Episode 105: Who Wants to Be a Millionaire

Dawn discusses a Money Magazine article about the habits of millionaires.

 

Show transcript:

Welcome to the SimpleMoney Podcast, where we make personal finance less intimidating. I’m Dawn Starks, a financial planner and lover of the simple life. I’m here to talk about money and simplicity. Let’s dive in. This is episode 105: Who Wants to Be a Millionaire? Surely the answer to that question is, “Well, not me. I don’t want to do that.” I mean, who on earth would want to be a millionaire, right? Probably given the opportunity, everyone would be interested in having more money. Years ago there was a popular book out by Thomas Stanley called The Millionaire Next Door, and the premise of that book was super interesting and it was a very, very popular book, but it was probably surprising to a lot of people.

The premise of the book was that millionaires are not necessarily the folks that make tons of money every year. They’re not necessarily the big income earners. Rather, most millionaires have built their wealth over time, but they’ve had very ordinary sorts of careers. Maybe they were teachers, or maybe they were in some sort of social services, or maybe they were business owners, or whatever.

They did something, but they were steady savers over time and became millionaires. So the premise of the book was that most millionaires are average Joe’s. They’re the Sam Walton’s of the world. They’re not the stereotypical Hollywood rich guys. And so I think that’s what made it very surprising for people. Because I think in the US in particular,

we have this stereotype of what it looks like to be rich. And what it looks like is, you know, the Kardashians, it looks like the, it looks like the ostentatious wealth. It looks like big houses, fancy cars, big jewelry, all the sort of trappings of the rich lifestyle. But in actuality, it’s not that. Most people who are millionaires,

most people who are very wealthy are not, they don’t fit that stereotype. So now Stanley’s study that he did on all these millionaires was important because a lot of times I think people think that “If only I made the big bucks, if only I made more income, then wealth would follow.” But the problem is, is that, and as Stanley points out in his book,

there’s a difference between being a high earner and a high net worth person. High net worth means you have more assets than liabilities, and so you’re considered a millionaire when your net worth – so the value of your assets minus your liabilities – is one million dollars or more. So Stanley differentiated between high earners (people who make a lot of income) and people who are high net worth individuals.

And that’s where the difference became clear in his study. And so he said that even though high income earners can become millionaires, because certainly they have, you know, they have the raw material there, they have lots of income that they could turn into assets, they don’t tend to always do that. That’s not a guarantee. High income does not guarantee high net worth.

It boils down to the lifestyle that’s chosen by the person at whatever income level they are at. That’s what makes the difference between building wealth and not building wealth. So high earners tended to spend their money more ostentatiously so therefore they did not build their wealth. They wanted to flaunt the fact that they had big income and so they would buy fancy cars and fancy clothes and big houses.

And so they wanted to look the part, but they didn’t actually have the wealth to back it up. And so the not so necessarily high earners – of course, there are exceptions to this, this is generalizing – but the not so high earners would keep their nose to the grindstone and they would plug away at earning income steadily and putting money into investments and buying appreciating assets like homes and property, and not cars and things that depreciate in value right away.

And so they build their wealth slowly over time. And there’s not a lot of flamboyance there. You don’t see them dressing in fancy clothes and big jewelry because they’re busy socking their money away and growing their wealth. So that was the premise of Stanley’s book. And if you’ve never read the book, it’s very interesting, so you should

take a look at it. But recently I also came across an article that was related to that, and it was by a woman named Ellen Stark, which is very coincidental because her name is similar to mine, and it was in Money Magazine. And her – and I wrote a blog post about this, so if you want to go find her article, you can go on the blog and search for “Who Wants to Be a Millionaire” and you’ll find the link for my blog post,

and in there I linked to Ellen’s article if you want to see that. And so her piece in Money Magazine was a really excellent infographic, and it was about the 12 Habits of Millionaires. And I loved this piece a lot because all 12 of these habits are things I talk about and have always talked about since the beginning of my career as a financial planner.

I’m always touting these habits for people to have, in terms of being kind of the building blocks for building wealth. So let’s take a look at this list. The first habit was to be a super saver. This should make sense, this should make perfect sense to you that if you want to build wealth, if you want to grow your assets, you need to be socking money away.

