Updated: May 3, 2013 12:14PM
Originally published: August 7, 2001
Do you really want to be a millionaire?
Silly question. Of course, almost everyone would answer yes. But what would you, or should you, do to become one?
Should you quit your job and start day-trading technology stocks? Drop out of school to found an Internet company? Go on a game show or volunteer to marry someone you’ve never met? Those seem to be the most public routes to becoming an overnight millionaire.
The Savage truth is that there are long odds against any of the above. In spite of--or perhaps because of--the media hype, these dreams of instant wealth remind me of inner city kids shooting hoops and dreaming of becoming an NBA All-Star. Sure, one or two or even 20 might achieve stardom, but we can all predict the wasted lives of the others who don’t value an education and hard work. The same might be said of today’s dot-com generation, hoping that venture capital and an IPO will be their path to mega-riches.
How do millionaires really create wealth, and how do they live and think about and manage their wealth?
A new book, The Millionaire Mind, by Thomas Stanley, who wrote the best-selling The Millionaire Next Door, explores the lifestyles and attitudes of some of the estimated 3 million millionaires in America. What Stanley finds might surprise you.
First, he sorted out those who were “balance sheet” millionaires, and those who simply lived an affluent lifestyle, while burdened with debt.
Balance sheet millionaires tended to own their homes without a mortgage, while those who merely live a wealthy lifestyle carry jumbo loans. Millionaires with assets of between $2 million and $5 million live, on average, in homes that are valued at $355,000--based on the IRS database figures, not exactly the mansion most expect. And the majority have not moved in the last 10 years.
The millionaires in Stanley’s survey tend to have started businesses, and built their wealth by finding a profitable niche. They say they love what they do and are motivated by building the business, not by building wealth.
They live comfortable lifestyles but are not wasteful. In a fascinating example, most of the millionaires in the survey report they buy expensive shoes, but almost all have them resoled. For the most part, they remain married to supportive and responsible spouses, who run economically productive households--from clipping coupons to buying household supplies in bulk.
Bottom line: They spend less than they earn.
When it comes to investments, these millionaires look to the stock market primarily as a place to grow capital, once their businesses have matured. They are investors, but not speculators in the markets. They rarely visit a casino, and almost never buy lottery tickets.
Of course, you might figure they don’t need to speculate, since they’re already wealthy. But perhaps these qualities are the reason they got wealthy in the first place.
There’s one other surprising component of this survey. Most of these millionaires were not at the top of their classes in school, nor did they score the highest on SATs.
To the contrary, many were only average students or had been told by their teachers that they’d never succeed. As a result, they developed a determination and resilience that helped them in business, and they learned to compensate for lack of academic skill by learning leadership through sports.
As you can tell by the sports reference--and the resoled shoes--the overwhelming number of millionaires in this survey were men.
While I don’t want to spoil your enjoyment of this book, I do want to reveal the two characteristics that all the self-made millionaires had in common: They think differently from the crowd and they have a strong belief in themselves.
Now, it could be argued that all the millionaires in Stanley’s survey were “old” millionaires--at least that they made their millions in the old, pre-Internet economy. That’s how they showed up on the IRS and Census Bureau databases that were used to build his survey information.
Do you really believe the basic rules of creating--and keeping--wealth have changed just because technology is changing the way we communicate, shop and plan? That’s quite a leap.
So while there are plenty of opportunities to become a millionaire, you might want to be guided by the values that have worked in the past.
Yes, you might be one of the very few techno-geniuses who creates a new technology that is appreciated by the market. Or you might be employed by or invest in one of those new companies. But in the long run, the lifestyle attributes of the millionaire mind seem universally useful in coming out ahead in the long run. And, after all, that’s how you really keep score--over the long run.
And that’s the Savage truth.
Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of McDonald’s Corp. and Devon Energy Corp. Send questions via e-mail at email@example.com. Her third book, The Savage Truth on Money, recently was published by John Wiley & Sons Inc.