Back on May 27th, Len posted 19 Things Your Suburban Millionaire Neighbor Won’t Tell You, a topic that caught both my eye and my interest. Though I commented on the post, I have more to say on this subject – much more!
I spent years working in small business accounting—still do as a sideline—so I’ve had a chance not only to get to know a number of self-made millionaires, but also to have 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.
It’s an interesting position to be in because not only do you get a chance to see who really has money and who doesn’t, but you also begin to see definite patterns.
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 might hope to join them one day.
Money doesn’t rule them
They’re fiercely independent, and I think this quality drives them more than anything, including the quest for money. They’re quiet mavericks though, working to build their businesses and avoid any complications that might weaken their independence.
They’re survivors. The millionaires I knew weren’t MBA’s. In fact, they have little regard for credentials. They may (but nowhere near always) have college degrees, but they’re mostly graduates of 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 how to survive by having:
- 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. Other than very early in life, they’ve always been self-employed. It’s not an ego thing either; they believe in themselves and have such confidence in their abilities that they can’t fit in organizations.
There are millionaires who are well employed, usually in corporate management, but they’re virtually a different animal. Their wealth is often mostly on paper. It’s usually tied up in a large personal residence, a vacation home, a retirement plan or stock options—all places they can’t get at it easily. The corporate world is a very different place from the pure entrepreneurial one the independents live and work in, and it has an entirely different dynamic. Image matters and strings are attached to compensation and wealth that the entrepreneurial types would never tolerate. It’s that independence thing again.
They’re principled. They’re not I’d-stab-my-mother-in-the-back J.R. Ewing types. Generally speaking, I found legitimate millionaires more pleasant to be around than the imitation wannabe’s. There’s a surprising humility about them, a practicality that’s disarming. And you can’t play mind games with them; consistent with their fierce independence they can sniff out B.S. a mile away and won’t tolerate it.
Contrary to popular belief, they’re NOT high rollers
A debt free business is the holy grail. An independent business is an unencumbered one. These people are keenly aware that taking on business debt puts them in partnership with banks, and they don’t share their businesses with anybody. 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 short term (5-10 years) 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 can do it in cash.
They’re product lines are often basic. In popular culture we think of millionaires as mostly being inherited money, dot.com entrepreneurs, semi-shady money shufflers, stock market wizards, entertainers and athletes and the occasional Jed Clampett striking oil in his backyard. Of the few I did come across who fit the popular description, most seemed better at dissipating money than building it.
One guy I knew took a flier on a stock with $25,000 that exploded into about $2.5 million in a space of a few years. He expanded his lifestyle, quit his job and made a career out of finding the next 100 to 1 hit. I knew him ten years after the golden jackpot and he hadn’t found another yet. He was also down to about $1 million and falling fast. There’s a reasonable chance he’ll “retire” on social security alone.
What businesses were the real wealth builders in? Try hardware, corrugated boxes, building products, food supply and medical products to name a few. Doesn’t sound sexy does it? No, but that’s not what they’re going for either.
It seemed to me that if anything, self-made millionaires had little interest in “hot’ businesses. They show a definite preference for tried and true. We’ve all heard the saying “don’t try to reinvent the wheel”—these people live that saying.
The millionaire investment portfolio
Patient capital best describes the investment philosophy of the group.
The images of the fast talking, wheeler-dealer millionaire, throwing money around hoping to make a killing is another media concoction of the breed. 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:
- Dividend paying stocks
- Bonds
- Certificates of deposit
- Treasury securities
- Municipal bonds
- Un-leveraged investment real estate with positive cash flows
The basic investment strategy is like an elevator that only goes up—slowly, but always up. That stacks the deck in their favor long term, while minimizing short term losses.
A very small amount of money (think single digit percentages here) might be devoted to mutual funds or to the occasional penny stock, but the group show a preference for avoiding raw speculation. Holding non-dividend paying stocks or real estate with a negative cash flow in the hope of making a big killing on a price move is more the preserve of wannabe millionaires and the middle class.
Loading 80-100% of their money into growth mutual funds or the latest edition of the Nifty 50 is a no-go; they’re willing to leave the potential of a big hit on the table in favor of avoiding a wealth destroying bear market. They don’t trade either—that might take time away from their businesses.
All dough and no show
Real self-made millionaires don’t stand out in a crowd. 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 big about money. They don’t talk about what they’ve got; often they actually don’t have much in the way of stuff anyway, preferring to have their money tied up either in their business or in income preserving/producing assets. They’re real millionaires who could come up with seven figures if they had to, not the paper variety where it’s mostly home equity and the value of illiquid and semi-liquid possessions.
For those of us in the teeming non-millionaire class, the problem with the widespread acceptance of the millionaire stereotype of big houses, hot cars and exotic vacations, is that we might be tempted to pattern ourselves off the stereotype rather than on the reality. We might “invest” our money in stuff and in lifestyles rather than in true capital assets, like businesses and income producing investments. We might play the ever popular “fake it until you make it game” that feeds our egos and drains our finances.
Becoming a millionaire, from what I’ve seen, is a rather boring process. You work hard, you plan to work forever, you relentlessly save money, you don’t speculate, you don’t “make a killing,” you don’t live life in the fast life, and you don’t have all of the latest toys that people with fewer means often do. For the ones who do have some luxury in their lives, it usually follows many years of deferred gratification.
I have a suspicion that self-made millionaires don’t have a problem with the masses believing and following the stereotype. They’ll happily watch us spend our money to pamper ourselves in luxury and invest our money in speculations that could make us rich but are more likely to leave us broke. And if we do, there’ll be fewer of us competing with them for the real thing.
Is there a message in all of this?
This is a guest post by Kevin Mercadante, who is the host of OutOfYourRut.com, a website centered on careers, business ideas, money and more, and a frequent visitor and commenter on Len Penzo dot Com. For direct comments on this post, he can be contacted via email.
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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.
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???
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.
This is an outstanding post.
My favorite line:
“they’re 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.
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