In my last column, I noted that there were a record number of U.S. millionaires at the end of last year: 14.6 million.
How did so many Americans become so wealthy?
According to money manager Ken Fisher – author of The Ten Roads to Riches – there are essentially 10 ways to get rich, aside from a large inheritance, winning the lottery or other circumstances beyond your control.
I touched on nine of these in my last column, including starting a successful business, becoming a high-paid professional and marrying into money.
But I saved the 10th and most common method for last: saving, investing and compounding your money.
Most of us don’t have the time, the capital or the expertise to found and run our own business.
And we don’t have enough education to be a doctor, lawyer or engineer.
But anyone willing to save can put their money into stocks and start earning a better-than-average return on their capital.
This approach takes time and discipline. But it is the surest way to long-term wealth.
“Skip mocha-caramel-triple-lattes,” says Fisher. “Pay off credit card debt. Avoid designer labels. Buy used cars. Eat in more, out less. Total no-brainers. Some can’t do this – just can’t.”
Let me make an analogy here…
If you want to live a long and healthy life, you have essentially two choices.
You can eat a healthy diet, exercise regularly, get sufficient sleep and maintain a close network of human connections.
Or you can conclude it is mostly genetics – “luck” in other words – and eat whatever you want, exercise rarely, burn the candle at both ends, and treat family and friends like they’re expendable.
By the same token, to reach a comfortable level of financial independence, you can educate yourself (or learn a financially valuable skill), save regularly, invest smartly and let your nest egg compound in value.
Or you can conclude that becoming wealthy is mostly about being born into the right circumstances and getting the right breaks.
“Luck” in other words.
How do we know that our beliefs – and more importantly our habits – are the primary determinants of our financial success?
It’s in the research done by Credit Suisse, Spectrem Group, Forbes and others.
But it is perhaps most thoroughly documented in the work of Dr. Thomas Stanley, the author of bestselling books like The Millionaire Next Door and The Millionaire Mind.
One of the nation’s leading authorities on the characteristics of America’s affluent, he found that those with a net worth of a million dollars or more generally lived a frugal lifestyle with a modest house, no second homes or boats, and little spent on designer labels and prestige brands.
This is a shock to most people.
In his book Stop Acting Rich… And Start Living Like a Real Millionaire, Stanley recalled an appearance on Oprah when an audience member asked the question, one he’d heard hundreds of times before: “What good does it do to have all this money if you don’t spend it?” The woman was angry, indignant even. “These people couldn’t possibly be happy.”
Like so many others, she genuinely believed that the more you spend, the better life is.
Bear in mind, we’re not talking about people who live below the poverty line. (Clearly, their lives would be better if they were able to spend more.)
We’re talking about middle-class consumers and up, those who live beyond their means and, as a result, find themselves under enormous financial stress.
According to Stanley…
The pseudo-affluent are insecure about how they rank among the Joneses and the Smiths. Often their self-esteem rests on quicksand. In their minds, it is closely tied to how long they can continue to purchase the trappings of wealth. They strongly believe all economically successful people display their success through prestige products. The flip side of this has them believing that people who do not own prestige brands are not successful.
Yet “everyday” millionaires see things differently. Most are not big spenders.
According to Stanley’s surveys, their most popular activities include…
- Socializing with children/grandchildren (95%)
- Planning investments (94%)
- Entertaining close friends (87%)
- Visiting museums (83%)
- Raising funds for charities (75%)
- Attending sporting events (69%)
- Participating in civic activities (69%)
- Studying art (63%)
- Participating in trade/professional association activities (56%)
- Gardening (55%)
- Attending religious services (52%)
- Jogging (48%)
- Attending lectures (44%).
The cost associated with these activities is minimal.
Most millionaires understand that real pleasure doesn’t come from the car you drive or the watch you wear, but quality time spent in activities with family, friends and associates.
They aren’t misers either, especially when it comes to educating their children and grandchildren – or donating to worthy causes.
Although they are disciplined savers, the affluent are among the most generous Americans in charitable giving.
So while millions of consumers chase a blinkered image of success – busting their humps for stuff that ends up in landfills, yard sales and thrift shops – disciplined savers and investors enjoy the freedom, satisfaction and peace of mind that come from living within their means.
They recognize that success is not about flaunting wealth. It’s about accomplishment, self-reliance and the financial freedom that comes with it.
These folks aren’t necessarily the brainiest Americans, but they do know something priceless.
It is how we spend ourselves – not our money – that makes us rich