America's hottest game show preys on the greed of people. We all want to be a millionaire. Game shows, lottery tickets, casinos all prey on our desire to have wealth.
But what does wealth really mean? The biggest misconception is that status = wealth. According to a book called The Millionaire Mind by Thomas Stanley and William Danko, “many people who live in expensive houses and drive luxury cars do not actually have wealth. Wealth is not the same as income. If you spend it all, you are not getting wealthier.”
You see, wealth is not about what you make, but rather what you do with it. Wealth is also not about what you spend but what you accumulate or keep.
The test for wealth
Try this exercise to see how wealthy you are:
Take your age and multiply it by your gross household income from all sources. Divide by ten (10). This is what your net worth should be. (For the purposes of this exercise, inheritances should not be included.)
What do millionaires do?
If you want to become a millionaire and you realize the chances of winning the next Lotto 649 is a pretty dark horse, consider what characteristics millionaires share according to 20 years of research:
- 80% are first generation millionaires. Many non-millionaires think that wealth is passed down generation after generation. The reality is most millionaires have made the wealth on their own.
- They are very conscious of their spending. 62% of millionaires know exactly where they are spending their money. By knowing where they spend their money they also know how to manage expenditures.
- They live below their means. Contrary to popular belief, the wealthy do not spend frivolously. Most don't live in upscale homes, drive top end cars or buy expensive clothing.
- Wealthy people save money. In fact, they save about 20% of their gross household income. They save regularly and recognize solid investment principles. 95% of millionaires own stocks. 97% are homeowners and all millionaires are debt adverse.
- Value financial independence instead of status. It is true that the more money you make, the more you can spend. But most millionaires are not concerned about the things they buy. They buy average homes, average cars and average clothes that represent quality and value.
- Millionaires have patience. Most millionaires have built their millions over time. They employ principles of patience in many facets of life. They have lived in the same home for 20 years. They do not actively trade their investment portfolio.
- Wealth is not built by accident. Most millionaires have devoted a significant amount of time, energy, resources and money towards wealth building. 67% are usually self-employed. Wealth is created and wealth is earned.
The book Millionaire Mind paints the picture of the average individual who became financially independent through solid planning, hard work, frugality and patience. Believe it or not the typical millionaire does not get there by luck, inheritance or picking the next winning investment. If you want to be a millionaire consider the path that most millionaires follow. And that's my final answer!