Some people become millionaires because they are born into money. Quite often they do not develop proper wealth-building habits because they were never forced to do so. As a result, quite often you can not learn from these people. You enter the two-comma club by learning the wealth-building habits of self-made millionaires. In essence, follow people who came from humble beginnings who have achieved financial success.
Self-Made Millionaire Research
Thomas J Stanley, Ph.D., author of
- The Millionaire Next Door
- The Millionaire Mind
- Stop Acting Rich...and Start Living Like a Real Millionaire
spent his career identifying and profiling the myths and realities of the rich. He discovered not all millionaires have high social status. In fact, those among the least productive in transforming their incomes into wealth are in the higher-status occupations.
Given his findings, it is clearly possible many people who do not have higher-status occupations can become wealthy (from a financial perspective) by learning the wealth-building habits of self-made millionaires.
Let's look at their wealth-building habits.
They Set a Goal and Objectives and Have a Plan
In many recent posts, I have stressed the importance of setting a goal, objectives and having a plan.
They Love Their Family and Have Lifelong Friends
Financial wealth should not come at the expense of more important things in life such as family and friends. I am certain everyone can think of financially wealthy people who are very likely miserable people with whom to associate. I know I can.
They Do Not Flaunt Their Wealth
In his books, Thomas J Stanley, Ph.D. discusses 4 groups of people.
- Low Income, Low Net Worth
- Low Income, High Net Worth
- High Income, Low Net Worth
- High Income, High Net Worth
Self-made millionaires do not buy things they do not need with money they do not have to impress people they do not like.
Operate 'under the radar'. Do not fall in the High Income, Low Net Worth group. People in this group 'soar with eagles while pigeons are doing a number on their head'.
They Are Frugal
There is a difference between frugal and cheap.
- Both love to save money. Cheap people, however, do so at the expense of others.
- You assess the bigger picture and have the patience to cash in on the simple savings strategies when you are frugal. Frugality is when you try to cash in on a sale or even try to find those items cheaper but are prepared to spend more money to ensure superior product quality with a longer shelf life. Purchases are made based on value and not just the price of something.
- Cheapness uses price as a bottom line. Frugality uses value as a bottom line.
- Cheap people are motivated by saving money regardless of the cost. Frugal people are driven by maximizing total value. This includes the value of their time.
- Cheap is all about spending less. Being frugal is about prioritizing spending to have more of the things that truly matter.
They Are Positive
A positive mental outlook is essential to achieve long-term success. We must be aware of our thoughts.
They Are Resilient and Persevere
Stuff happens. Get over it. Charlie Munger offers the best advice.
They Save A Lot
You do not become a self-made millionaire if saving is what is done after spending. This is 'back asswards'.
Saving is a priority. What remains after saving is what is used to meet expenses. Self-made millionaires know the delicate balance between saving enough to attain wealth versus sacrificing life at the expense of saving. It is important to maintain a reasonably comfortable lifestyle unless you desire to live like a hermit.
A self-made millionaire invests the savings set aside before expenses. Investments are made in assets that generate long-term wealth. These investments can be, for example, income-producing properties or common shares in high-quality companies. Highly successful business owners choose to invest in their business because they view this as being the most optimal means of generating long-term wealth and because they are passionate about their business.
They Are Patient
Self-made millionaires are typically patient when they invest. The rewards of an investment are often not realized until well into the future.
Many people require immediate gratification. In the current environment, many equity investors are turning to speculation and extremely active trading. A holding period of a week is now a long-term hold for many investors.
At the 2002 Berkshire Hathaway shareholders' meeting, Messrs. Buffett and Munger responded to an investor's question that speaks to their patience.
They Do Not Budget
Budgeting is important at the start of your journey to becoming a self-made millionaire. Eventually, budgeting is no longer required because proper money management habits become ingrained in your psyche. You can't shake them no matter how hard you try.
They Spend More Time Studying And Planning For Investments
You become a proficient tradesperson or professional by studying and planning. Investing is no different. You do not become a proficient investor unless you study and plan.
I have run out of fingers and toes used to count the number of people who know absolutely nothing about equity investing yet who invest in highly speculative equity investments made on a 'hot tip'.
Anybody with no desire to study and plan before investing should seek advice and guidance from a trusted advisor.
They Ask For Feedback
Thomas C. Corley, author of:
- Change Your Habits, Change Your Life: Strategies that Transformed 177 Average People into Self-Made Millionaires
- Rich Habits: The Daily Success Habits of Wealthy Individuals
spent five years researching the daily habits of 177 self-made millionaires.
