8 Not-So-Secrets of Middle-Class Millionaires
There’s a common political narrative that millionaires are a different class of people. Turn on any news station and you’ll hear about “The 1% vs. the 99%”. The ongoing “us vs. them” mentality has an unwritten lie: You can never be wealthy.
We have the privilege of working with a hundred millionaire clients. Most of them weren’t born into royalty; rather, they created, saved, and invested their way to wealth. Luckily for us, success leaves clues. Below we’ll share some of the most common traits and behaviors of middle-class millionaires we’ve had the opportunity to learn from:
1. They Own Their Possessions (Not The Other Way Around)
Everything has a cost, but not everything has value. It’s pretty common to see millionaires drive the same car and live in the same house even after hitting a 7-figure net worth. In fact, it was their lack of constant upgrades that helped get them there.
That’s not to say they don’t enjoy the things they do (a nice gym membership, dining out, subscription coffee, etc.). They don’t splurge on everything and they never let their lifestyle exceed their income.
It’s like I tell my 10-year-old: “You can have anything you want, just not everything you want.”
2. They Know the Line Between Good Debt and Bad Debt
Debt can be a valuable tool when used with appreciating assets, yet destructive when used with anything else. Real estate, growing businesses, and other cash-flowing assets can make the interest payments worthwhile.
Most middle-class millionaires are wary about debt. They know that loans aren’t just a claim on an asset- they’re a claim on your income until they’re paid off.
Most of the greatest financial collapses of all time were due to debt: Charlie Munger says there is only three ways a smart person can go broke: “liquor, ladies, and leverage”. The truth is – the first two he just added because they started with L.
3. They Value Health
Queen Elizabeth I’s last words were: “All my possessions for one moment of time.”
There is no wealth without health (physically or mentally). Most millionaires recognize this early and make personal health a priority. They make time for strenuous exercises like lifting weights, cycling and basketball or social activities like walking, yoga, and golf.
4. They Pay Themselves First
Saving is a mindset, and a priority for millionaires. Most started saving and investing young, even when the dollars were small. They understand that compounding over time is the most powerful tool in an investor’s toolkit. Whether it was building their own business, or investing in public markets, very few waited until they felt rich to invest their time or money.
Ironically, A saver’s mindset is hard to break; at retirement time it can take some convincing for them to start spending their nest egg.
5. They Accept Risk
A baby that’s born in America today has a better quality of life than any other generation in history. And things like healthcare and technology keep quietly improving. I’d bet that 90% of the daily products and services we use were either created or significantly modified in the past 20 years.
Most of the wealth in this world, going back to the stone age, was created through ingenuity and calculated risk. Some people continue to build products or services to make the world better, or they invest in companies that do.
You’ll probably never meet a self-made millionaire who got there by investing in CDs.
6. They Focus On Things They Can Control
It can be shocking to realize how little control we have when investing in public markets or global economies. However, great wealth builders know what they own, and why they own it. They focus on the day-to-day operations, rather than what might happen in 6 months.
Many are well-read, and they’re more likely to read about economic history and cycles than fortune cookie predictions. It’s rare to see them make big panic-buying or panic-selling mistakes. In fact, most will tell you their greatest gains were made by being bold during recessions and bear markets.
7. They’re Content To Do One Thing (and do it well) for a long time.
The truth about overnight successes is that 99% of the time, you never saw the decades of hard work that got them there.
I recently sat down with a client who’s getting ready to retire: her House is paid off, nearly a million in the 401k, and worked for the same company for decades (never making more than 100k a year). Yet she diligently saved 20% of her pay and never panicked during the bear markets.
The idea of change is always seductive, but the grass isn’t always greener. The goal of any big change is ultimately to find something you can stick with. The concept of compounding over time isn’t limited to investments. Changing jobs, homes, possessions, and relationships can be costly.
8. They Know the Difference Between a Helping Hand and a Handout.
According to a shocking 2009, “Sports Illustrated” article; 78% of former NFL players have gone bankrupt or are under financial stress within 2 years of retirement. How Multi-Millionaires go broke in a handful of months is easily summarized: a lack of financial boundaries.
It’s difficult to know where boundaries should be with loved ones, especially children. Parents are so used to sacrificing for their kids, they sometimes forget to let them grow up and learn important life lessons on their own.
If you’d like help, or simply want to review your financial plan, feel free to call us at 530-487-1777 or Book An Appointment online today.