What does a millionaire look like?
Go to any leafy American neighborhood and you’ll see some of the residents walking around. Plain slacks, a blue button-down shirt, maybe even overalls and a pair of boots. They can’t be millionaires, right? If you were asked to single out where America’s richest people live, you might say that the Hamptons is a good place to start, or even the Bahamas where some of the super-wealthy have upped sticks and moved to. Do millionaires live in luxurious, gated communities? The answer, invariably, is yes—but millionaires also live next door. They’re the people you see at the grocery store, and you might even catch them in discount shops like Costco or Dollar Tree.
The thing is, being a millionaire is as much about lifestyle decisions as it is about earning potential and making investments. A straw poll of millionaires would almost certainly identify the same common features time and time again. These are people who live below their means, allocate considerable time and energy to generating wealth, and who place more importance on achieving financial freedom than on displaying signs of high social status. They’re well-educated people, who invest by the boatload, and who like to get a good deal as much as the next person. What many people struggle to understand, too, is that millionaires often live life on a budget, don’t blow money on too many luxuries, and continue to follow the core tenets of wealth-building long after they’ve ‘made it.’
One of the main reasons for this commonality between successful people is that they know money is hard to make and easy to lose. To become rich, you need to wield both a sword—investments and economic activity designed to earn money—and a shield—lifestyle choices adhered to in order to guard wealth. I often find it easier to explain this with reference to an amateur bodybuilder. For months or years, they will work hard at lifting weights, running and other forms of exercise. At the same time, they will be protecting their ‘gains’ by carefully adjusting their diet, eating clean, and making sure that their body is well fueled. Through these efforts, it is to be hoped that they will one day reach their ideal physique, but that doesn’t mean that the hard work can end. If they were to stop training and eating well, they would very likely lose the progress they made and slowly begin to regress back to their previous state.
To a greater extent, the same is true with wealth. When you reach your goals, you cannot stop as doing so will undo all of your hard work. Even millionaires live within the confines of a budget, and failing to do so could put their millionaire status at risk. For this reason, it’s important to largely ignore the conventional trappings of social status. Designer clothes, expensive cars, and gentrified neighborhoods are all well and good, but unless you have a good reason for buying into any of these things beyond the ‘status’ they confer, you might be wasting your money. Buying an apartment in Manhattan might make you feel like a member of the wealthy elite, but unless that is actually what you want, you’ll be heading back into the territory of spending money you don’t have to impress people you don’t like (or even actually know).
Generally speaking, all of these traits can be distilled down into what some like to call ‘smart thinking.’ Most millionaires haven’t accumulated the wealth they hold by accident, and the way they spend their money is usually just as smart as how they earn it. Next time you’re looking to buy something (be that an appliance, a vehicle, a computer or another item with comparatively high value), think about how its value will depreciate. Instead of trading in your car for another after a three-year finance deal, which will keep you trapped in a repeating cycle. Make the balloon payment and keep it. Run it for 10 years, or hand it back and buy second hand. The longevity of modern cars is much better than it used to be. Why? Although the payments may seem reasonable when you finance a car, you are still paying for the average 40% of its lost value during your first three years of ownership; it is just hidden. To hell with what you think the neighbors will say that you have an older car! Think about what the money you save will be worth after 25 or 30 years of investment. For example, if you save $200 a month on your car payments and invest it each month in an S&P 500 tracker by trading down in 30 years this could be worth $542,000 (based on a historic 10% per annum return).
At the heart of all this, millionaires and even billionaires, are people like you and me. To some degree, the statement that wealth changes people is false, because the wealthy mindset is different from the start. You only need to look at the understated garb of Bill Gates or Mark Zuckerberg to know that being rich doesn’t mean that you have to subscribe to the traditional models of status and wealth. David Cheriton, a Stanford professor who invested in Google early and made over $3 billion, drives himself to work each day in a Honda Odyssey, whilst Warren Buffet still lives in the Omaha home he bought for $31,500 more than 50 years ago. You don’t need to impress other people, and doing so won’t usually support your success in any material way. All you need to do is set goals, follow your dreams, and stick to the methodology you put in place to achieve them. You don’t need to look rich, you need to be rich.