I originally had this post planned for “Be a Millionaire Day.” (Yes, they do have a day for everything.)
Then I moved things around (I wanted other posts to publish sooner) and messed it all up.
So consider this a belated tribute to Millionaire Day with a post on what we’ve learned so far from my millionaire interviews.
Between this site and my former one I’ve interviewed over 40 everyday millionaires. Not surprisingly, there are patterns in their answers regarding how they became well off.
So let’s look those over as I’m sure we can learn something from these wealthy individuals.
What Millionaires Have Taught Us
Here are the main lessons millionaires have taught us:
- Having a high income is a great asset. Many people like to poo-poo the fact that several millionaire interviewees make good incomes. Their line of thinking is, “Of course it’s easy to become a millionaire if you have a high income.” I have several reactions to this: 1) Yes, it is easier. That’s why I post quite often on the power of growing your career. 2) Even people with high incomes can spend it all, so while many millionaires have high incomes, they also have something more valuable: self-control to limit their spending. In other words, they live like no one else. 3) Ok, so you’ve seen that it’s easier to become a millionaire with a higher income — are you doing anything to grow your income? Or are you simply raising an objection to make yourself feel better about your situation?
- Savings is vital. As noted above, you must spend less than you earn because anyone can spend it all. So whether you make $50k a year or $500k, you need to spend less than that. Turns out millionaires are great at saving no matter how much they make. In addition, the more you make, the lower percentage you have to save to reach financial independence. The less you make, the higher percentage you have to save. So, you can make $100k a year and save 20% or $50k a year and save 40%. Either way, you’ve saved $20k that year. Which sounds easier?
- Invest early and often. Time is your greatest investment weapon. Millionaires use this to their advantage. They invest early, often, and at high amounts. Then they let this money sit and compound (usually in index funds) year after year and decade after decade. This super-charges their wealth.
As you might imagine, these findings mirror the ESI Scale and the theme of this site. Funny how that turned out, huh?
Seriously, it’s because these principles work. Apply them over years and you will become wealthy. That’s all there really is to being a successful money manager.
Doing the Right Things and Avoiding the Bad
In addition to those main three qualities, there are a couple other things that millionaires seem to have in common:
- They tend to avoid the worst money mistakes. On average they don’t marry the wrong person, don’t go wild on buying a house (which can be a killer by itself), and don’t take on massive amounts of expensive debt. All of these are very costly and by avoiding them, millionaires save themselves hundreds of thousands of dollars over a lifetime.
- They tend to make the best money moves. They track their spending, have a financial plan, and have the discipline needed to control spending and grow their careers. Many of these moves make them hundreds of thousands of dollars over a lifetime and they put them to work in growing their net worth.
More Millionaire Resources
Since it’s Millionaire Day, let’s go crazy with all things millionaire-related. So here are a couple resources:
- Here’s my post titled How to Become a Millionaire. I wrote it several months ago but it still holds true today. Besides, we have a ton more readers since then so many of you likely missed it the first time.
- And, of course, no Millionaire Day would be complete without mentioning my favorite millionaire book, The Millionaire Next Door
. It’s the one book that most changed my money life as well as being one of the only five money books you ever need to read.
. It’s the one book that most changed my money life as well as being one of the Millionaire Facts
And to top things off, here are some facts about millionaires according to Wikipedia:
- The word was first used (as millionnaire, double “n”) in French in 1719 by Steven Fentiman, and is first recorded in English (millionaire, as a French term) in a letter of Lord Byron of 1816, then in print in Vivian Grey, a novel of 1826 by Benjamin Disraeli. An earlier English word “millionary” was used in 1786 by Thomas Jefferson while serving as Minister to France; he wrote: “The poorest labourer stood on equal ground with the wealthiest Millionary”. The first American printed use of the word is thought to be in an obituary of New York tobacco manufacturer Pierre Lorillard II in 1843.
- There are multiple approaches to determining a person’s status as a millionaire. One of the two most commonly used measurements is net worth, which counts the total value of all property owned by a household minus the household’s debts. According to this definition, a household owning an $800k home, $50k of furnishings, two cars worth $60k, a $60k retirement savings account, $45k in mutual funds, and a $325k vacation home with a $250k mortgage, $40k in car loans, and $25k in credit card debt would be worth about $1,025,000; and every individual in this household would thus be a millionaire.
- However, according to the net financial assets measurement used for some specific applications (such as evaluating an investor’s expected tolerance for risk for stockbroker ethics), equity in one’s principal residence is excluded, as are lifestyle assets, such as the car and furniture. Therefore, the above example household would only have net financial assets of $105,000.
