I am not impressed with what people own. But I am impressed with what they achieve.
- Thomas J. Stanley -
Author, Millionaire Next Door
There is a good chance your neighbor may be a millionaire and you don't even know it.
The phrase "Millionaire Next Door" comes from a book of the same title written by Thomas J. Stanley and describes the habits of wealthly, yet humble millionaires.
These millionaires fly under the radar. And they could be living right next to you.
In my career, I've worked with hundreds of them. Almost all lived up to the stereotype of humble, hard working, and what I would label as just regular people.
Here's what I found most all of them have in common.
5 Lessons From The Millionaire Next Door
1. They Didn't Become Millionaire's Over Night.
In most cases, it took not only years, but decades.
I recall one meeting I had with a client in his 70's. He owned a variety of apartment complexes that comprised the majority of his wealth.
I asked him how he got started and if he knew they would turn out to be such great investments.
Here's what he said:
"The first year I owned my first apartment building it got riddled with bullet holes. It wasn't the best neighborhood. But I had some extra cash and didn't know what to do with it. The stock market wasn't really a hot topic. Everyone was buying homes, so I figure I'd try my luck with real estate. My goal was to make some extra income, but the first few years I just kept putting money into it."
Good thing he stuck with it. The neighborhood took a turn for the better and his property values have skyrocketed.
2. They Practice A Save First Budget.
This is probably essential to building wealth.
Instead of budgeting your expenses and finding what you can save, they budget their savings and find out what they can spend.
It makes a huge difference.
You don't need to save a crazy amount either. If you start early enough, saving 5-10% of your income can put you in a great position.
The key is prioritizing saving over spending.
3. They Rarely Move.
Most have lived in the same home for decades.
This parlays into number two above of spending only what you can afford after saving.
For most, even though they may have been able to afford a larger mortgage, it would have come at the sacrifice of their savings plan.
So they just stood pat. They found creative ways to enjoy their home without having to upgrade.
Due to staying put, most have a very low mortgage (along with the purchase price they paid! Incredible to hear what homes went for 2-3 decades ago) or have it paid off completely.
4. They Are Extremely Rational.
They are a hard group to convince to make an impulsive purchase or overspend.
I like to say they have emotional stability which is an invaluable trait when dealing with money.
They don't get spooked by markets going down. They understand it is part of market cycles.
They don't get jealous of what others around them are doing. They are content to living their own life.
They don't take on credit card debt. Most have been debt free (outside of mortgage or student loans) their entire life.
In other words, they let stock markets work for them, judge themselves with a personal benchmark and live within their means.
5. They All Have Trying Times To Tell You About.
Getting to this point has taken decades of good habits. But it's also been a rocky road.
The stories are abundant. Working two jobs, no vacations, moving in with their parents, or weeks eating top ramen.
Each story puts in perspective that there is no get rich quick lotto ticket. It just takes patience and hard work.
Derive Wealth is an independent, 100% fee-only financial planning firm located in Pasadena, CA. We specialize in creating personal financial plans designed to organize your life, get you to your goals, and take the worry out of your money. We don't sell products and don't work on commissions. Instead, we provide financial advice you can believe in.