Manage Your Finances and Think Like a Millionaire

My favorite personal finance book of all time, The Millionaire Next Door: The Surprising Secrets of America's Wealthy, lists the following seven common denominators among those who successfully build wealth as follows:

1. They live well below their means.

2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.

3. They believe that financial independence is more important than displaying high social status.

4. Their parents did not provide economic outpatient care.

5. Their adult children are economically self-sufficient.

6. They are proficient in targeting market opportunities.

7. They chose the right occupation.

Here are my thoughts on these:

• I know you know what I think of spending less than you earn. I've mentioned several times that it's the best piece of financial advice I could give anyone.


• Yes, you have to spend time to make and manage your money properly. But it's generally a lot less time than most people assume. All told I probably spend a couple hours a month managing my finances.


• Put succinctly: millionaires don't worry about keeping up with the Joneses.


• My parents certainly didn't provide economic outpatient care -- they didn't have anything to provide. It will be interesting to see what we'll do for our kids as they get older. Will we be able to resist helping them financially (more than appropriate) when/if they need it?


• I don't think I'm proficient in targeting market opportunities (for instance, to develop a business of my own), but I certainly did choose the right occupation. Specifically, getting an MBA has been a goldmine for me!

After The Millionaire Next Door, Dr. Stanley wrote The Millionaire Mind. This book went a step further into (as you might imagine) the mindsets of millionaires and attempted to determine the traits they felt had caused them to be wealthy. Dr. Stanley distilled there success to these five things:

• Integrity -- being honest with all people


• Discipline -- applying self-control


• Social skills -- getting along with people


• A supportive spouse


• Hard work -- more than most people

Notice how these are simple concepts to define and understand, but they are not easy to implement. They require effort and determination, something that's in short supply among most Americans when it comes to money. That's why, IMO, most Americans are not doing well financially.

It's hard for me to honestly evaluate myself on these five factors, but of the group, there are three that I think have been a major part of my success to date:

• Discipline -- I have always been a pretty disciplined person, whether it's in academics, business, or personal habits. I generally use lists and measurement tools to help me achieve many of my goals and keep myself accountable. Others would likely call me anally retentive. :)


• Spouse -- As I've noted, my wife plays GREAT defense. She is even more frugal than I am (I know, you probably find that hard to believe, but it's true.) She fits the mold that Dr. Stanley talked about in Stop Acting Rich -- she's not interested in displaying our economic success. This is an awesome characteristic to have in a spouse because without it, you can be sunk. It doesn't matter what one spouse earns, if the other spends that much and more, the family's finances are doomed.


• Hard work -- I have always succeeded by hard work, not raw ability. For example, my intelligence is (IMO) a bit above average at best (even though I always tested well and was at the top of my class.) But my "secret weapon", what set me apart academically, was the fact that I was willing to work harder than almost anyone. I was willing to spend three hours (or more) studying every night of college when most others weren't. Then in grad school I was willing to spend five hours (or more) studying every night when most others weren't. In my career I've been willing to put in the extra hours and work as hard as needed to do a good job. And all that effort has paid off quite nicely.

I realize this can sound like bragging, and I really don't mean it that way. Believe me, I have a whole laundry list of stuff I could do better in all areas of my life. But fortunately Dr. Stanley doesn't have that list for me to comment on. :) Anyway, I'm simply trying to reinforce the fact that much of what he's said in his book has held true in my life. I'm sure there are others of you out there that have had similar experiences.

So what's your take on this information? Does it fit with what you've seen in life yourself or is there something missing? Give us your thoughts in the comments below.

Comments

[Keith]

This blog post is essential reading, in my opinion.

Maybe a missing part of the list above is the right attitude toward money. That is, having means is a better situation to be in than being poor. I think this fits into number 3 but it is slightly more than what is said there. What I am trying to say is, having money is not a bad thing. Go out and get some. Win with money.

[retirebyforty]

I liked the millionaire next door and I'll see if the millionaire mind is available at the library. It sounds interesting. I have a supportive spouse and that's probably my strongest point. In the past I did very well with discipline and social skill, but I think those things have deteriorated quite a bit since college. Looking forward to reading this book.

[K D]

Amen! Thomas Stanley also published "Stop Acting Rich: ...And Live Like A Real Millionaire". It was published more recently (2009). It's sort of a rehash of the original Millionaire book, but good. I see you can pick up a good used copy on Amazon for less than $7.50.

[Old Limey]

I concur totally with the points raised in this article.

1) We still live well below our means. When we look back we see that we used to spend a lot more freely when we were worth a lot less. I am not sure why except that our "wants" are neglible these days.

2) I now manage 15 Fidelity accounts including ours and those of our three children. It's not a lot of work but it's a lot of responsibility because they total 8 figures and each have nice gains.

3) Social status has never been important to us, though living in a beautiful home in a great location and with a lovely garden is, especially since my parents were renters their whole life.

4) When I left home the day I got married I was giving my mother half of my paycheck for my board and keep - unheard of these days in the USA. I received BS and MS degrees without ever being a full time student and without any parental help.

5) Our two daughters are both multi-millionaires, our son is getting very close to his first million.

6) I am no longer targeting market opportunities but I took full advantage of a great opportunity soon after I retired and marketed a mutual fund analysis program to 1601 customers of the commercial database that I use every day.

