Self-made millionaire assessment guide
Courtesy of this article, there are apparently seven habits most self-made millionaires employ to build their wealth.
From the study conducted, there are two types of self-made millionaires: Risk-Takers and Savers.
Builders, entrepreneurs, and aggressive investors (in stocks or real estate for example) fall into the Risk-Taker category. Risk-Takers can be rewarded for their risks, often accelerating and surpassing the other self-made-millionaire-status category: Savers.
Savers are more risk-averse. Savers are typically employed and have a modest standard of living. Their path to wealth arrives usually from their slow-and-steady approach to investing.
In reviewing this article, I quickly recognized my category (Saver) and took stock to assess what habits my wife and I have embraced. Let me know your thoughts in a comment below.
- They establish savings goals early in their lives
I’m not convinced doing this in my 30s was early by any means but this is something my wife and I have been practicing for many years now. The article suggests “with your first paycheck, get into the habit of saving something — 10% or 5% or even just 1%. The point is to set some savings goal and stick with it.”
- They are frugal
We consistently look for value for money on our purchases. That doesn’t mean we’re cheap but rather we are quite selective in how and when we spend our money.
(We just did the same thing in Portugal for two weeks, some frugality so we could splurge…future post to come.)
From the article: “being frugal will not make you rich, but it does mean you will keep more of your money as your purchases are driven by quality and price.”
- They avoid lifestyle creep
We could certainly afford nicer cars, nicer things around the house but we don’t give in to that. Over the years, we haven’t increased our standard of living to match any salary increases – we put that money in the bank instead. We do this because we know more “stuff” doesn’t make us happy. We strive to strike a balance between spending cash today and socking away cash for our future.
- They make their money invisible
This is arguably the most powerful wealth-building tool there is: making savings for investment purposes automatic so you never get a chance to spend any money. I’ve been doing this for decades and it’s phenomenal the power that automating your savings can do for you.
- They keep their expenses low
I wish I knew then what I know now but discussions about the cost of pricey financial products, and how they can kill your portfolio, wasn’t mainstream twenty years ago (when I started to invest.) The investment world didn’t want you to know it’s dirty secret. Today, there are no excuses. Dozens if not hundreds of websites and articles all proclaim the same thing: high money management fees will not help you grow your portfolio.
This means for most investors who want to avoid any form of stock picking, they should consider owning low-cost Exchange Traded Funds (ETFs) to help grow their wealth. Given the vast menu of ETFs out there, I believe there is absolutely no reason why you should be paying more than 1% in money management fees per year to run your portfolio.
- They avoid spendthrift friends
Maybe it’s more of a subconscious choice (?) but we have very few spendthrift friends. Most if not all our friends understand the value and benefits of consistently living below your means and putting money away for their financial future.
- They marry well
I’m very fortunate my wife shares many of the same money values as I do: save for tomorrow but also live for today. She does encourage me to index invest more, for extra portfolio diversification and to help simplify things for her if something should happen to me *gasp* so I’m trying to do that over time.
My wife and I have reached self-made millionaire status because we have been Savers. The path has been slow and long; it has required patience but we’ve also made some of our own breaks. We’ve worked hard to establish our careers. In the process, we managed to save a good portion of our income for investing purposes. We live within our means. It’s not a glamourous lifestyle but one of balance we enjoy.
What self-made millionaire path are you following? What do you make of my assessment? All comments and feedback are welcome.