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