3 Simple Planning Steps Toward The Millionaire Next Door

There was a movie released last year called Living Among Us about vampires who, previously living in the condo up the street undetected, now make themselves public so documentarians can learn how they live and coexist with humans. When I read a summary I instantly thought of the book, The Millionaire Next Door. That title, even more than two decades after it was written, still paints such a crisp mental picture, doesn’t it? Seemingly normal people, living among us in a non-gated community, driving their Chevy Oldsmobuick to work every day, mowing their own lawn on Saturday, but….behind their cover as normal, they’re actually, shall we say it, FINANCIALLY INDEPENDENT! Oh, the horror!

 As a reminder, in 1996 Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D. wrote that seminal book entitled, The Millionaire Next Door. These two researchers went in search of the rich in the country: Who are they? What do they do? What do they drive? How do they invest? They discovered, much to their surprise, that many of the wealthy in this country don’t live in the most expensive neighborhood or drive the fanciest cars but are ordinary people living right among us regular people. Because, remember, wealth is not the same as income. If one earns a high income and spends it all each year, one isn’t getting wealthier, just living high. Wealth is what you accumulate, not what you spend.

While I love the imagery that one doesn’t have to be a fabulously talented athlete or entertainer or a brilliant businessperson to accumulate wealth, it concerns me that it’s also easy to infer that these people “living among us” are misers who have deprived themselves of any pleasures in order to save their million. If you, too, want to be rich just limit yourself to 1 meal a day, make your own clothes and never, ever, take a vacation. There, it’s easy!

No, I don’t think it has to be that difficult. In fact, there’s great inspiration in what these researchers found that normal people like us do to be financially independent.

Sarah Fallaw, daughter of the Millionaire Next Door author Thomas Stanley, and an industrial psychologist Ph.D., has researched and discovered six distinct and consistent traits that predict if someone will be good at wealth building. They are:

• Frugality – your willingness and ability to spend below your means;
• Responsibility – do you believe you have control over your financial outcomes or do you believe wealth just happens to people?
• Confidence – do you have the confidence to believe you’re capable of improving your situation?
• Planning and Monitoring – can you set goals and monitor your progress?
• Focus – do you have the discipline to avoid distractions and stay on track to your goals?
• Social Indifference – do you feel a need to spend to display social status or are you socially indifferent to the spending habits of others?

Within those traits, here are my top three suggestions for accumulating wealth over time:

1. Pay yourself first: This means direct part of your paycheck each month to your workplace retirement plan, your IRA, etc. How much? Determine how much you need to accumulate in order to reach your idea of financial freedom, then calculate how much you need to save each year/month/pay period in order to reach your goal. Then, after your saving is on the right track for you, you can spend your take-home pay guilt-free.
2. Buy a home and car you can afford: About 25 years ago someone advised me that, unless I woke up twice a night worrying about making the mortgage payment, then I hadn’t bought enough house. Horse feathers! Fortunately, we didn’t follow that advice. Remember, your house is for you, not anyone else. When in doubt, refer to item #1.
3. Budget for vacations: You didn’t expect this one, did you? Just because we’re living beneath our means and saving for our future doesn’t mean we can’t have nice things or enjoy ourselves. Just do it wisely and within context of your goals. Determine at the beginning of each year where and when you’ll travel and how much it will cost and then save each month. Then, vacation time, you’ll travel guilt-free!

Accumulating wealth rarely happens by accident so having a plan can make saving, and life in general, much simpler. When in doubt, refer to Item #1.

Steve Byars