Jun 222020
 

This is the third and final post in this series where I discuss the most influential events of my personal finance journey. I like to save the best for last so today I’m discussing a book called, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” by Thomas Stanley and William Danko. 🙂

The Millionaire Next Door

A hundred years ago everyone owned a horse but only the rich had cars. Today the middle class drive cars and only the rich have horses. Oh how the stables have turned. 😎 The advantage of building wealth today is you don’t have to be smart, highly educated, inventive, or take precarious risks. There’s actually a rulebook – a set of specific guidelines that you can follow to reach millionaire status. It all comes down to practicing some simple habits. 🙂

saving like a millionaire next door

I read the Millionaire Next Door when I was 20 years old because I wanted to know how rich people live so that I can be like them one day. Or better yet – for the rest of my life. 😉 What I discovered from the book blew my mind. For some reason I had the misconception that most millionaires inherited their money, and enjoy spending it on lavish goods and luxuries. But instead, the book revealed that 80% of millionaires are self made. And most of them live a very low key lifestyle – known as stealth wealth. Your next door neighbor could be a millionaire, but you probably can’t tell just by looking. The book is essentially a compilation of behaviors and habits of rich people through academic surveys.

I decided to follow in the footsteps of the millionaires in the book. Since 4 out of 5 millionaires are first-generation affluent it gave me more confidence that I don’t need any financial help from my parents to reach a 7 figure net worth.

My plan was straightforward. I would simply behave like a millionaire until I became one. 😀 That’s literally all I did. Everything I needed to know to act like a millionaire was right there in the book. And believe it or not this actually worked! 13 years later I became a millionaire. 🙂 So let’s take a look at the behaviors I began to adopt back in 2007.

 

The Characteristics of a Millionaire

Here are 10 habits that I picked up from the book. Some of these behaviors I followed to a T in order to improve my chances of success.

  1. Millionaires spend twice as many hours per month planning their investments as other people.
    At first I didn’t know how this would actually help make me a millionaire. But I did it anyway. And it was pretty easy. I started to watch the performance of my investments more closely. To my surprise, what I paid attention to grew the fastest. For example, by focusing on my retirement plan, my RRSP has now grown to $150,000.
  2. Wealth accumulators don’t drink much, and spend less than $10 on average for a bottle of wine.
    Alcohol is often taxed more than other goods. An evening spent drinking can cost $50 or more, especially if you order the good stuff. But rich people usually don’t drink. And when they do it’s often something affordable. 🙂 I have followed this rule myself and have saved lots of money. There are tons of other activities in life to enjoy. Drinking alcohol doesn’t have to be one of them.
  3. The millionaire next door probably doesn’t smoke.
    The financial cost of smoking can be expensive. And it’s not good for your healthy either. Although I’ve heard it is good for curing salmon. 😎
  4. Most wealthy people own cars instead of leasing them. The millionaire’s car make of choice: Toyota.
    I bought a used Toyota in 2010. I’ve been driving it for the past 10 years. Amazingly it still works like new. 🙂 I could probably get another 10 years out of it. It’s fuel efficient, cheap to maintain, and easy to insure. I can see why millionaires like to drive these.
  5. Millionaires avoid buying status objects. They tend to reject status symbols whenever possible.
    You can either look wealthy or be wealthy. But it’s nearly impossible to do both. That’s why I don’t own luxury brands. This alone has saved me thousands of dollars over the years. I don’t even have any Apple products since there are always cheaper alternatives.
  6. Millionaires like to track their spending. Two-thirds of millionaires can answer “yes” to this question: “Do you know how much your family spends each year for food, clothing, and shelter?” In contrast, only one-third of high-income non-millionaires answered yes to this question.
    I started to track my spending when I learned about this habit. It doesn’t take too much time with a spreadsheet. It really makes me feel in control of my budget and personal finances. 🙂
  7. Most millionaires work between 45 to 55 hours a week.
    I adopted a 50 hour work week in my twenties by taking up a part time job. It has worked out really well as the skills I’ve learned from the side job has given me the tools to advance my full time job. 🙂 The U.S. Bureau of Labor Statistics reports that the average person who works 13% longer earns 44% more pay. So there’s a nonlinear return on overtime.
  8. About 80% of millionaires have brokerage accounts. But they make their own investment decisions.
    I used to have a financial advisor in college. But after reading this book I took out all the money and started to invest it all myself. Best decisions I’ve ever made. Saved myself over $50,000 in management fees.
  9. The vast majority, (97%) of millionaire are homeowners. Most of them have lived in the same home for over 10 years. Thus, they have likely enjoyed significant increases in the value of their properties.
    This is why I’m a staunch proponent of real estate investing and saved up a downpayment ASAP when I was starting out. There’s a huge correlation between being rich and being a property owner. I’ve lived in my home for nearly 12 years now. The market value has easily doubled. 🙂
  10. On average, the wealthy invests nearly 20% of their realized income each year.
    My salary today is around $70K, the highest it’s ever been. But no matter how much I earn I always invest at least 20% of my income every year. Consistency is key. Making six-figures would be great, but it’s not required to become a millionaire.

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Jun 142014
 

Canadian comedian and actor Jim Carrey gave a moving commencement address to a class of 2014 last month. In his speech he describes how people often make seemingly practical choices that are actually based on fear, and how this can turn into a costly mistake. It’s true for many aspects of life, including personal finance. What I want is to become financially independent. But what I fear is making the wrong decision and losing all my money. So I have to let my love of financial freedom overcome my fear of failure. Opportunities are often disguised as hard work or risky. But that’s why success is worth it. Being able to retire in my 30s is worth the effort and struggle for me. Take it away Jim Carrey.

Jim Carrey’s Commencement Address at the 2014 MUM Graduation

Jim encourages us to ask the universe for things that seem out of reach. It’s amazing what we can receive if we simply ask for it. Last year I hoped my investments would perform well. The universe granted my wish and the stock markets returned over 20% in 2013. I also wished to receive more dividends and boom! Many companies I own have increased their dividend distributions over the last year, including Apple, Target, Enbridge, Disney, McDonalds, Chevron, and Scotia Bank. The universe rewards those who are proactive and optimistic 😀

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This is why I buy stocks despite their volatility. Why I buy real estate and land despite pundits saying the property bubble will burst at any moment. Why I invest in gold and silver even though many would argue precious metals are not even real investments. I will gladly face all the risks because I’m not afraid to ask the universe for what I really want 😉

Jim’s dad taught us that even if we make conservative financial choices, we can still fail. So we might as well take a chance on our dreams, even if it means exposing ourselves to more risk. I think this is great advice for many people who are too conservative with their financial decisions. We only live once after all. We can’t let fear paralyze and prevent us from turning our goals into realities. And for dads all around the world, happy Father’s Day 🙂

A longer version of Jim’s speech can be found here.

 

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Random Useless Fact:

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