How do millionaires think? I spent years working in small business accounting so I’ve had a chance to know a number of self-made millionaires. As a result, I also got an insider’s view of their financial positions and behavior — both business and personal. It’s kind of like being a doctor and giving physicals — you see people for who they really are, minus their magnificent external wardrobes.
So, what are typical self-made millionaires like, how did they come into their fortunes and what do they do with it once they have it? The answers represent a wealth of direction to those of us who hope to join them:
They’re fiercely independent. I think this quality drives them more than anything, including the quest for money. Money doesn’t rule over them, but they’re quiet mavericks, working to build their businesses and avoid any complications that might weaken their independence.
They’re survivors. The millionaires I knew weren’t MBAs. They may have college degrees, but most graduated from the school of hard knocks. They usually come from modest beginnings and bring those philosophies to their businesses. Having been through hard times they know their financial survival requires:
- Full control of their business
- A full bank account
- A frugal lifestyle, and
- A debt free position
They’re self employed. Because they’re so independent, they’re not organizational types. In fact, I doubt many of them could even survive in the corporate world, let alone in government or academia.
They’re principled. Generally speaking, I found legitimate millionaires more pleasant to be around than the imitation wannabes. There’s a surprising humility about them; a practicality that’s disarming. You can’t play mind games with them; they can sniff out b.s. from a mile away.
They’re NOT high rollers. A debt free business is the holy grail. An independent business is an unencumbered one, and these people are keenly aware of that. They know that taking on business debt puts them in an unwanted partnership with banks. So any debt incurred early in life was paid off as soon as possible. They don’t buy stock on margin, don’t borrow against retirement plans, and mortgages for investment property — if taken at all — are taken for ten years or less and paid off early.
They save money. A fat bankroll is their ace in the hole and it’s increased constantly by a conservative lifestyle that expands ever more slowly than their wealth and income. When they need to expand their businesses, they do it in cash.
They usually have basic product lines. In popular culture millionaires are often portrayed as being inherited money, dot.com entrepreneurs, shady money shufflers, stock market wizards, entertainers, athletes and the occasional Jed Clampett who strikes oil in his backyard. The few I came across who actually fit that description seemed better at dissipating money than building it. I knew one guy who took a flier on a stock with $25,000 that exploded into about $2.5 million within a few years. He expanded his lifestyle, quit his job and made a career out of finding the next longshot. Ten years later, he was still looking for it. He was also down to his last million and falling fast. There’s a reasonable chance he’ll retire on social security alone.
What businesses were the real wealth builders in? To name a few: hardware, corrugated boxes, building products, food supply and medical products.
They’re discreet. Real self-made millionaires don’t stand out in a crowd — they may even be your neighbor. Overalls or business casual are a more typical wardrobe than business suits. Armani suits and gold watches are for people trying to prove a point; a multi-million dollar portfolio means they don’t need to prove anything to anybody.
They don’t talk about big money. Most don’t discuss what they’ve got; often they actually don’t have much in the way of stuff anyway, preferring to have their money tied up in their business or in income preserving/producing assets.
They’re patient. “Patient capital” best describes the investment philosophy of most millionaires. Entrepreneurial millionaires are careful to expand their investments slowly and generally to do so without incurring debt. There’s a pronounced preference for income-producing investments such as dividend paying stocks, bonds, certificates of deposit, treasury securities, and non-leveraged investment real estate with positive cash flows. They generally avoid raw speculation, although they may devote a very small amount of money to mutual funds or to the occasional penny stock. They’ll leave the potential of a quick score in order to avoid a wealth-destroying bear market.
For us non-millionaires, the risk is that we’ll become tempted to pattern ourselves off the stereotype rather than on reality. We may fake it until we make it by “investing” our money in material goods and a lifestyle rather than in capital assets like businesses and income-producing investments. But that only feeds our ego and drains our finances.
From what I’ve seen, becoming a millionaire is a boring process: You work hard, you plan to work forever, and you relentlessly save money. You don’t speculate, you don’t “make a killing,” and you don’t live life in the fast lane. As for the self-made millionaires who do have some luxury in their lives — it usually followed many years of deferred gratification.
