When you think about millionaires, what do you see? You’re probably imagining someone who drives a massive car and lives in a huge house. But the reality is these people likely don’t own their house and car. The bank owns them and they’re paying off massive loans each month.
In reality, millionaires are driving used cars, living in average homes and wearing old sneakers. They’re just regular people, probably the people who lived next door to you while you were growing up. They’ve just lived carefully, checked in with their budget often and invested wisely.
In the well-known book The Millionaire Next Door, the authors interviewed more than 1 000 people who answered 249 questions. They wanted to discover how people became wealthy. They started their research by speaking to people in fancy neighbourhoods. And they discovered something unusual. The people who lived in these areas weren’t rich.
So they were left to wonder, who becomes wealthy?
Says the book: “Usually the wealthy individual is a businessman who has lived in the same town for all of his adult life. This person owns a small factory, a chain of stores, or a service company. He has married once and remains married. He lives next door to people with a fraction of his wealth. He is a compulsive saver and investor. “And he has made his money on his own. Eighty percent of America's millionaires are first-generation rich. Affluent people typically follow a lifestyle conducive to accumulating money. In the course of our investigations, we discovered seven common denominators among those who successfully build wealth.”
These seven characteristics are:
They spend less than they earn.
They allocate their time, energy and money toward building wealth.
They believe financial independence is more important than displaying social status.
Their parents did not give money to them.
Their adult children are self-sufficient.
They are able to make smart decisions.
They chose the right career.
Discipline, sacrifice and hard work
And what did the authors learn from all this research?
“Mainly, that building wealth takes discipline, sacrifice, and hard work. Do you really want to become financially independent? Are you and your family willing to reorient your lifestyle to achieve this goal? Many will likely conclude they are not. If you are willing to make the necessary trade-offs of your time, energy, and consumption habits, however, you can begin building wealth and achieving financial independence.”
What can you learn from their research?
All these tips are great. But how do you translate these into your own life as a student and soon-to-be-graduate? Because the truth is, you don’t know much about money yet. You likely haven’t given a thought to your retirement or even how you’re going to pay for the items you’ll need during your day-to-day life.
The first step is to create a budget. That’s how you can begin to live within your means and spend less than your earn. Once you’re used to your budget, you can cut the unnecessary spending from your life. An easy way to do that is to download one of the many spending tracking apps onto your phone. You’ll be able to note every cent you spend. Soon you’ll be able to see that you’re spending far too much on takeout and nights out.
You’ll need to decide on your financial goals
The majority of millionaires set regular goals for themselves. They know what they want to achieve by next week, next month and next year. Once you’ve set your goals, you can figure out how you plan to get there. You should do this to figure out when to buy a car or even when to move out of your parent's house. Now, you need to do these same calculations for all the areas of your life.
Once you know what you want in your life, you can start making these goals a reality. For instance, if you know you’d like to retire while you’re fairly young, you’ll need to start putting aside money for your retirement now. On top of that, you’ll need other money saved for various emergencies. By having sufficient money saved for whatever occurs in your life, you’ll know that you’ll be fine whether you lose your job, you’re in a car accident or you become seriously sick. If you don’t have that money saved, you’ll have to figure out how to apply for a personal finance loan online.
In the end, millionaires aren’t wealthy because of luck or handouts. They’ve worked hard and made their finances a priority through their lives. They likely lead simple lives and so are happy with the simple things in life.