Are you friends with someone who is more satisfied by simply looking rich rather than actually being rich? The research in The Millionaire Next Door by Thomas J. Stanley and William Danko suggests that, on average, most people would be able to get by for one or two months if their cash flow is to cease tomorrow. Even today in Australia, most people are living from one pay day to the next.
In our modern era of credit cards and easy finance, people are “finding” the money to buy the right brands and cars, but you can argue that this is nowhere near being wealthy. Stanley and Danko believe it’s not how much money you make, but rather what you do with that money that matters.
Stanley and Danko’s book is research-based and profiles some of the USA’s most prolific millionaires by identifying seven traits that these individuals have in common. For the purpose of their research, they worked with people worth between $1 million and $10 million, with 80 per cent being first-time millionaires who’d self-generated their wealth.
Take a look at the seven common traits of the wealthy so you can adopt or adapt these for your own life.
In basic terms, they spend less money than what they earn. Any individual earning an income has the potential to save money and invest. But ask yourself these questions:
If someone is living above their means and spending more than they earn, would giving them a higher income necessarily help them? Is giving someone who spends all of their weekly income more money a good idea. Probably not because they’d just spend all that money, too. A person must learn to live within their means because it’s not about how much money you earn but rather what you do with it.
So you might be wondering what type of spender you are and how well you are making your money work for you. The Millionaire Next Door provides us with a formula that gives you an idea of where you are sitting on a scale:
AGE x INCOME _____________ 10
Once you have your figure, you can get a good idea of how well you are using your money. Taking away all liabilities from your assets and essentially selling everything you own, how much money would you have?
If you are worth more than the figure, you are deemed to be a Prodigious Accumulator of Wealth (PAW). If you are slightly less or around the mark, you are considered an Average Accumulator of Wealth (AAW). If you are below the number significantly, you are considered an Under Accumulator of Wealth (UAW).
2. LITTLE EMPHASIS ON MATERIALISM
There is a widespread misconception about many wealthy individuals. It’s often perceived that the wealthiest drive the nicest cars, wear the nicest watches and drink the finest champagnes. However, it’s often quite the contrary. A lot of the world’s wealthiest people place very little emphasis on materialism.
3. INVESTING TIME, EFFORT, AND MONEY
If you’re not born with a winning lotto ticket (i.e. a rich family), wealth isn’t going to magically appear for you. It takes a lot of hard work. Nobody should expect to earn riches without effort, and if they do, then they’re likely in for a rude shock.
4. FINANCIAL INDEPENDENCE OVER STATUS
This can be interpreted in many ways. It can be seen as spending less time socialising and more time working and forming strategies. It could mean less unnecessary purchases of luxury items and more worthwhile investments.
As mentioned above, around 80 per cent of the focus group in the book achieved their wealth within their lifetime – without the luxury of being the beneficiaries of wealthy parents or grandparents.
5. RESPECT FOR MONEY AND WORK ETHIC
What’s interesting in Stanley and Danko’s research is their children were also financially independent. In fact, the importance of their children not being born, or living, with a silver spoon in their mouths was a key trait amongst the wealthy.
6. SPOTTING MARKET OPPORTUNITIES
The next common trait among the millionaires in The Millionaire Next Door was that they were all skilled at identifying opportunities. They were great analysers, capitalisers and executers.
Although expert opinion can be very helpful, it’s important to learn to develop your own opinions and theories about the business that you are in.
7. THE RIGHT OCCUPATION, VEHICLE, OR BUSINESS
This leads us to the final point – by choosing an area you’re naturally talented or interested in, you’re already doubling your chances of success. Let’s be honest, some people are simply naturally stronger at certain jobs than others.
Everyone has their individual strengths that should be utilised to their maximum capacity to achieve the financial success that they are ultimately seeking.