I suspect that most self-made millionaires don’t have a problem with the masses believing the typical stereotype. They’re happy to watch us speculate and spend our money on things that are likely to leave us broke because, when we do, there are fewer of us competing with them.
Is there a message in that for us?
Photo Credit: Patrick Hoesly
Awesome post Kevin.
Of anything in the true millionaire’s lifestyle, the independence appeals to me the most. Unfortunately, I chose the career path and have to answer to the man. Some day, I hope all of that will change.
Bret – The independent streak seems so powerful and so universal, that I wonder if at some point it isn’t genetic! Maybe it’s even the core personal trait–but I wouldn’t go that far.
I think that drive exists in each of us, and perhaps the real key is that self-made millionaires are more willing to let it out. After all, while growing up we’re taught the virtues of conformity, compliance and the power of the group–maybe the would be rich guys kind of block all of that out…
Kevin, you may be right about it being genetic. My Mom and two of my older brothers are entreprenuers and they are as you said unemployable. My brothers could never survive in the corporate world.
Brett, your comment just reminded me of Joe Karbo who wrote the Lazy Man’s Way to Riches. He said that early in life he held a corporate job for nine months and couldn’t stand it, so he quit and immediately begin searching for ways to make a living working for himself. I think he started out selling a pile of surplus boxes, and when he found he could sell them a profit, he moved on to find other niches he could fill.
The motivation came from a negative source, but it fired his drive to to his own way.
Excellent post. The millionaires that I know and the ones that I work with are the same way. They are unassuming and extremely hard-working. They have a 2nd generation iPhone, rather than the newest one, and their 2004 Ford Taurus was bought with cash-in 2007.
They do things differently, which is what gets them to this level.
I enjoyed the blog. Thanks.
Jon – That’s the conservatism, both financial and technological. They seem comfortable with being behind the technology curve–maybe that’s another advantage.
Think how much money they save buying second and second generation! You probably need to have both confidence and conviction to follow that path, which aren’t bad qualities either.
I might go out and buy whatever’s current.
I’ll just keep it for 10 years. 🙂
This is an EXCELLENT article! It’s funny, because independence is the main reason why I started a business. Unfortunately, since I racked up tons of personal debt, I’m forced to work for others to pay it off.
I think the stereotype of the “rich” is one of the most detrimental things to the state of personal finance in this country!
Khaleef – in your case independence is driving you twice, in starting a business and in paying off your debt. Most millionaires had debt at one point, but paid it off and stay out. It sounds like you’re getting the message.
Absolutely bang-on Kevin! I’ve worked in the accounting profession for years too and EVERY SINGLE ONE of the real-life millionaires that I’ve known (especially the ones in my family which is full of entrepreneurs) exhibit these characteristics.
There’s a saying in my millionaire dad’s world of ranching:
Big hat. No cattle.
Years ago, I remember Bunker Hunt flying into my dad’s ranch to buy cattle – truly an unassuming guy that you would never guess was worth as much as he was (this was before the cornering of the silver market debacle).
Although I took the employee and consulting route to make my money, I still treated the job as if I owned the company or my little part of it. It definitely has paid off.
Single Mom, I’d guess that anyone who’s worked in public accounting for a few years would have basically the same take on self made millionaires. There’s more discipline than magic in what gets them where they go.
That’s good for all of us, because discipline is something we can all adopt. Most of the barriers seem to be attitude adjustments, or unlearning some things we learned early in life.
Wow, I must be on my way.
I have all the attributes
Then you’re halfway there!
Thanks for the terrific article, Kevin! You ask if there is a message in all this. I think one message is that self-made millionaires are secure in simply being themselves and, ironically, see no need to put on “airs” to try and impress others.
Len
(Writing from Washington DC…)
Thanks Len! And so true. While we’re all worried about keeping up with the Joneses, they exclude themselves from the competition entirely and focus their efforts on being who they are.