That stuff doesn’t just grow on trees and it doesn’t just grow magically. You have to actually save your money by not spending it and put it into investments of some sort that will grow. So the majority of the people surveyed for Ellen’s, her piece – she did a survey essentially and then reported on these habits – and the majority of them said that saving early and regularly was the chief reason that they were able to build wealth.

But it wasn’t an overwhelming majority. It was only 56% of the respondents, so you know, roughly half, slightly more than half. And so I would say that being a super saver is very important if you want to build wealth. But you also have to save it and leave it alone, you have to let it grow over time.

So I think too often people fall into the trap of they build their savings up, only to splurge or spend it on something that’s not a long-term asset. Another interesting part on the saving, and this supports Stanley’s work too, Thomas Stanley’s book, is that only 26% of the respondents said that earning a lot of money was the chief component of their wealth-building.

So that fits with what Stanley found. All right, then the next habit to be a millionaire is to start early. So in Ellen Stark’s piece in money magazine she gives the average age that the millionaire respondents – so this was a survey of millionaires, and how did you get that way, is where she gathered her information –

and the average age that those millionaire respondents started saving money was age 14. And the age that they started working for money was age 15. And the age they started investing in stocks was age 25. So the clear takeaway here is that early is better. The earlier you start making money, the earlier you start to learn how to make money, and how to be good at your work and to work hard,

and the earlier you start to save, the more you’ll save. And the earlier you learn to invest in growth assets like stocks, the better you’ll grow your assets over time. But I don’t want you to make the mistake here of saying, “Oh well, I’m well past age 14, 15 or 25, and so I’m screwed.” Because that’s not true.

You just have to start. So it doesn’t matter that you didn’t start when you were in your teens or your twenties. Don’t feel sorry for yourself that you didn’t know this, or you didn’t do that, just start now. You just have to start the savings habit. Clearly sooner is better and earlier is better. But don’t be discouraged about those averages.

No matter where you are, whether you’re in your twenties, your sixties, your eighties, doesn’t matter. You can improve your savings habits. And so another takeaway from this one is to start your kids early. Teach them early, give them the building blocks. I’ve talked about it on the podcast before, and in the blog, teach them early about

the value of hard work, and how to save their money, and what investing is all about and not to spend and splurge too much, the difference between needs and wants, all those sorts of things. The next habit on Ellen Stark’s list in Money Magazine about millionaire habits was to work hard. So this one should be a no-brainer, and I’ve already sort of alluded to it in the others,

but you know, these ideas that we’re going to “get rich quick”, those schemes almost never pan out. And so you’re going to waste your time and you’re probably going to waste a good bit of money investing into schemes that promise quick wealth. And the fact of the matter is, is that just doesn’t happen. I mean,

from time to time, there’s always an exception. You can say, “Well, I could win the lottery.” All right, that’s true. However, the odds of you winning the lottery are extremely small. And if you’ve looked at the studies that they’ve done on people who win the lottery, they don’t tend to hold onto their wealth. So it’s a very,

very tiny minority of lottery winners that actually do the right things with those big winnings and actually set themselves up for long-term wealth. So the fix here is slow and steady, and hard work, and consistent work. That’s what’s going to give you a path to wealth, not getting rich quickly. And that’s a hard lesson for us in this world.

In this world right now we’re all about instant gratification. We’re all about, “I want it now, I want it now,” or “I want it yesterday.” We have no patience anymore. We don’t want to wait at all for anything. And so it’s very difficult to school yourself, to have the discipline to continue to save and invest and work hard over many years in order to grow your wealth.

But that’s what it’s going to take. So unfortunately you just, the sooner you accept that and embrace it, the better you’ll be. The next habit is to invest for the long term, and manage investment risk. So I put those two habits together because they both relate to investing. And so I think a common reason that people fail to build their wealth is because they have a lack of patience.

It’s just what I was saying before. People want it now. And so buying a stock and expecting it to double in value in a year or two, that’s silly. You know, that’s not going to – okay, it’s not that it can’t happen, it certainly could happen, but the odds of it happening are kind of like the odds of winning the lottery.

