Posted on / by Crawford Ifland / in Money

The Millionaire Next Door

It’s Not Who You Think.

When most people — especially twenty-somethings and Millennials whose nascent careers haven’t quite taken shape yet — hear the term “millionaire,” many images come to mind: sprawling estates with beautiful gardens, multiple sports cars parked in the driveway, yachts, helicopters, penthouse suites…the list goes on and on.

It’s not hard to conjure up mental images of wealth and success — they surround us. And while images of those lifestyles are what The Lifestyles of the Rich and Famous would have us believe, reality is often different.

If I asked you to identify friends or family whom you know — or suspect — are millionaires, who would come to mind?

Perhaps nobody would instantly come to mind. Or, the opposite might be true: perhaps you could immediately identify people you know who are flush with cash — or, at least whom you think are loaded.

But you also might be surprised if you were actually able to look through the checkbooks and bank accounts of your friends and family. Who is portraying an image of a rich lifestyle, but is actually funding their lavish spending with debt, personal loans, credit cards, and really has no money in the bank? And who lives a fairly frugal lifestyle — one you might even find boring — but is actually very wealthy? The answers might surprise you.

Of course, we can’t really examine the pocketbooks of our friends, family, and neighbors (nor am I suggesting that we should), but the research about net worth and how it matches up to the lifestyles we live is very surprising.

In his book The Millionaire Next Door, Dr. Thomas J. Stanley notes that the vast majority of millionaires in America today share six traits in common:

They live well below their means.

Most millionaires in healthy financial standing don’t fall prey to conspicuous consumption. Rather, they focus on living beneath their means, using their wealth to pay for the essentials but sparing nearly every other expense. The truly rich have very few “luxuries,” because they understand that’s not what is most important.

What is, you ask?

They allocate their time, energy, and money efficiently, in ways conducive to building wealth.

This doesn’t mean that millionaires are obsessed with money — it just means that they understand opportunity cost more than most. They’d rather invest their money in ways that will enhance their net worth rather than buying stuff they don’t need.

They believe that financial independence is more important than displaying high social status.

For the millionaire next door, financial independence (not having to work to afford their lifestyle) is the ultimate goal, not displaying high social status. They don’t need to be seen living a luxurious, expensive lifestyle, because that’s not important — in fact, they’re probably more comfortable if nobody knows they are wealthy.

Their parents did not provide economic outpatient care.

By this, Dr. Stanley means that the millionaire next door is most likely not wealthy as a result of money their parents had earned. Rather, they are more likely to have been entrepreneurial — or incredibly frugal — that’s how they built their wealth.

Their adult children (if they have any) are economically self-sufficient.

Just as the millionaire next door didn’t receive much financial help from their parents, they aren’t likely to give any assistance to their adult kids, either. Many millionaires in this category understand the importance of healthy financial accountability, and so do their kids. That means not paying for everything their kids need, but rather forcing their adult children to provide for themselves and make their mark on the world.

They are proficient in targeting market opportunities.

The millionaire next door is always on the lookout for opportunities to build wealth — they don’t just rest on their laurels. There are always opportunities to be earning more. Making the most of these opportunities is what likely got them to this place in life, and it’s their drive in this regard that keeps their net worth growing.

What’s more, millionaires in today’s society aren’t just highly-paid executives with cushy jobs and fancy titles. More frequently, they are entrepreneurs that have struck it out on their own.

Interestingly, Stanley notes that self-employed people make up less than 2 out of 10 workers in America, but account for 2 out of 3 millionaires.

There’s often a large discrepancy between those who actually have wealth and those who want to appear as if they have it.

Of course, some of the people with the sprawling estates, fancy cars, and yachts do have quite a bit of money…it’s hard to buy a yacht for free. But more often than not, the people who look like they just walked off the set of The Wolf of Wall Street have a bank account that’s in disarray. They’re mired in personal debt and have to sell off assets to maintain their lavish lifestyle.

On the outside, everything looks great — really great — but on the inside, their lives and their bank accounts are wasting away. That’s no way to build wealth.

Some of the most successful people I know are the people you would least suspect of having lots of money. They live in a nice home, but it’s modest. They drive an average car, but it’s not flashy — and they most certainly didn’t buy it new. They work at a decent job that pays an average salary, just like you. Their families do not live beyond their means, though their lifestyle can be considered comfortable. They travel occasionally, but don’t go on crazy, lavish vacations to exotic destinations.

On the surface, they look the the average American family. But what lies beneath the surface paints a far more interesting picture.

Thanks to their modest lifestyle and restraint in expenditures, they are able to invest what money is left over. Their mortgage is not burdensome — in fact, although they could have purchased a nicer home with the money they saved for a down payment, they bought a second, smaller home. They don’t live in it — they rent it out and watch as someone else pays down the mortgage with their rent check each month. They’ve already saved money for the kids’ education, and they have a sizable (and growing) nest egg from which to live on when they retire.

On the outside, this family looks completely average. Some may even say a bit boring. But on paper, their net worth grows each month, which affords them more opportunities. They translate the opportunities into more opportunities to grow wealth, not just into more things like a flashy car or a big boat.

An additional revenue stream from an income-producing property could mean more vacations…but more often than not, they choose to invest this money into other income-producing opportunities, whether it be growing their retirement account, investing in business opportunities brought to them by family or friends, or saving for their kids’ college educations or another investment property. In short, they don’t buy stuff — they purchase assets.

That’s the main difference between those who are rich and those who look rich: those who are really rich are focused on living within their means and take every opportunity possible to translate the proceeds from their ventures into more opportunities. Those who simply look rich are often more concerned with appearance — the cars, the houses, the nice clothing and vacations. The image is appealing to many, but the consequences of living such an unsustainable lifestyle has tremendous consequences, most of which never play out on MTV.

Ironically, that’s something that the seemingly-rich and the poor have in common: they buy stuff.

Sure, the price tag of a Ferrari is much higher than that of a beater, but if it’s just a thing you buy, it’s not really delivering value. What’s more, if it’s funded by debt, it’s not serving its owner at all — it’s just burying them deeper into an already-growing financial hole.

At the end of the day, the millionaire next door probably isn’t who you think it is.

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