductions. Everyone we know who's got an Ace feels more secure for having it.

4. Make the Most of the Money You Bring Home
The further it goes, the less you need to earn. We're not talking about deprivation here -- or anywhere in Invest in Yourself. Practicing the fine art of penny pinching means you can have the things you really want -- without spending your life working for the almighty buck.

If you know us, you know what we think are the basics before you buy: Decide if you really want it -- then comparison shop, negotiate for the best prices, barter, and if possible, buy used. This could have easily been called "The Joy of Frugality," or maybe we should bill it as the "how to" course on becoming The Millionaire Next Door. (The book's authors, Thomas J. Stanley and William D. Danko, make it clear that millionaires are a pretty frugal lot.)

5. Turn Your Debts into Golden Investments
If I've said it once, I've said it a thousand times -- PAY DOWN THOSE DEBTS! It's a powerful antidote to the "payday to payday" blues. Here's a hot tip in case you're just tuning in: If you're in the 28% tax bracket, paying off a typical 17% credit card balance is the same as earning 23.5% before taxes. But unlike the stock market, paying off those plastic monsters is risk-free, guaranteed, and tax-free. (It's tax-free because you don't have to pay taxes on money you save yourself -- even if it's at 17%!)

With their low minimum payments each month, credit card companies want you to think it doesn't really hurt you very much to owe them money. But the less you send in, the more you'll pay and the longer it'll take you to get out from under. Making minimum payments on a typical $3,500 card balance at 17% could cost you more than $7,500 in interest. Your total cost could be more than three times as much as you borrowed. And it could take you 35 years to pay it off. Was yesterday's lunch that good?

Beat those plastic purveyors at their own game, and pay off your balances as fast as possible. Even a few extra bucks a month will yield a big return. For example, just adding an extra $3 a month to the minimum payment on that $3,500 in charges will save you more than $1,860 and over 10 years of payments! If you can come up with $25 a month, that'll put $5,364 back in your assets column -- yes, more than you owed -- and save over 26 years of payments!

Here's the best long-term strategy: Stop charging items you can't pay for or don't need. Do you really want a new thingamabob that will wind up costing you three to four times as much as what you couldn't afford in the first place? Especially if your old thingamabob is still humming along, we hope you'll decide to pass.

If you become a pocket change investor in your home, car, or student loan you'll save a ton of money and be that much closer to financial freedom.

6. Map Out Your Own Financial Future
Ever think, "If I had a million dollars, I'd ...?" Well, chances are you will have that much, and then some. As we've pointed out here before, over your working lives, you and your spouse will rake in over $2,000,000. And that's just if you make today's median family income ... and never get a raise! Of course, you won't get it all in one lump sum, but it's a bundle all the same. Managing it wisely will make all the difference for your future.

© Mark Eisenson, Gerri Detweiler & Nancy Castleman