The Millionaire Next Door is a book by Thomas Stanley and William Danko and published in 2013 but relevant today. They are professors in Albany University NY, who devoted their careers to studying the habits of self-made millionaires. These are people who became millionaires without the help of an inheritance.
Stanley and Danko found several common threads that millionaires share, including:
- Millionaires live frugally.
- They drive used cars.
- They buy their (used) car instead of leasing one.
- They live in “less house” than they can afford, especially while they’re growing their wealth. Most of their neighbours are non-millionaires.
- More than half never received even $1 as an inheritance.
- Almost half never received any money for college tuition from their family.
- Nine out of 10 millionaires never received $1 worth of ownership in a family business.
- Self-made millionaires have frugal spouses. The authors told one particularly compelling story about a husband who, after reviewing his net worth announced to his wife that they were officially millionaires. The wife nods, then goes back to clipping coupons.
- Millionaires are business owners. Some have full-time jobs plus side businesses, while others are full-time business owners. “Self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires,” the book says.
- They tend to own “boring,” unglamorous businesses – the type that wouldn’t create interesting cocktail party conversation. The book says: “We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.”
- The one area in which they generously spend money is on their children’s education
The authors say: “Planning and controlling consumption are key factors underlying wealth accumulation … Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.”
What, why and how ?
Millionaires start with a “big picture” goal. They envision how they hope to save, invest, and accumulate assets. These big-picture goals represent “what” they want to achieve and “why” they want to achieve it.
Budgeting and tracking expenses represents the “how” Self-made millionaires monitor their outflow of money to see if their spending is aligned with their big-picture goals.
- They clip coupons, wear inexpensive clothes, and drink domestic beer. Or, as the academic authors put it, “They often live in self-designed environments of relative scarcity.”
- They make budgets, track their money, and figure out how they can cut spending so they can invest more.
If that’s not motivation for making a budget, I don’t know what is.