This was such a great post Kevin. I enjoyed it immensely. I love how you include the 1)frugality vs big hat no cattle aspect, 2) cash flow investing vs. capital gains investing aspect 3) corporate millionaire (paper) vs. entrepreneurial millionaire aspect all in the same post. The article would be a good read for any one of these points alone…really good stuff, so thanks very much for sharing!
Roshawn – it is a wide variety of topics, however it’s all relevant to the analysis. The stereotypes don’t fit with the reality, and reality is what we need to see.
We’re not all going to be millionaires, nor would we necessarily want to be, but there are a lot of good practices that we should all be following. Self-made millionaires are the proof that it works. Thanks for reading.
Excellent article Kevin,
You’ve hit the nail on the head. I’ve worked with companies for over 25 years and millionaires come in all stripes, from the homeless look to the high living. Although, when millionaires choose to live high, they only choose one item to splurge on.
I disagree with you about millionaires not worrying about the masses spending. Millionaires don’t care about competition in spending. They care about how much is being spent around them. It’s a serious issue and a conversation that my clients and I have all the time.
Why? Because people with money and income are being forced to pay and support the people who don’t save money. We have higher taxes, fees, fines, costs to run our businesses, legislation that require extra monitoring, and the list goes on.
Every single government agencies had their staff increased with enforcers last year. Laws are being written to create new fines and penalties that can be shuttle into the general fund.
The question that I hear frequently is why are we forced to pay for people who live beyond their means?
Kim – I agree with what you’ve said. When I wrote about millionaires not caring if the masses mis-spend, it was along the lines of less competition in what it is the millionaires do, and also that people who free spend are usually good for business.
But you raise a point that’s a bit beyond the scope of the post, but worth delving into anyway. Self made millionaires are more concerned about the big picture than the average person. They worry more about the fiscal integrity of the nation, about the direction of the economy, about tax policy and about the overall direction of the country.
Perhaps it’s that when you reach the top, the big picture is not only more visible, but it’s more important. After all, if the country goes down the drain, so will the millionaires.
They’re long term thinkers and worried about a lot more than the next bowl of stew or the next social security check. John Q. Citizen focuses on benefits from the goverment, self made millionaire worry about the integrity of government and it’s affect on the future of the country.
I’ve got all those traits except one – I am currently employed as a contractor.
One of these days, one of these days, ONE of THESE days…
I can’t stand being trapped in my cubicle in a cube farm at work. It’s very painful.
My mom as a saying about me, she says: “Edie’s get up and go has gone up and WENT!” because I am one of those types that make a decision based on current information, and then RUN with it. Good or bad. If it’s bad, I sit back and analyze why. If it’s good, I think of ways to improve on it, and then GO, right now, again.
One of these days…I am leaving the Cube Farm, forever.
Spedie – Though self employment is a basic part of the self-made millionaire profile, it doesn’t mean you’re doomed because you have a job. It’s more of a mindset than anything else.
You can adopt the millionaire mindset on savings, spending, debt and investments, and build yourself up right where you are, for the day when–.
Get your finances in millionaire order–if not proportion–and you may find yourself not only being more independent, but thinking more independently. At that point you may be in a position to complete the transition with your own business.
More important though, we don’t need to be millionaires and we don’t need to be self-employed. Handling money the way they do may be the best thing most of us take away from this. Picture a fat bank account, no debt, low cost of living and no high risk investments–how much would you have to worry about???
Probably one of the best points…….No matter how much you make, it’s what you keep. Live below your means!
This is an outstanding post.
My favorite line:
“theyre willing to leave the potential of a big hit on the table in favor of avoiding a wealth destroying bear market”.
My take: Falls in line with my thoughts on how avoiding losses is smart, as it’s tough to recover. Do the math, on a percentage basis. Analagous to Buffett’s Rules #1 and #2.
Squirrelers – it’s almost counter intuitive on the face of it, which is probably why it works so well over the long term. You really have to be an out of the box thinker to resist the urge to throw caution to the wind during a raging bull market.
I’d always heard that one of the best ways to make money is not to lose it.
