Re-reading “The Millionaire Next Door” has prompted me to think about the mentality of frugal millionaires. That lifestyle never appealed to me but, as the life coaches say, if what you’re doing now isn’t working for you, change it.
If you haven’t ever read this classic book on personal finance, it’s worth a look. It can be a blueprint to a debt-free, and even wealthy, lifestyle, if you follow the steps. And even if you don’t buy into everything in the book, you’re sure to find tips that will help you increase your wealth.
Here are 7 things millionaires do that most people don’t. Following even a few of these tips can help you change your mindset and begin to save money like a millionaire.
1. Choose Cars Well
Most millionaires surveyed in The Millionaire Next Door did not choose cars as status symbols. They chose them for reliability and value. Many shopped around for the best deals. However, it’s a myth that smart millionaires “never” buy brand new cars. In fact, 63.4 % prefer to buy new vehicles, but they shop carefully, always sure to get the best deal and value.
Millionaires who buy new cars often buy from friends, business associates, and clients who own the car dealership and will offer the best price. New car buyers who are millionaires take care of their cars, often driving them until repairs become inevitable. On the other hand, some purchase a new car and sell it within a year or two, often getting back what they paid for the car.
2. Pay Less Taxes
Imagine how much more money you’d have, and how much more quickly you could accumulate wealth, if one-third or more of your salary didn’t go to taxes.
Many people get mad that it appears the wealthy pay less taxes, percentage-wise, than the middle class. But not all millionaires are cheating on their taxes. In many cases, the typical “millionaire next door” invests the money, pre-tax. This is also how millionaires accumulate wealth rapidly. They have smart financial advisors who show them how to keep more of their money, legally.
3. Save 15% (Or More) Of Your Income
The “typical” millionaire in the U.S. accumulated wealth slowly, by earning a stable, solid income, and then investing an average of 20 percent of the household’s realized income each year.
In addition to these investments, millionaires have a fund that would permit them to stop working for 10 years or more. That is, instead of having the recommended three to six months of household expenses in an emergency savings account, they have 10 years’ worth. Of course, because of the smart millionaires’ frugal lifestyle, this equals only about 7 percent of their realized income for each year.
That’s right. The simple formula to become a millionaire? Live well below your means, saving and investing about 93 percent of your income. You’ll never have a financial worry.
4. Live in a Home You Can Afford
A common thread in the lives of millionaires is “living below your means.” These millionaires with wealth and security don’t practice “conspicuous consumption” or “keeping up with the Joneses.” They live in adequate homes in middle class neighborhoods. Living in these neighborhoods allows them to live a scaled down lifestyle, without standing out, as well.
In fact, brand new luxury cars, designer clothes and extravagant furnishings would look out of place in these neighborhoods. So not only does a lower mortgage (or no mortgage at all!) help millionaires save money, but they save on a number of other expenses by choosing a modest sized home, too. Living in a smaller home saves on:
- Lawn care
- Heating and cooling costs
- Furniture, because a smaller home costs less to furnish with fewer rooms
Some of these expenses may sound small, but they all add up to living a more frugal lifestyle.
5. Clothing Is NOT An Investment
Some wanna-be millionaires who earn high incomes justify expensive purchases, from cars to clothing, by thinking these things make a difference in their professional lives. They believe they have to look successful in order to be successful, so will splurge on designer bags and the best suits so that others will perceive them as top in their field.
Others might justify high-end clothing purchases by claiming they last longer. The fact is, today’s bargain clothes from “average” retailers can look as good as designer clothes, and, if they are taken care of properly, will last just as long.
Besides, if you change sizes due to weight loss or weight gain, or, worse, spill something on those expensive threads, they’re going to be just as useless as a suit from Kohl’s that suffered the same fate.
6. Be Both Penny- and Pound-Wise
We’ve all heard the expression “penny-wise and pound-foolish.” This might mean a high-income earner, who is not a millionaire, clipping coupons although they live in a 5,000-square-foot McMansion that is too large for their family. Millionaires know that savings counts whether it’s large or small, so they are likely to shop carefully and rarely splurge on designer fashions or shoes.
Some millionaires feel that shopping around for a better deal is a worthwhile investment of their time. Others feel they are better served to spend that time working and earning money. In that case, they are likely to find fast and efficient ways to get the best deals.
Some millionaires clip coupons while others don’t. Again, it depends on if they feel the savings is worth their time. But, however they choose to save money, millionaires save. And most share another thing in common, too.
7. Millionaires Have Meticulous Budgets
The book The Millionaire Next Door reminds us that nearly every millionaire they interviewed has a household budget — and sticks to it. Many said they don’t know how they could have become wealthy if they didn’t have a budget.
It’s that old business adage, “You can’t improve what you don’t measure,” at work. And you can’t become truly rich, and hang on to your money, without a household budget.
Do You (Still) Want to Be a Millionaire?
Maybe you’ve always wanted a lot of money so you can splurge on expensive cars, fancy clothes and a giant house. But smart millionaires don’t enjoy these things. When we look at a self-made millionaire next door, we have to admit they’re not jet-setters and their lives may even be considered “boring.”
But think of the financial security that comes from knowing that you have substantial emergency savings and can live on a very small percentage of your current income. That’s a feeling very few people battling credit card debt or living with runaway expenses can enjoy.