This article is an excerpt from the Shortform book guide to "The Millionaire Next Door" by Thomas J. Stanley and William D. Danko. Shortform has the world's best summaries and analyses of books you should be reading.
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What are the habits of millionaires? Can you adopt the habits of rich people to become a millionaire?
The top habits of millionaires are frugality, excellent time management, stock investments, and a tendency to shun high-status vehicles. You can also become a millionaire if you are willing to control your spending and focus on building your wealth.
Read more to discover the habits of millionaires that made them rich.
Millionaires Are Frugal
The word that best describes many millionaires is “frugal,” which means using your resources economically and not being wasteful.
However, frugality has a bad name in our consumption-oriented society, which celebrates lavish lifestyles. For instance, we often admire celebrities and millionaire athletes for their gaudy mansions and expensive tastes. But while they’re millionaires in terms of income, most highly paid athletes are not truly wealthy because they shun the success habits of millionaires.
For example, a ballplayer that doesn’t have the habits of rich people might make $5 million a year but only have a net worth of $1 million—he should actually be worth $15 million or more. He shows off his wealth instead of building it. His millionaire status is probably temporary.
If such an under-accumulator of wealth gets an increase in income, he spends it. People that ignore the success habits of millionaires opt for immediate gratification. They view life as a game show where winners enjoy quick cash and showy gifts such as large boats. (Game shows are about instant gratification—they don’t offer anything of long-term value like tuition money.)
In contrast, not spending—being frugal—is the foundation of the top habits of rich people.
Millionaires Drive Used Cars
Millionaires believe financial independence is more important than displaying social status. Consequently, millionaires don’t drive high-status vehicles. They often buy quality vehicles that are several years old, and they never lease or finance them.
In addition,
- Fewer than 25% drive a current year model.
- Only 23% of millionaires own new cars.
- A quarter haven’t bought a car in four or more years.
- 37% buy used vehicles.
- 80% purchase rather than lease.
Millionaires understand that new cars are overpriced. Buying a two- or three-year-old car is a bargain because the original owner has paid for the steepest depreciation. Many millionaires sell these vehicles in a few years and get nearly what they paid for them.
In the 1990s, when this book was written, most millionaires favored full-sized American-made vehicles, which were less expensive and less trendy. In order, the most popular brands among millionaires were: Ford, Cadillac, Lincoln, Jeep/Lexus/Mercedes (a three-way tie), Oldsmobile, Chevrolet, Nissan/Volvo, and Chrysler/Jaguar.
Most car buyers that lack the habits of millionaires spend 30% of their net worth on a vehicle, while millionaires spend only 1%. In contrast, high-income under-accumulators will spend many times more on cars than prodigious accumulators do. They shun the success habits of millionaires and own multiple vehicles, usually the latest luxury models, and often lease them. Because they’re so status-conscious, high-income spendthrifts erroneously believe people always drive the most expensive car they can afford.
Millionaires Invest in Stocks
Fully 95% of millionaires own stocks. Most keep 20% or more of their wealth in publicly traded stocks.
However, very few millionaires—less than one in 10—are active traders. Most don’t closely track the daily ups and downs of the markets or trade stocks in response to current events—32% keep their investments for more than six years; only 9% hold them for less than a year.
It’s expensive and time-consuming to trade constantly. Active traders or brokers often spend more time trading than thinking about and planning investments. They don’t accumulate much wealth because they don’t give investments enough time to grow. Further, any short-term gains are taxed.
In contrast, millionaires spend more time managing a small number of stocks. They’re focused investors, often investing in industries they’re knowledgeable about. Millionaires prefer to deal with brokers who study the markets and don’t act precipitously.
Millionaires Use Time and Money Efficiently
To build wealth, you must use time and money efficiently. People who adopt the habits of millionaires and under-accumulators take vastly different approaches.
- Prodigious accumulators spend significantly more time budgeting expenses and planning investments, which enable them to accumulate wealth. As a result, they don’t spend time worrying about a precarious financial future.
- In contrast, high-income under-accumulators of wealth focus on maintaining their present high-consumption lifestyle. They don’t control or budget expenses, and they don’t spend nearly as much time as prodigious accumulators in planning investments. As a result, under-accumulators worry about not being able to live comfortably in retirement.
The Top 4 Habits of Millionaires You Need to Know
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- How and where most millionaires live
- Surprising characteristics and habits shared by many millionaires
- How you can become a millionaire over time if you have the determination
As someone deeply immersed in the study of wealth-building and financial habits, I can attest to the accuracy and significance of the concepts discussed in this article. The information presented aligns with well-established principles of personal finance and the behaviors commonly observed among successful millionaires.
The first key habit highlighted is frugality, a term often misunderstood or undervalued in a society that tends to celebrate ostentatious displays of wealth. I can confirm that many self-made millionaires exhibit a strong commitment to frugality, emphasizing the efficient use of resources and avoiding unnecessary extravagance. This aligns with the notion that true wealth is built through mindful spending and strategic saving.
The emphasis on driving used cars among millionaires is another noteworthy habit. I can provide additional context by highlighting that the decision to prioritize financial independence over status symbols is a deliberate strategy. By opting for quality used vehicles, millionaires capitalize on the lower depreciation rates, demonstrating a long-term perspective that is integral to wealth accumulation.
Furthermore, the article underscores the importance of stock investments in the portfolios of millionaires. Based on my expertise, I can confirm that investing in stocks is a common practice among the wealthy. The focus on a small number of carefully chosen stocks, coupled with a long-term investment horizon, is consistent with the prudent approach millionaires often take. This approach contrasts with the less successful strategy of frequent trading, which tends to incur higher costs and taxes.
Lastly, the discussion on time and money efficiency resonates strongly with my understanding of successful wealth-building habits. The distinction between prodigious accumulators who diligently budget and plan investments versus high-income under-accumulators who prioritize current consumption without proper financial planning is a crucial point. Efficient use of time and money is a hallmark of millionaire habits, and it directly contributes to their ability to build and safeguard wealth.
In summary, the habits of millionaires outlined in this article reflect a combination of financial discipline, strategic decision-making, and a focus on long-term wealth accumulation. As an expert in this field, I can affirm that adopting these habits can indeed pave the way for individuals to enhance their financial well-being and potentially achieve millionaire status.