Instead you want to focus on choosing your investments carefully, or get help choosing your investments, and then commit for the long term. And the saying goes “time in the market always beats trying to time the market.” So trying to find the next Apple, or the next Microsoft, or the next whatever the flavor of the day is –

instead of trying to do that, invest in steady companies or in a mutual fund that’s diverse, and just invest for the long term, invest it and forget it. And so, of course, the longer you’re able to invest your money, the more risk you can take with your portfolio because you can weather the ups and downs.

You have the time to weather the ups and downs. I would suggest that you avoid speculation. The whole trying to “get rich quickly” also finds a home here in investing. People want to pick the next, just like what I just said, pick the next Apple. They want to try to find the company that’s going to break out and be the next big thing,

and you’re going to make a ton of money being invested in it. Well the odds are so small that you will be in that place, at the right time in order to do that, and you’re going to just keep chasing your tail trying to do that. So instead, unless you have some sort of inside-track to something, you just need to be careful and meticulous about choosing investments,

holding them for the long term, and just moving on with things. The next habit or piece of advice was to get help. So the majority of the millionaires that responded to the survey said they used a financial advisor as one of the factors of the success in their wealth building. And so of course, I’ll be the first to tell anybody that money and financial planning and investing,

it’s not rocket science. I’ve said it before and I’ll say it till probably till the day I die. However, it does take some time to learn enough about those things to stay out of trouble really. And if you’re not interested to learn it, or you’re not confident enough in your own abilities to make financial decisions, then by all means hire help.

Obviously, I’m biased. I am a financial planner and I suggest that people get help, but not everybody needs the help of a financial planner or advisor. But you might and so don’t worry about it, you’re not a loser if you need to have help. Instead what you’re doing is you’re leveraging your time. Instead of you spending the time trying to master all those things in order to make good decisions,

you are leaning on someone else, and their expertise, in order to help you be more successful with your money. Next thing on the list, the next habit is to educate yourself. So this is related certainly to the prior one. Even if you do find somebody to help you with your wealth-building and your finances, you still want to have some basic education, because you don’t want to be taken advantage of.

And so the vast majority of the respondents to the quiz, or the questionnaire, said that they had graduated from college or at least had some college education. So I think that being educated past high school is certainly a good idea. I don’t think it’s required that you have sort of a regular or standard college degree anymore. I think there’s so much you can do to be educated.

You can educate yourself so easily now with all the online resources. So the point is always be learning. Always be learning, increase your education, increase your skills, and always be, you know, kind of moving forward in that direction. I think people who get out of school and say, “That’s it. I’m done. I’m done with my learning,

now I’m going to get on with my life,” are really missing the boat. Because by not continuing to educate yourself along the way in new and different areas, I think you’re just going to be sorry, because the world is moving very, very rapidly. Next habit in order to be a millionaire is to watch your splurges. So I talk about this a lot too.

And so this is going along with sort of the habit of building, your savings habit. You know, being a millionaire doesn’t require no fun and no frivolous spending. I’m not at all trying to suggest that you have to put all of your money into savings and investing and never enjoy your life. But what I am saying is that you need to be careful about what portion of your income is going towards

what we would consider maybe more frivolous spending, and how much is going towards sustainable things, building your future, building your savings, building your investments, that sort of thing. So you just want to be thoughtful and careful about it. And so just watch for those splurges, see where your weaknesses are and then plan around them. And this is related to lifestyle creep,

which I’ve talked about in a couple of episodes now, when I’ve been sharing my story about lifestyle creep. When your spending level starts to increase, I’m sorry, when your income level starts to increase and you increase your spending to match it, that’s lifestyle creep. Instead, you have to really get in front of it. You have to stop that pattern.

