Seven steps to wealth
How can you join the ranks of America’s wealthy (defined as people whose net worth is over $1 million)? No, you don’t need to win the lottery, become a pop idol or inherit their money. It’s actually easier than that, according to Dr. Thomas J. Stanley and Dr. William D. Danko who wrote The Millionaire Next Door – The Surprising Secrets of America’s Wealthy.
The two doctors spent 20 years surveying America’s wealthy. As they started to conduct their research, they had some trouble locating the wealthy. The researchers were surprised to learn that many of the rich people they interviewed did not live in upscale neighborhoods. In fact, many people who live in expensive homes and drive luxury cars do not actually have much wealth.
As Maneesh Sethi discussed on an earlier Lending Club post, most millionaires in the United States are average people except they invest their money on a regular basis and live modest lives. Most millionaires drive regular cars that they bought used for less than $25,000, live in modest homes and work in unglamorous industries. As a matter of fact, most millionaires are entrepreneurs and own and operate their own small businesses.
According to Stanley and Danko, here are the seven factors common among the millionaires he interviewed:
1. They live well below their means – This is a common theme here on the Lending Club blog and, in my opinion the most important. Wealth is rarely about how much you make – it’s about how much you spend.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth – Millionaires build deliberate short- and long-term plans. They budget and invest and use the services of financial advisors and tax consultants.
3. They believe that financial independence is more important than displaying high social status – Lending Club blogger Mike Smith discussed this point extensively in an earlier post entitled Change in mindset.
4. Their parents did not provide economic outpatient care – When parents bail their children out of financial difficulties, it tends to create children who are dependent on their parents instead of self-sufficient. Psychologist Gary Buffone said, “Typically, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.” That is one reason why many people look at peer to peer lending options like Lending Club to facilitate loans between family members. Through loans instead of handouts, parents can teach important financial lessons. MSN money explores the concept of economic outpatient care further in an article by Liz Weston, Should parents bail out their adult kids?
5. Their adult children are economically self-sufficient – This grows out of the above point. Financial goals need to be family goals.
6. They are proficient in targeting market opportunities – Many millionaires are small business owners and they often own several businesses.
7. They chose the right occupation – The most important part about choosing the right occupation is choosing one you truly enjoy. If you wake up and can’t wait to get to the office to start your job, you are in the right occupation. If your job is something you enjoy doing, you are going to do it well.
Tuesday, November 27th, 2007 at 9:58 am