- Another term used is “net investable assets” or working capital. These practitioners may use the term “millionaire” to mean somebody who is free to invest a million units of currency through them as broker. For similar reasons, those who market goods, services, and investments to high-net-worth individuals (HNWIs) are careful to specify a net worth “not counting principal residence”.
- At the end of 2011, there were around 5.1 million HNWIs in the US, while at the same time, there were 11 million millionaires in a total of 3.5 million millionaire households, including those 5.1 million HNWIs.
- Depending on how it is calculated, a million US dollars in 1900 is equivalent to ($28.8 million in 2016).
So What?
Some of you might be yawning at this point. Heard it all before, right?
My challenge to you is to ask yourself which of the tips above you are missing. Which of these can you attack and get just a bit better at over time?
My focus these days is on investing more than the other two ESI steps. Specifically, what can I do to manage my investments so they perform better?
So let this be my encouragement to you: develop a plan, work at it, stick with it, and you will become wealthier. Start now and by Millionaire Day next year, you will be much better off than you are today. Perhaps I’ll even be interviewing you then for my millionaire series. 馃槈
P.S. For those who prefer a video version of this post, see the ESI Money YouTube channel.
The Millionaire Next Door is one of the most influential books on my life. A coworker loaned it to me a few months after graduating from college and I was amazed… I had no idea millionaires could be ordinary people (I was under the assumption that if it looked like a millionaire, talked like a millionaire, dressed/lived/drove like a millionaire, then it was a millionaire). Your interviews have yet again added a new layer to the awesome reality that many millionaires are the hard working, spend conscious, diligently saving folks we meet every day. Talk about motivation 馃檪
Agree here! The more I read about becoming wealthy, the more I realize that it’s everyday people that are making sacrifices and becoming financially independent!
Reading TMND changed my whole perspective. Read it with my wife back in 1999 right after we got married and we’ve stuck to the principles ever since. The dot bomb was a real wake up call where I lost a good bit of money trying to be clever and timing markets. Luckily, I was young and had time to recover and shift to index investing. Been on the ESI path ever since, but always followed the TMND mantra of “don’t spend it, save it”.
The Millionaire Next Door was a life changing book for me as well. I just retired with a pension and lifetime health insurance coverage, at the age of 57. My husband retired with a pension and lifetime health insurance coverage, 3 years ago, when he was 62. I continue to work part time, as I enjoy my job, and it’s flexibility. We have no debt, and have cash and investments of $1.9 million. We live well beneath our means.
I’m FIREd and I can vouch that your advice is spot on. There is really no substitute for making a lot of money, saving a large percentage of it, and then investing. Making less money can still allow you to FIRE, but it can take a lot longer.
Also, marrying Mrs. Freaky Frugal was one of the smartest moves I made. She took care of many things that allowed me to focus on maximizing income.
I am a younger reader (33) and appreciate all of the advice. Personal finance really is common sense, but takes a lot of discipline. With two young kids in the growth stages of a family, it can feel like the expenses are never ending. However, setting up automatic savings into 401K at work and personal savings has really helped us. Also, budgeting is essential. We use YNAB, and do not always make our budget numbers, but we do our best and try to re-evaluate monthly.
Lastly, the importance of increasing your income can’t be stated enough. Sharpen your skills, put in the extra work on your own time, and set your goals high. If your current employer doesn’t see value in your skill set and won’t compensate you properly for your hard work, make a change.
The criticism of newly minted millionaires is that they would not be millionaires if not for the returns of the market for the past 8 years. To invest, I first had to earn and save. The purpose of investing is to put your money to work for you by purchasing shares of publicly traded companies. That is like saying to an entrepreneur that you are only successful because your business had sales.
I’ll jump on the TMND train. We were going on a road trip in 2010 and my wife checked it out from the library as an audiobook (seems appropriately frugal doesn’t it?). The examples in the book really opened our eyes. Back then our combined income was low six figures and we were starting to really save money and think about these sorts of things. Well now we’re barely “net worth millionaires” and I fully admit we owe a lot of it to her high income job. But if we didn’t have that and had continued at the level we were at in 2010, I feel like we would still have saved a large amount because we saved and invested so much every year, tracked our expenses, and avoided luxuries / money mistakes.
“hard working, spend conscious, diligently saving folks ” This statement describes our 27 year /3 grown children-marriage.
