Thomas J. Stanley and William D. Danko wrote the book The Millionaire Next Door in 1996. Dr. Stanley conducted interviews with millionaires between 1982 and 1996 to understand the wealth building traits these people possess: discipline, sacrifice, and hard work. Ultimately, Stanley and Danko developed the seven factors millionaires possess.
If you haven’t read this book, I highly recommend checking it out. The data is a bit old, but the concepts drawn from the research Stanley and Danko completed is eye-opening. There is a link to the book on Amazon at the bottom of the post.
In this post, I’ll share the seven factors millionaires possess, and I will share my perspective on each point.
1. They live well below their means
Getting to a net worth of one million involves a simple calculation. Spend less than you earn.
You also need to save money and invest it.
If you are currently living paycheck to paycheck, you need to take a solid look at what you are spending your money on. Unless you know where all of your money is going, you are going to continue struggle financially. According to MarketWatch, 50% of American’s are living paycheck to paycheck – 1 and 5 families have $0 set aside and only 1 in 3 families could cover an emergency of $500.
2. They allocate their time, energy, and money efficiently to build wealth
You are not going to build wealth overnight. Building wealth requires patience, persistence, and perseverance. Let’s break that down…
Maybe you are in a significant amount of debt and you have a low paying job. Don’t panic. Be patient and figure out what it will take to eliminate your debt. You may need to pick up an extra job.
Or, you may have expertise in an area that you can develop a side hustle off of. Finally, consider continuing your education – but do so in a smart way. Research the most cost effective path to obtain the degree you set out to receive.
Next, you need to be persistent. If you are in debt, make sure you are shoveling every extra dollar toward debt. You may need to skip happy hour for awhile (or drink a few beers before you go out) to save money. In addition, continue to pursue a side hustle or any vehicle to help drive extra income your way.
Finally, persevere. The road to debt elimination and wealth aggregation is going to be difficult. You are going to make some mistakes and you will likely have setbacks. Use these mistakes or setbacks as fuel to push through and continue on your journey to build wealth and ultimately achieve financial independence.
3. To most millionaires, financial independence is more important than driving fancy cars and owning a mansion.
Millennial Money Man has many great articles on cars. He firmly believes in driving older cars that you buy with cash. I’m not entirely opposed to this thought-process. But I can’t completely agree with it because I drive a newer car. I do agree that you shouldn’t buy a car brand new off the lot because cars depreciate so quickly!
Once you achieve financial independence, you may find the need to splurge. Just ask Mr. 1500 about his new car 🙂
4. Their parents did not spoil them or leave them a significant inheritance
I read a really great article from Chelsea over at Mama Fish Saves called Please Stop Spoiling my Kid. After Chelsea’s baby shower Tsunami, she looked at all of the “stuff” she received for her kid and developed three rules people need to be aware of when giving gifts to her kid.
It is much more difficult to accumulate wealth on your own compared to receiving it. The good thing about generating your own wealth is you realize how difficult it is to do. You are far less likely to squander away the nest egg you built for yourself. In contrast, if you get a bunch of money from family and you are terrible with money, you will likely spend the money on things you don’t need.
5. They teach their children how to become economically self-sufficient
I’m still learning so much about being a parent. I’ve read some interesting tactics people employ to teach their kids how to be good with money.
One of my favorites is you match any money your children save 100%. Therefore, if your child were to go spend $30 on a new pair of jeans they are really losing out on $60 dollars because you would match the $30 they would have saved.
If you have any hacks, please share below in the comment section.
6. They know how to target market opportunities
From an investment standpoint, I’m a fan of passive investing. I think the point the Authors are trying to make is to be cognizant of market factors. For example, after the housing crash, a millionaire likely waited to purchase a house until things settled down.
What most millionaires do not do is attempt to time the market. They also don’t buy the latest hot stock recommended by the “experts”.
7. They choose a career they enjoy and know they can be successful at
This is important. Your career is the vehicle to building wealth. In America, we push so hard for our children to go to college. However, I believe we lose sight of the cost of college.
Sure, college makes sense for people that know what they want to do AND for people that will receive a return on their investment. However, there are many other solid career choices that only require a two-year degree or less! As a society, we need to do a better job educating children on the choices they have for careers based on what they would like do to.
That is the key – finding a career that you would like to do. Not a career you are told you should do or that you pursue because of the money – find something you are passionate about.
I possess the first four factors. I am working toward fully possessing the final three factors. How are you doing with regard to the seven factors millionaires possess?