As you operate within a Plan to Spend, live within your means, and save and invest, something will occur: you will begin building something called wealth.
Now, you can make a lot of money and not be wealthy. Correspondingly, you can also not make a whole lot of money and be very wealthy. Let me explain.
Wealth comes down to what you keep after the cost of your lifestyle.
You’ve heard that it’s not what you make; it’s what you keep that matters. Well, building wealth comes down to what you keep.
I’ve always enjoyed studying the wealthy, not because of the money, but to understand the approach and mindset.
Many millionaires fly under the radar intentionally. This practice is evident in society (if you look for it) and in books like Everyday Millionaires and The Millionaire Next Door.
Chris Hogan wrote Everyday Millionaires a couple of years ago. The author interviewed over 10,000 millionaires to pull together sample data on what typically constitutes a millionaire’s lifestyle, and the answers were largely unexpected.
Most of us probably grew up thinking that pro football players, doctors, lawyers, or celebrities are millionaires, but ordinary folks are not.
A study by Lampo Group stated that “the top three occupations for millionaires are engineer, accountant, and teacher.” Surprising, especially if you are in one of those fields! Now you may be thinking, “what about small to medium business owners?” The same study stated that “only 18% [of millionaires] own a business.” You probably assume that most millionaires are well-educated, and you would be correct: “88% of millionaires graduated with a bachelor’s degree, compared to only 33% of the general population.” Another assumption may be that most millionaires had to make significant incomes. Surprisingly, “one-third of millionaires never had a six-figure household income in a single working year. Only 31% of them averaged $100,000 household income a year, and only 7% averaged over $200,000 household income over the course of their career.” Woah! That’s not the typical millionaire that comes to mind. In fact, that sounds a lot like my neighbor—most likely educated, middle-level manager or director, and a respectable salary.
Reading this book (and The Millionaire Next Door), you find that many who build and maintain wealth do so over time: not overnight. Chris Hogan said that “75% make regular, consistent investing part of their ongoing personal finances,” and “70% of millionaires saved more than 10% of their income throughout their working years.” They save the same percentage to give to others. They are typically not driving the newest high-end vehicles, living in opulent mansions, and eating at the finest restaurants. (Emphasis on “typically.”)
In the spirit of the theme of saving, in Everyday Millionaires, the poll found 93% stick to the budgets they create, which means they operate within a Plan to Spend. Not surprisingly, “94% of millionaires say they live on less than they make, compared to 55% of the general population.” When it comes to making large purchases, “95% of millionaires plan ahead and save up for big expenses”. The most shocking stat of saving probably was that “93% of millionaires use coupons when shopping.” This one, in particular, is close to my heart. I get so much criticism for only buying larger purchases on sale and using coupons when shopping for most everything else.
Having the ability to envision what you are working toward is key, knowing that it will come with time.
As Hogan puts it, “The number one contributing factor to millionaires’ high net worth is investing in retirement plans.”
It is a common misconception that all millionaires just stole, cheated, or inherited their wealth. In fact, “74% of millennials (that’s ¾) and 52% (that’s ½) of baby boomers believe millionaires inherited all their wealth. Meanwhile, 79% (8/10) of millionaires received no inheritance at all from their parents.” 8 out of 10 millionaires come from families at or below the middle-class income level. According to Hogan, “85% of millionaires describe their parents as savers,” and “the average millionaire hit the $1 million mark for the first time at 49 years old after years of hard work. Only 5% of millionaires got there in ten years or less.” So much for “overnight success!”
Saving is not only for having an emergency fund, preventing “having more month than money,” or just for the sake of not stressing so much: it’s there to provide options. The excuse may be to wait until you’ve made enough to save. However, the vast majority of millionaires take advantage of compound interest and save throughout their lives.
Call to Action:
Make the decision to save in order to allow for options. Think about what options you want that you don’t currently have.