Absolutely true, Kevin. I’ve heard many times that it’s easier to make money than to keep it, and I believe it. It does seem counterintuitive to not “go for it.” However, look at all the celebrities who lose their houses even though they make millions. They make reckless decisions and don’t watch where their money is going.
Excellent article Kevin. Sometimes I wonder how the next generation of millionaires will align the impatience of Gen Y or the Millennials or whatever with the get-rich-slow tactics that success stories have used. I also wonder if becoming a “millionaire” has the same resonance with young people as it did for Baby Boomers. I know a ton of young people who simply don’t see wealth accumulation as the goal anymore. Yes, sometimes that means they spend what they don’t have now for a New Zealand vacation. But I’ve heard lots of explanations like “I’d rather be active and happy when I’m 25, than old and rich when I’m 65.”
Pop – Those are valid considerations. There is some concept swirling around that the definition of wealth is shifting. For example, intellectual property is being considered the real source of wealth, rather than tangible money. The ability to generate income from an idea or series of ideas is dynamic and therefore perhaps more enduring than a pile of paper assets.
I think also that the “transparency” of the younger generation is being monetized–the bearing of ones soul and troubles, often for monetary gain. It’s the latest version of the 15 minutes of fame game, and it’s being advanced by the plethora of cheap but tantalizing reality shows that’s elevating people who’s only claim to fame is their dysfunction.
Still, self-made millionaires are and always have been mavericks that don’t follow the popular trends. I think we’ll always have them no matter what surface factors suggest. In today’s culture, living life conservatively is quickly becoming the only truly radical stance, and that alone will be a draw, even in Gen Y and future, as yet unnamed generations.
I laughed my head off whilst I was reading this article!! It described my characteristics in full and it was funny because the one I always got into trouble about the most was being fiercely independent. I was born deaf and haven’t let that stop me from focusing on what I can do. I started my business using a credit card as back up until I realized I was developing some bad habits so I paid off the debt and now refuse to touch it, lesson learnt there as its cash only from here until the end. My business is now 4.5yrs old and I can say I am well on my way to earning my own wealth through my own efforts and nothing can make me more proud of myself!
you talk about the guy who earned $2.5MM and now is down to $1MM and how he might retire on Social Security alone..does S.S. work based on the amount of money you earned and they give you a certain percentage when you retire?
Good point James, that could be a problem. He wasn’t earning much, so he wasn’t paying in much. Hopefully he retooled and is now gainfully employed.
My richest friend lives in a one bedroom apartment and has no car. He walks almost everywhere. While he occasionally goes out for a fancy meal, he’s most commonly hanging out at Chili’s. He frequently announces that he’s not all that smart. I’m sure most people don’t think he’s a millionaire.
Your friend sounds kind of cool Jennifer. Not only does he have money, but he also has anonimity, another trait common to self made millionaires. He can do exactly and precisely what he wants and no one will ever know. That’s freedom!
I wrote a post about just such a guy on my own site. He isn’t a millionaire, but given his extremely modest lifestyle and penchant for savings, it’s just a question of time before he is.
He is cool, Kevin. I’m sure people are regularly surprised to find out that he’s rich since he has beer tastes and a champagne budget. It’s true, sometimes you can foresee the millionaires of the future.
“Becoming a Millionaire…is a rather boring process”. Now that I am reading The Snowball: Warren Buffet and the Business of Life, I quite agree with that statement to a T. No magic method – just lots of work and streamline determination mixed in with some whits and perserverance. Great post, Kevin!
Thanks Money Funk! That really seems to be the truth, but the truth doesn’t sell as many books and programs as the get-rich-quick schemes do.
When I was reading every traits of a millionaire, I was talking to myself “this is me” or “I am like this”. That really helped me realize that I have more traits of a millionaire. I am getting excited that I can be a millionaire one day! Hoping….
The couple of millionaires that I know are what I would term “Optimistic Realists”.
Optimistic: because they always believe there is a way forward and are constantly trying to improve… but at the same time are content enough not to drive themselves crazy. Being a business owner is stressful, and the folks who are successful in the long run figure out a way to be content while not losing the drive. Optimism seems to be the key.
