If you haven’t read the book"The Millionaire Next Door: The Surprising Secrets of America's Wealthy," by Thomas J. Stanley, Ph.D., and William D. Danko, Ph.D., you must put it on your reading list.The best-selling book identifies several common traits that show up many times over among those who have accumulated wealth.
If the word "wealth" conjures up images of mansions and yachts, think again.The "millionaires next door" are people who don’t look the part. They are the people standing behind you in the grocery store line or pumping gas next to you into their not-so-fancy car.
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You also might want to read the follow-up book, "The Next Millionaire Next Door: Enduring Strategies for Building Wealth," by Thomas J. Stanley, Ph.D., and Sarah Stanley Fallaw, Ph.D.
For the most part, the millionaires next door are underconsumers. They spend far less on material things than their peers.And they have achieved their status because they have consistently employed several wealth-building strategies that any of us can use—beginning today. Here are twelve things the millionaires next door do to gain their wealth.
They Set and Achieve Goals
Wealthy people don’t simply expect to make more money; they plan and work toward their financial goals. They have a clear vision of what they want and take the necessary steps to get there.
They Actively Save and Invest
The majority of wealthy retirees began making the maximum contribution to their 401(k)s in their 20s or 30s. The dollars you put into your 401(k) are pre-tax, so they reduce the total amount of your earnings you must pay federal income tax on. Many companies also offer to match all or a percentage, perhaps 50%, of your contributions to your 401(k) up to a certain percentage—6% is typical—of your salary. That's an added bonus.
They Maintain Stable Employment
The wealthiest retirees stayed with one employer for 30 to 40 years. Staying with the same company can offer big rewards, including a very nice ending salary, significant pension benefits, and hefty 401(k) balances.
It's getting harder and harder to find stable employment, but there are still a number of people who are fortunate enough to have that job security, especially teachers, firefighters, and other government workers. They prove you don’t have to be in a high-powered, fast-paced career to be wealthy.
They Surround Themselves With Experts
Wealthy people often don’t do their own taxes, and they usually aren’t do-it-yourself investors. They know what their strengths are, and if their strengths don’t lie in tax preparation and financial planning, they leave those matters to dedicated experts.
They Protect Their Credit Score
These people guard their FICO scores closely so they can keep lower interest rates on major purchases, such as mortgages and car loans. They also do this by limiting their debt.
They Value Having Multiple Sources of Income
Considering the prime importance of income, wealthy retirees go a step further to secure at least three income sources. Those sources tend to come from a combination of Social Security, pension, part-time work, rental income, other government benefits, and, most important, investment income.
They Believe in Keeping Busy
Busier retirees tend to be happier pursuing their hobbies and social activities. A second job that fuels your passion and keeps you engaged mentally while also bringing in extra money is the ideal scenario. Think of how much money some of us spend simply out of boredom.
Your side gig doesn’t need to be a grind. Do something you would enjoy even if there were no paycheck attached to it, like ushering at local sports events or helping customers at a bookstore.
They Are Cautious About Their Spending
Wealthy people are careful not to become a target for scammers. They know that as you become wealthy, everyone from Internet hustlers to home improvement con artists is likely to target you. These retirees take their time and ask the right questions from service providers and seek out referrals before doing business with anyone.
They Are Not Wasteful
Wealthy people believe that if you aren’t using it, you should stop paying for it. It can be anything from a premium cable channel to a club membership to a home security system. They follow a monthly budget that helps them see where their money goes, so they can make cuts when necessary.
They Recognize Money Does Not Buy Happiness
There is, in fact, a diminishing return on happiness. Analysis of a 2010 Gallup survey of over 450,000 U.S. residents found that emotional well-being ceases to increase with annual income over $75,000.
They Pay Themselves First
Wealthy people understand the value of setting money aside for themselves first. For them, it is an essential tenet of personal finance and gives them a way to keep up financial discipline.
They Believe Patience Is a Virtue
Wealthy retirees get where they are through patience. They have an underlying belief that financial security comes gradually and accumulates through diligent saving, investing, and budgeting over multiple decades.
The Bottom Line
The wealth mentality is not as mysterious as many people think. Small tweaks, goal setting, and long-term financial planning can move you closer to a wealthy retirement.
As an enthusiast deeply immersed in the realm of personal finance and wealth-building strategies, I find it imperative to emphasize the transformative insights presented in "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" by Thomas J. Stanley, Ph.D., and William D. Danko, Ph.D. This seminal work, supported by extensive research and interviews with actual millionaires, unveils a paradigm shift in our perception of wealth. It's not about opulence and extravagance; instead, the focus is on the unassuming individuals who quietly amass significant wealth through deliberate habits and strategic financial decisions.
This book has had a profound impact on shaping the mindset of wealth accumulation, and its principles are further expanded upon in the follow-up, "The Next Millionaire Next Door: Enduring Strategies for Building Wealth," authored by Thomas J. Stanley, Ph.D., and Sarah Stanley Fallaw, Ph.D. The follow-up provides enduring strategies, cementing the timeless nature of the principles outlined in the initial work.
Now, delving into the twelve key strategies that the millionaires next door employ to build and maintain their wealth:
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Setting and Achieving Goals: Wealthy individuals are distinguished by their proactive approach to financial success. They meticulously plan and work towards specific financial goals, fostering a clear vision of their objectives.
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Actively Saving and Investing: The majority of wealthy retirees began contributing to their 401(k)s early in their careers. They take advantage of pre-tax contributions and employer matches, utilizing these tools to build a substantial financial portfolio over time.
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Maintaining Stable Employment: Long-term employment with a single employer is a common trait among wealthy retirees. Stability provides benefits like a generous ending salary, significant pension benefits, and substantial 401(k) balances.
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Surrounding Themselves With Experts: Wealthy individuals acknowledge their strengths and delegate financial matters to dedicated experts, such as tax professionals and financial planners.
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Protecting Their Credit Score: Maintaining a strong credit score is crucial for securing lower interest rates on major purchases. Wealthy individuals limit debt and safeguard their FICO scores.
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Valuing Multiple Sources of Income: Wealthy retirees secure diverse income streams, including Social Security, pensions, part-time work, rental income, government benefits, and investment income.
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Believing in Keeping Busy: Keeping busy, whether through hobbies or part-time work, contributes to the happiness and financial well-being of retirees.
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Being Cautious About Spending: Wealthy individuals exercise caution to avoid becoming targets for scams. They vet service providers, ask pertinent questions, and seek referrals before engaging in business transactions.
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Avoiding Wastefulness: Adopting a frugal mindset, millionaires next door cut unnecessary expenses and adhere to a monthly budget, optimizing their spending habits.
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Recognizing Money Does Not Buy Happiness: Wealthy individuals understand the diminishing returns on happiness beyond a certain income threshold. They prioritize well-being over excessive materialism.
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Paying Themselves First: Prioritizing personal savings is a fundamental tenet for the wealthy. This practice instills financial discipline and ensures a secure financial future.
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Believing Patience Is a Virtue: Wealthy retirees attribute their success to patience, emphasizing the gradual accumulation of financial security through consistent saving, investing, and budgeting over the long term.
In conclusion, these strategies, when embraced and implemented, offer a tangible path toward financial prosperity, demystifying the wealth mentality and making it accessible to anyone committed to long-term financial well-being.
