The word millionaire carries several connotations with it, ranging from wealth, status, and financial freedom to philanthropy, luck, hard work, and even stress.
Being a millionaire may seem like an unachievable goal for many. For others, this financial milestone is only a blip on the radar on the road to multi-millionaire status.
Regardless of the feelings that the word millionaire evokes for you, it’s likely different for someone else. Everyone’s definition of wealth is different.
In his book The Psychology of Money, Morgan Housel comments, “The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today’.” I think that makes a lot of sense, although some might disagree.
By contrast, the definition of millionaire is fairly straightforward; it is someone whose net worth is equal to one million units of currency.
So on National “Be a Millionaire Day,” in no particular order, let’s focus on seven common traits of self-made millionaires.
1. Be a saver!
Accumulating a net worth of a million dollars has less to do with your salary level or investment returns, but rather more to do with your savings rate. According to Thomas Stanley’s The Millionaire Next Door, about two-thirds of millionaires are self-employed, often in everyday professions ranging from pest control to property management. Salary level and investment returns aren’t things that you can totally control, but your savings rate is something you can control. After your basic living needs are covered, increased savings is achieved by spending less.
2. Leverage the power of compounding.
Compound returns’ best friend is time! Assuming an 8%/year return, a 20-year-old who saves $200 a month until retirement at age 65 would have over a million dollars. $200/month may seem like a lot of money at age 20, but creating that discipline produces long-term rewards. If you wait until age 30 to start saving, and even double your saving rate to $400 a month, you’d still fall a bit short of a million dollars at retirement. A 50-year-old contributing $1,500 a month would have only $519,000 by retirement.
3. Invest wisely.
Being a savvy investor doesn’t have as much to do with picking the greatest stocks, funds, or other investment(s) as you might think. These tend to be one-off “winners” that aren’t always duplicated. If trying to pick the best investments, you’re likely going to choose some “losers” too. Good investing has more to do with earning good (not great) returns that can be repeated for long periods of time. In baseball terms, think about consistently hitting singles and doubles as opposed to trying to hit home runs every at bat.
4. Think about risk management.
It’s important to protect what you build. Insurance is almost always a budget item for millionaires. It doesn’t do much good to be a good steward of your money if you could lose it all due to an illness, injury, lawsuit, or disability. This is an often overlooked piece to the overall puzzle of becoming a millionaire.
5. Avoid “keeping up with the Joneses.”
You shouldn’t put yourself in an uncomfortable financial situation or incur additional debt to “keep up” with how friends, colleagues, or other acquaintances spend their money. When hard work is rewarded with a raise or bonus, or if being blessed with an unexpected windfall like an inheritance, millionaires don’t use it as an opportunity to “upgrade” their lifestyle. Instead, they enhance their saving and investing habits, as well as pay off debt to shore up their personal balance sheet.
6. Be debt-averse.
Avoid financing or using credit to purchase things without lasting value. It’s reasonable to use credit to finance a home, education, and sometimes a vehicle.
7. Foster a mindset towards personal growth and lifelong learning.
Create healthy habits in your day-to-day life. Thomas C. Corley, the author of Change Your Habits, Change Your Life, spent five years researching the daily habits of 177 self-made millionaires. He discovered they devoted at least 30 minutes every day each to exercising and reading. Millionaires tend to read three types of books, he found: biographies of successful people, self-help or personal development, and history.
To bring it all together, it is imperative to set goals and make a plan. Be specific when setting goals by building them around dollar amounts and dates that are measurable over time. Next it’s time to formulate a plan for achieving them. Equally important is acknowledging that your plan may not go smoothly. Life is filled with unknowns, so adaptability is key. Expecting that on the front end will allow you to navigate and adjust without sacrificing your dream.