What investors can learn from millionaire next door
In an old gem of a book, the ‘Millionaire Next Door’, a long term study looked into habits of those who became wealthy verses those who didn’t. They discovered that wealth was not the same as income. In other words, they discovered that if you make a good income each year and spend it all, you’re not getting wealthier, you’re just living high! Wealth is what you accumulate, not what you spend.
The research study defined people as Prodigious Accumulators of Wealth (PAW’s) based on the wealth to income ratio. The opposite were called Under Accumulators of Wealth (UAW’s). Interestingly, the PAW’s had a high percentage of both spouses taking a vested interest in money management.
On average they invested nearly twenty percent of their household income!
In ‘Millionaire Next Door’, the seven factors that determined those who become wealthy were:
1. They live well below their means (perhaps the most important word there is ‘well’). In other words, they were usually frugal!
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide significant or ongoing economic care.
5. Their adult children are economically self-sufficient (could this be the greatest gift that you provide by taking these actions towards successful Money Management?)
6. They are proficient in targeting market opportunities (if you’re reading this, it is a good sign you have this skill!)
7. They chose the right occupation (that is, they chose the right occupation for their personal skillset and innate talent. Not that they became Doctors or Lawyers mind you).
The author of ‘Millionaire Next Door’ articulates it this way, “Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.”
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