And as your income starts to increase, start diverting those increases in your income into savings and investing so that you can start building wealth for the future. Another millionaire habit is to economize. So this infographic that was in Money Magazine, it indicates that two of the millionaire habits that people with wealth have is that they’re thoughtful about their spending. So whether or not it’s using coupons and shopping at discount stores, or buying secondhand, or not hiring-out for tasks that they can do themselves,

the people who build wealth tend to be careful about what they spend their money on. And this is related, but different, from the whole controlling-the-splurge is, this is being thoughtful and careful, and dare I say even frugal, about how you’re spending your money. And so I think selective is the word we want here. We don’t want to think about that you have to live a life of

misery and frugality in order to just have a lot of money later. You just want to be selective about how you’re going to spend your money. All right, so then the next millionaire habit is to make a plan and set goals. Yay! Okay, I couldn’t believe that planning and goal setting were so far down on the list,

but perhaps they weren’t in any particular order. And so you don’t build wealth accidentally, okay? As a rule, that just doesn’t happen. Instead to be successful with your money, you have to have a plan. So the plan could just be pretty loose. It could just be that you’re going to start socking away a quarter of all of your income into long-term growth investments.

You’ll build wealth if you keep doing that, even without a clear plan of where you’re going with it. But a better approach, I think, is to set a target for yourself and then relentlessly work the plan towards the goal. You can always change the goals later or extend them, expand them, change them entirely, whatever. But by having something to work towards,

I think it can motivate you to keep moving. So you don’t want to be scared off from your goals because sometimes things get a little bit challenging. So you want to adapt and change as necessary, but you want to have something that gives you a little direction in your life. Next, and the final one on the list of habits in order to be

a millionaire, would be to be generous, but not a gambler. So, you know, gambling can be fun. It can be exciting. It’s surely a fast way to whittle away your wealth if you’re not careful. And so I think that the probability of being successful with gambling over the long haul is small. Just like winning the lottery, I think the odds are small.

So I would say making gambling a small, or maybe not at all a part of your financial life is probably the way to go. And I mean gambling for like real money. I don’t mean like playing bingo on the weekends. I just mean like gambling serious money. I think you should really think twice about that. A far better use of your money is to give back to the community and to the people and the causes that are in need, and helping other people and being generous is

something that’s going to pay dividends to you. It’s going to give back to you. Now, not necessarily literally, giving money away doesn’t automatically come back to you in the form of money, but what it does is it builds a generous spirit and a sharing spirit and an abundance mindset. The idea that there is enough for everyone, there’s enough for me,

there’s enough for my family, we can support ourselves and also help other people. So that I think expands your worldview, expands your mindset about having abundance at the top of your mind as opposed to scarcity, and worrying that we’re never going to have enough. “We can’t share with people because we won’t have enough for ourselves,” so I think that’s,

you know, that’s the opposite. That’s the downside. You don’t want to think that way. So instead think about being generous. Not to, you know, not to the point where you’re giving away all of your money, you’re never going to build wealth that way either. But I think it all adds up. It’s all part of

the package of being in the right mindset to be a millionaire and to save your money? And which ones need some work, maybe? So think about it. Think about these different habits and think where can you make improvements in your life. I’m sure you can find at least one or two, that today you can make some adjustments in the way

you’re living your life with your finances, in order to improve how you’re moving forward in order to start building better and greater wealth towards being a millionaire. And you know, being a millionaire is not exactly what it used to be. A million bucks, as they say, doesn’t buy what it used to. Nevertheless, it’s still a threshold, or

I think it’s a target that people still hold out there that they want to work towards. And so it’s really a doable goal for anybody of any income level, if you just do the work. So I hope you’ve enjoyed going over this list of millionaire habits that Ellen Stark put together for Money Magazine, and you can find that article, the link to it on my blog.

Just go to the blog page and search for “Who Wants to Be a Millionaire”, and you’ll come up at the blog post, and you’ll see the link for Ellen’s article. And I would love to hear from you, to hear what things you’ve done in order to improve the way you’re saving money. And are you on pace to be a millionaire,

you can tell me that too if you’d like. So you can email me dawn@simplemoneypro.com, sorry, simplemoneypro.com. Or you can join the free Facebook group that we have, and it’s the SimpleMoney Community on Facebook, and you can share your ideas there. So that’s it for today. We’ll see you again next week. Thanks for listening. If you enjoy the SimpleMoney Podcast,

be sure to subscribe on your favorite podcast player. We’d love it if you would leave us feedback and a review. And don’t forget to check out my blog at simplemoneypro.com. There you’ll find dozens of posts about financial issues that matter to you, as well as thought-provoking pieces about simplifying your life. Bye for now.

 

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