What we learned from “The Millionaire Next Door”

This week we lost an influential voice in the world of financial freedom. Dr. Thomas J. Stanley one of the authors of “The Millionaire Next Door” Was killed in a traffic accident. Though I never met Dr. Stanley I am very familiar with his work. He showed us that being a millionaire is not an unattainable goal but one that happens more often than we think. In honor of Dr. Stanley here are 6 things we learned from the millionaire next door.

Millionaire are not who we think they are.

The definition of a millionaire is “a person whose assets are worth one million dollars or more.” In “The Millionaire Next Door” we learned that a millionaires are not who we think they are. They can be your child’s teacher, a local business owner, or a blue collar worker. Most millionaires don’t live the flashy beverly hills lifestyle that hollywood has lead us to believe. In fact there’s likely a millionaire in your modest neighborhood. Every millionaire has learned the next rule.

You must live below your means.

This is one lesson that we have taken to heart at OurDebt.net. The truth is the only way to true financial freedom is to have money left over at the end of the month and the only way to do that is through a budget. Its not a sexy or glamorous secret but it is one of the cornerstones of true wealth. If you are disciplined in your spending you will over time become wealthier than the person with the higher salary that buys flashy new item every time they get payed.

In actuality the size of your paycheck only accounts for about 30% of what makes up millionaires. More than ⅔ of millionaires can answer yes to the question “Do you know what your family spends each year on food, clothing, and shelter?”. Millionaires are more likely to track their spending than high earning non millionaires.

For help starting your budget check out our article “Budget: the Power to Change Your Financial Life”

Millionaires invest regularly

In the book “The Millionaire Next Door” Stanley and Danko explain that your income is your biggest wealth building tool. Investing is how you use that tool. The goal for millionaires is to have their money working for them 24/7 365. This is called passive income. Investing is the means by which millionaires achieve passive income. On average millionaires invest nearly 20% of their income. Given time and a steady contribution these investments grow through the mathematical principle of compound interest.

Millionaires own their cars.

Millionaires own their cars rather than leasing them. If you are an avid listener of Dave Ramsey you know he references this fact a lot. In fact Dave has taken to calling leasing a car “Fleecing a Car”. The truth is only ¼ of millionaires drive a current model year car and when they do they pay cash for it. Most millionaires however drive used cars. In the follow up book to “The Millionaire Next Door” called “Stop Acting Rich” Danko explored this further and found that the preferred car for millionaires is Toyota. This makes you think who is buying all the BMW’s?

Your house determines your success.

Your house can be the biggest roadblock to becoming the millionaire next door. How often you move is a big determining factor. Stanley and Danko found that most millionaires have lived in their house for over 20 years. Another common trend is that they did not bite off more than they can chew. Most millionaire have a mortgage less than ⅓ of their homes value or no mortgage at all. How did they do this? in “Stop acting rich” Danko found that 90% of Millionaires tend to live in houses that cost less than a million dollars. Furthermore 28.3% of millionaires live in a house that cost less than $300,000.00. A good rule of thumb is not to buy a house that is valued at more than three time your annual income.

In conclusion why be a millionaire?

If you have to deny yourself and live below your means then is it really worth being a millionaire? Are the rich really happier? Rich is a subjective term but financially independent is an objective place in your life. This is what Stanley and Danko found out about being financially independent.

“Financially independent people are happier than those in their same income/age cohort who are not financially secure.”

Not having to worry about how you are going to make a mortgage payment or how you are going to pay the doctor is liberating. People with real wealth can spend the money they have worked hard for on things they really want. Further more they have the honor of giving a portion of their savings to causes they truly care about. as Dave Ramsey puts it “If you can live like no one else one day you can live and give like no one else”

If you have made the choice to stop going deeper in debt and start pulling yourself out you are in the right place. We are here to help. Tell us your story. Remember at OurDebt.net “we journey together”.

About the Author

Chris Martin is not your traditional money expert after graduating from SCI-arc with his Masters in Architecture, Chris enrolled in the school of hard knocks. He quickly became an expert at the financial free fall. Now he is turning his finances around and teaching others how to live while on the path to being debt free. Read more articles by Chris at www.OurDebt.net

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