Through his research, he found the fear of criticism is the reason we do not seek feedback from others. Feedback, however, is essential to learning what works and what does not. It helps us understand if we are on the right track. Feedback criticism, good or bad, is a crucial element for learning and growth.
Feedback also provides information needed to succeed. It allows us to change course and experiment with a new career or business.
As with anything else in life, however, we need to be very careful with whom we obtain feedback. In some cases, we might want to completely ignore the advice provided!
They Are Humble
Many self-made millionaires are humble and do not need to flaunt their wealth. 'Flying under the radar' works just fine.
They Do Not Follow The Crowd
Similar statistics for Canada are hard to find but another blogger conducted some extensive analysis and arrived at the following results.
'As a summary, and from a breakdown perspective, Canada’s wealthiest breaks down as follows:
- Wealthy = 2.05% of Canada’s population has between $1 million and $5 million USD
- VHNW = 0.26% of Canada’s population has between $5 million and $30 million USD
- UHNW = 0.03% of Canada’s population has greater than $30 million USD
Extrapolating the above data, and to answer the question:
How Much Wealth Do You Need in Canada to Become Part of the 1% Wealthiest in 2021: To make it into the top 1% of Canada’s wealthiest in 2020, you will need approximately $7,000,000 USD, or approximately $9,000,000 CAD.'
The statistics for both countries are appalling and reinforce the reason why it is critical not to follow the crowd if the goal is to become a self-made millionaire.
They Put More Energy Toward Personal-Growth Activities
In conducting research for The Next Millionaire Next Door, Sarah Stanley Fallaw, Ph.D., daughter of Thomas J Stanley, Ph.D., found that self-made millionaires allocate more time to personal growth. They spend roughly 5.5 hours a week reading for pleasure and nearly 6 hours a week exercising. The average American, however, spends 2 hours and 2.5 hours on those activities.
There is little point in becoming a self-made millionaire if you do not have your health. Some people have physical ailments that prevent them from doing what they wish to do from a fitness perspective. Other people, however, lead a sedentary lifestyle. This leads to health challenges. We have one body, one life. Take care of it.
They Take on Side Hustles
A successful equities investor does not invest in only one company. The same philosophy applies to income generation.
In today's world, it can be financial suicide to rely on one source of income. Companies restructure. Companies are acquired. Changes happen in the corporate hierarchy. All these things are out of an employee's control. Be in a position where you have mixed emotions if any of these events occur....mixed emotions as in joy and happiness.
Corley's research results found that three streams of income seem to be the magic number; roughly 65% of self-made millionaires had at least three streams of income they created before making their first million dollars.
There are so many benefits to having LEGAL side hustles. Develop multiple streams of income such as real-estate rentals, stock-market investments, and part-ownership in a side business.
They Associate With Other Successful People
Did your parents ever tell you to be careful who you associate with!? Mine did. I think they were on to something.
Your odds of becoming a self-made millionaire improve considerably if you associate with other successful people.
They Sleep Less and Work More
Sarah Stanley Fallaw's research found that self-made millionaires make a few sacrifices to make the most of their time. They sleep ~8 hours less a week and work ~6 hours more a week than the average American.
Many might wake ~3 hours before their workday actually begins as part of their strategy to deal with inevitable daily disruptions.
They Avoid Debt or Make Cautious Use of Debt
Debt is a double-edged sword. The edge is extremely sharp when you have too much debt and the plan put in place to achieve objectives and the ultimate goal does not work out.
In my recent Factors to Consider When Analyzing Your Net Worth post, I discussed how increasing our Net Worth is achieved by increasing Assets and reducing Liabilities. We can sleep extremely well when debt is not a concern.
Sometimes employing the use of debt is necessary. When this arises, it is important to be cautious in its use.
It becomes increasingly difficult to become a self-made millionaire when bogged down by debt. The people I reference in my Avoid Making Poor Financial Decisions post certainly have huge hurdles to overcome if they intend to become self-made millionaires!
They Hire A Trusted Professional To Help Manage Their Wealth
Becoming a self-made millionaire does not mean being an expert when it comes to tax and estate planning matters. Engage the services of experts in these areas you can trust and with whom you get along.
Wealth-Building Habits of Self-Made Millionaires - Final Thoughts
It might help to be childless and live to a ripe old age if the intention is to become a self-made millionaire. This is not necessarily the path many of us decide to follow. You can certainly be young, have a family, and still become a self-made millionaire.
Various studies have been conducted about people who came from humble beginnings and achieved financial success. Become a self-made millionaire by following the traits exhibited by self-made millionaires touched upon in this article.
Stay safe. Stay focused.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclaimer: I do not know your circumstances and am not providing individualized advice or recommendations. You should not make any investment decision without conducting your research and due diligence.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with the company mentioned in this article.