Read TMND many, many years ago (received as a gift) — and recognized our good habits then.
Earn, Save, Invest…simple sage advice.
My biggest debate now is whether to pay off my mortgage early or save. The math favors saving. Emotions favor being debt free…but in finance, pulling out the emotions is probably the smart thing to do.
It’s called personal finance because it’s personal, so I say do what feels good for you. We recently paid ours off; a big part of that was my weariness of the market exploding.. seemed too good to be true. Feels great to have it gone – we really hate debt.
You know, being a millionaire seemed like a distant concept years ago (26 now). But after four years of full time work, starting off aggressively working to grow my career and aggressive saving then learning about disciplined investing a three years ago, it doesn’t seem so distant. I expect i will get there within 10 years.
The biggest factor will be how much i can grow my career and income to increase my savings rate (past four years has been 12%/yr). All your millionaire interviews have comments about the high incomes being an advantage – and they are! There is no way i can cut costs to a million bucks by 35 and have my desired lifestyle with lots of skiing and mountainbiking. But if i can grow my income at even half the rate i have been (6%). I have no doubt ill get there.
That sounded like my saving rate is 12%/year. Savings rate is ~35% income growth has be 12%/yr.
I know that it has taken me too long to get to the millionaires club than that because the income level is not the best.
That is why I am truly the millionaire next door in a middle class neighborhood and no one knows.
An enjoyable post ESI! Even though many of us who read your blog are already millionaires (of the HNWI variety), there’s still a lot of value to be found in learning from others. Thanks for sharing!
Every day we get closer. It is probably still about 6-8 years away (depending on market returns) but every day/month gets better.
Nice post, ESI. I have so far resisted from sharing my financials on my website, and by extension, did not want to participate in your ‘millionaire’ series, but all that will change soon – my long-awaited net worth post will appear in a few short weeks on my website. As an HNWI, I can completely attest to all the “doing the right things and avoiding bad” that you have written.
Some interesting lessons from millionaires. I’ve really enjoyed the series! I think an interesting point is on marrying the right partner…a lot can be said about that. Not only can divorce be awfully destructive to the financial situation, but just having the right person with a similar mindset towards money can make a huge difference. I can say I’ve been very fortunate in that department!
I couldn’t agree more. My ESI style life didn’t start until I married “Mrs. Right”. I dated a lot of really nice people before finding someone who I truly considered to be my partner. Some one I deeply trusted that had my same long term goals. I was 35 and had little net worth. My wife was the one who changed my way of thinking about money. Together we put our plan together and encouraged each other. Every milestone was a celebration for us. Achieving our financial goals brought a lot of happiness and stability to our marriage too. We never worried about money, as it was kind of our hobby, our secret scheme, and from the beginning we saved like mad so we always had a cushion if we needed it. Both coming from middle class homes without luxury items, we never felt the need to splurge on anything expensive. If one of us got the urge, the other pulled our head out of the clouds. Marriage has been a wonderful (and lucrative) partnership. I’d have never done it without her. My only regret? Not meeting her 15 years earlier!
Generally I do agree with the article – high earning power is absolutely an asset.
However, I believe chasing a dollar sigh too much so to just keep up with a certain life-style and income left to save and invest would be a bit risky thinking. Yes, it is easy to think when you’re 20 something that your career is going to be steady and you are always going to receive raises, promotions, or going to a next better opportunity that pays better. But in reality, at least in my experience, “career” is never linear. You may have chosen a wrong field (despite of careful deliberations), face unfavorable politics, lay-offs, high stress…all kind of things can happen. And stress factors tends to more resonate with higher paying positions. I personally think it’s more of spending problem, not so much of revenue problem (just like the government).
Yes, we all should absolutely strive to do our best in career, and having reasonably healthy income is essential to gain one’s financial independence. That said, I don’t think having high earning power is all that critical to become a millionaire. I believe quality of our lives should be also taken into considerations upon building financial independence – as it is a marathon, not a sprint.
Well, I deviate from the norm a bit inasmuch as I never had a high salary because I had to leave the workforce early because of a neurological disorder. My wife continued working but I would not have considered her salary high either. I do hold a BS in Accounting and a Masters in Finance. However, what I understood is the need to save, save and save and when I was done saving, save more. I like the fact how many people look at their portfolio daily. That is me and I wouldn鈥檛 have it any other way. I probably look at it ten times a day. Liquid net worth 4.2 million house 1 million. Next year wife retires and will start drawing down. Millionaire interview no 82. Looking forward to your update.