Back in 2001, I wrote a book called “Life or Debt.” One of my chief inspirations when writing it was another book: “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, originally published in 1996.
Today I’m a multimillionaire, and I believe I owe a lot of my success to lessons I learned from “The Millionaire Next Door.” The principles in it altered my life path and can alter yours as well.
The basic idea behind “The Millionaire Next Door” is that the average American pictures the average American millionaire all wrong. Most millionaires, myself included, don’t drive a Ferrari, live in a mansion, or wear a Rolex.
After studying more than 1,000 millionaires, authors Stanley and Danko discovered a simple truth: Real wealth is quiet. Accumulators of wealth succeed where high-income spenders struggle.
“Wealth is what you accumulate, not what you spend,” Stanley wrote. With the median household holding just $8,000 in savings, most people are following the wrong playbook.
Here are the seven habits that made me a millionaire and will work for you too.
(Note: I’m going to be showing you tools in this article that can speed you on your path. Yes, we might make money if you click on their links. But they’re useful, and that’s why they’re in this article.)
Habit No. 1: Live on 80% (or less) of your income
Stanley and Danko revealed that the typical millionaire, back in 1996, had never spent more than $41,000 on a car. “They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way,” Stanley noted.
I live in a (paid-off) home that’s worth about a third of what I could afford. I’ve never bought or owned a new car. And even now, I pay attention to where my money goes and still try to save at least 20% of what I make.
The first step in saving 20% of what you make is to see where your money is going now. The goal: Reduce your expenses without reducing your quality of life.
For example, if you can get the same insurance coverage for a lower price, you haven’t sacrificed anything, but you’ve gotten richer. Use a tool like Rocket Money to automatically track your spending and flag subscriptions and other expenses you might be able to reduce or eliminate.
Then, use shopping apps and comparison sites to reduce your costs on everything from groceries to car insurance. I periodically comparison-shop the insurance on both my home and my car. You should as well.
But here’s the thing that will change your life. When you find savings — places you can save without damaging your quality of life — invest that savings. If you blow it, you’re not changing a thing.
Habit No. 2: Become allergic to debt
I haven’t had a car loan or credit card balance for decades, and I paid off my house years ago. I was able to do this not because I’ve always made a ton of money. It’s because there are only two times I’ve ever borrowed:
- When whatever I was buying was likely to generate more than the interest I was paying to finance it. (Prime example? Real estate.)
- When my back was against the wall and I had no choice (which has happened, but thankfully not for many years).
Borrowing money makes lenders richer and you poorer. That’s the opposite of the millionaire path.
If you have a debt problem, do something about it. Right now.
If you have $15,000 or more in debt, National Debt Relief can help you with almost any unsecured debt, like credit cards, personal loans, medical bills, repossessions and even some student loan debt.
There are other companies that will help you with debt, but there are also a lot of rip-offs, so be super careful.
Habit No. 3: Choose financial independence over social status
“Big hat, no cattle” is how Texan millionaires describe people who look rich but aren’t. Ninety percent of real millionaires value financial freedom above showing off.
Many years ago, when I was a stockbroker on Wall Street, I immediately learned that rich people don’t wear fancy suits or drive fancy cars. Why? Because they don’t need to impress anybody.
That guy you see at the stoplight in the Porsche with the silk suit isn’t rich. He’s probably on his way to sell something to someone who is.
When I sold securities, I wore suits. Now I wear shorts and T-shirts.
Habit No. 4: Invest for the long haul
Ninety-five percent of American millionaires own stocks, but only 9% trade frequently. I’ve met more successful poker players than day traders, but I haven’t met many of either one.
I’ve been investing in stocks for 45 years and made a few million doing it. How? By buying quality companies, or broad-based index funds, and holding on to them till the cows come home.
I bought Apple in 2001 and still own some today. My average holding period for stocks is five to 10 years.
Trading, in my experience, is for gamblers and suckers. I try not to be either.
If you’re not willing or able to invest the time and effort into buying individual stocks, either buy index funds or hire expertise.
If you’ve got at least $100,000 to invest, it’s smart to at least get a free appointment with an expert. One way is through AdviserMatch's free service: takes two minutes. Answer a few questions, then get matched with experienced professionals. The first consultation is free. Even one meeting could change your retirement trajectory.
If you’re wondering whether I’ve ever taken a free meeting with a pro, the answer is yes, I have. Even though my experience is vast, a second set of eyes never hurts.
Habit No. 5: Keep taxes to a minimum
I’ve paid millions in income taxes over the years, so naturally, I do things to lower my tax bills, like maxing out tax-advantaged accounts, such as 401(k)s, IRAs, HSAs and 529 plans.
Although I’m a licensed CPA, I’m not a tax expert, so I periodically huddle with one to make sure I’m doing everything possible to prevent paying more than my fair share.
Most people could do a few simple things to both lower their taxes and save more for retirement.
For example, if you’re not contributing enough to your retirement plans to at least get the maximum company match, you’re overpaying your taxes and leaving free money on the table.
If you’ve gotten yourself into tax debt and the IRS is hounding you, and you owe more than $10,000, talk to a pro. Alleviate Tax talks to the IRS directly. They can help you pay off your tax debt faster while potentially reducing what you owe.
Habit No. 6: Turn your time into money
Millionaires spend 8.4 hours a month planning their finances—triple the national average.
I don’t spend an inordinate amount of time obsessing over market news, but I do think about how to earn more and pay less. And over the years, I’ve also tried various side gigs. Some worked, others didn’t, but I find it interesting, and sometimes exciting, to try to make something on the side.
Why not? What else are you going to do? Watch more Netflix? And these days, there are more opportunities than ever to pick up a little extra income.
Earn $1,370 a month while you're watching TV.
Habit No. 7: Raise money-smart kids
“The more dollars adult children receive, the fewer dollars they accumulate,” Stanley warned. Successful families teach budgeting early, match teen earnings, and end parental support within seven years of graduation.
I don’t have kids of my own, but I do have younger relatives that I sometimes donate to and always help when they have questions.
Discover AARP's tools for building your child's money skills.
The millionaire formula is simple math
In my opinion, the reason there aren’t more millionaires in the world can be boiled down to one word: patience.
I’m a millionaire many times over, but it didn’t happen overnight. It happened over decades. That’s because my wealth didn’t come from winning the lottery, inheriting, making a huge income, selling books or writing articles like this one.
It came from living below my means, investing wisely and simply letting time do its thing.
Building wealth is a marathon: Save as much as you can while still enjoying life, avoid debt, invest in solid stocks and funds, minimize taxes, and keep lifestyle inflation at bay.
I can summarize the message from “The Millionaire Next Door” with a message of my own, one that I created and is printed on the coffee mug in front of me. It says, “You can either look rich now or be rich later. But you won’t live long enough to do both.”
Which will you choose?
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