Realists: they understand that for all of their hard work, luck plays an outsized part in the success or failure of a venture. Hard work can put you in a place to take advantage of luck when it comes… but the acceptance of good fortune’s role in success leads to a “get knocked down, but get up again” mentality.
Great article! I agree with this list. I have several wealthy friends, etc and they are ALL like this. Btw, some of them were burned early on when they were ostentatious with their money (on the way there) and learned quickly from their mistakes. Of course there are SOME who are ridiculous in the sense that they don’t want to spend a cent in one area but will spend quite easily in another (one the other day was gasping at a plumber’s bill while spending 100 x as much on something else he wanted). I quite frankly, LOVE their personality and hanging out with them; they’re quite interesting people because they often run so contrarily to what you would expect/to the grain and are often QUITE STUBBORN. They literally WILL NOT budget on certain things.
And it does take a while for them to talk with you about money (if you’re in their inner circle, and then it’s not bragging; it’s to make a point about their plans for their business, etc). Fiercely independent = YES. Very much so!
Well, we have a lot of those characteristics, but aren’t self-employed. I am a worker bee. Oh, sometimes I think about being an entrepreneur, but I am risk-averse, so I stay a worker bee and save my pennies.
Inspiring! Do you think a man in his 30s can still develop these traits?
Yes! You’re never too old to learn. Develop a new mindset, and change the wants and wishes. Start spending time with people who have the same goals, and learn from them. Encouragement, and support for each other is found in those relationships.
This is one of the best posts I’ve read in a long time! It’s being shared.
I love how thorough your description of millionaires and their lifestyles is. Clearly, we can all learn a lot from these classy, hardworking individuals.
You’ve got me motivated – I’m going to go out there, live frugally, and work hard.
Thanks for sharing.
Interesting article. I am a self made millionaire and no one knows except a financial advisor at my bank who looked over my assets when I retired 2 years ago. I have never made much money and in 1996 after a divorce, worked 3 jobs to take care of my young daughter. I dont tell folks because at my age it could make me a target. My car that I paid cash for in 2007 has 66,000 miles on it and I plan to keep driving it as long as I can. I invested in index funds after realizing I could cut the expenses of the mutual funds I had my IRA invested in 1985. There is so much more info on smart ways to invest now on the internet. Compound interest was the ticket for me. I made more in interest last month than I did for years in my salary. If I can do it, anyone can.
Amen! Accurate and concise, the best description of our traits that I have read.
But: “From what I’ve seen, becoming a millionaire is a boring process…”
NOT! It’s been greatly satisfying and exhilarating, at times:
Amen, Brother Ben! Amen!
Wow Kevin, this was a definitely a compelling post. You reinforce a lot of points made in The Millionaire Next Door and make it easy to digest.
This point really got me thinking about the opaque world of starting a business. How much do smoothie franchise, hotel, and fast-casual owners make?
“I suspect that most self-made millionaires don’t have a problem with the masses believing the typical stereotype. They’re happy to watch us speculate and spend our money on things that are likely to leave us broke because, when we do, there are fewer of us competing with them.”
Great article and great comments. Thanks everyone! Another great reason that i pimp this site as often as possible.
Benjamin Franklin gave much of the same advice in his Poor Richard’s Almanack several centuries ago. Save. Stay out of debt. Be productive. Live within or below your means. The banks, credit card companies, big corporations are appealing to our baser instincts of greed and coveting. Debt is a financial bubonic plague infecting so many especially the young college agers. It’s promoted as a way of life. (e.g.. Oh, I guess I’ll always have a car payment, CC debt, etc).
Uncle Tony was just like that. Worked hard. Worked into old age. Lived simply. He basically spent money only on things that were important to him. Very frugal otherwise. I thought it was really funny that when my aunt couldn’t scrub her floors anymore, she worked along side the maid they hired to help. My mom called one time only to be told my 92 year old uncle coudn’t come to the phone right then, as he was painting their garage. Brings a smile to my face thinking about it.