7) I was fortunate in deciding to become an aerospace engineer and never had a single day of unemployment and never a year without a nice raise - thanks in large part to the arms race generated by the Cold War with the USSR.

I cannot overemphasize the fact that I wouldn't be where I am today without my loving and supportive wife that I first met in 1950 in England and have been married to since 1956, the year we emigrated, first to Canada, then to the USA.

[Mike Hunt]

I totally agree with points raised in this book.

Most important factors for me were:

1. Choice of spouse

2. Working to develop a career than happens to pay well.

3. Living well below our income (need 1 & 2 to get to this point).

-Mike

[Melissa]

I work hard and am frugal. But I'm not married and did not choose the right career. I guess I'm screwed.

[Old Limey]

Melissa,
You didn't say what career path you chose. There are quite a few good ones. Healthcare is a great field with the US population aging, new technologies coming along all the time, and no danger of your job being outsourced to countries with low labor rates. You also don't have to have an M.D. to have a really great and secure job in that field, often junior colleges can provide the needed qualifications.

These days I would also be taking a good look at jobs in any branch of government, be it city, county, state, or federal. They still provide good benefits and pensions and are not nearly as prone to layoffs as companies that have to show a profit.

[Melissa]

I chose graphic design. Actually, I fell into it by accident, but it's been my career for the past decade.

[Rob]

"I have always succeeded by hard work, not raw ability."

Funnily enough almost everyone who succeeds says this. Not sure there is 'raw ability', merely people who devote an exceptional amount of time to a particular subject. If you work really hard at being an artist you'd probably end up pretty good if you worked hard and efficiently at improving yourself.

[Rob]

Something else just occurred to me. People can talk of picking the wrong career, but I think if you gauge wrong career choices, Ray Mears wins hands down with a stupid business idea (http://www.telegraph.co.uk/finance/personalfinance/fameandfortune/3171810/Ray-Mears-My-bank-manager-told-me-to-get-a-proper-job.html) and look at him now.

[MattJ]

Rob: I think that's the expected, humble, thing to say. It takes a sort of arrogance to say that your talent is so far above everyone else's that it has propelled you to success without requiring as much work as those around you, even though, in many cases, it's probably true.

The only somewhat-of-a-counter example I can come up with is that I remember hearing that tennis great John McEnroe claimed that he had more talent in his little finger than his rival Ivan Lendl, but that Lendl worked harder at tennis than McEnroe ever would. That was probably just trash-talk.

Even if you're born with talent, developing that talent into something useful takes hard work.

[Rob]

MattJ: I'm just trying to think what you can be born with to make you a better tennis player... better eye to hand co-ordination? More agility? I'm not convinced, I suspect key early developments at a very young age where we are very responsive are mistaken for talent.

[Lance@MoneyLife&More]

I agree that living below your means is essential. I rented this as an audio book through my work a couple years back and it had a lot of great material in it. I highly suggest it to see how the normal millionaire thinks.

[EM]

I agree with Mike that choice of spouse is important -- tremendously so. Romance is great (and necessary), but choosing a life partner with some practical things in mind makes all the difference as to whether your life partner is really for life.

Financial compatibility is essential. If you and your spouse have differing values, beliefs and behaviors around money, at the very least you should be willing and able to set common strategic goals and then compromise on the tactical stuff (the nitty gritty of how to go about achieving those goals). Otherwise, I feel like there would be a lot of unnecessary unhappiness in your life together.

P.S. I have been married (to the same person) for 19-1/2 years. :-)

[Old Limey]

EM,
Among my children's acquaintances I have known a few dating couples that made a "Mistake" and then "HAD" to get married because of family beliefs. These marriages often ended in divorce, and we all know the financial and emotional impact that can produce. When I was dating back in the early 50's things were very different. Even when I left England in 1956 there had never been a divorce in either of our extended families - it just didn't happen. Another thing that never happened in my youth was "living together", that would have been an unthinkable family disgrace even in the unlikely event that the couple could afford to move out. The boy's high school that I attended had a student body that was 99.7% WASP with two Catholic students and one Jewish student out of 1,000, that were excused from the prayer service that started the school day. The all girl's high school that my wife attended had a similar makeup. Today's world presents many challenges that didn't exist when I was a young man.

[BD]

@Melissa: Me too!! I'm in the same boat as you with the HORRIBLE career choice. And yes, it was an awful decision (although, decades back when I chose it, I had no idea that it would turn bad), and although I've worked extremely hard, and have been frugal, I've ended up quite poor.

So, I feel your pain. I suggest that you go back to school to learn something else. I am back in college now for an accounting degree. I really hope it will pay off, despite my old age.

[Rick Francis]

@ Melissa
> I chose graphic design. Actually, I fell into it by accident, but it's been my career for the past decade.
Just because that is what you are doing now doesn’t mean you have to continue to do it. If you fell into it then you can still make a conscious move out of it today. The book _What Color is Your Parachute?_ had a section on career changes. It’s been years since I’ve read it but I seem to remember that one of the keys was to try to find a position that uses many of your existing skills, so that you can get value from your current training.

You could start by looking at related fields that might pay better. For example, right now you probably are designing documents for your customers. Could you design user interfaces for an application or web page instead? I don’t know if it pays well or not, but it can certainly add a lot of value.

I’m sure there would be new things for you to lean, but wouldn’t it be worth learning new skills to get out of a dead end job?

-Rick Francis