If you think that to become wealthy, you need to inherit wealth or win the lottery, you are right. However, what is the chance you can win or inherit? Correct, close to absolute zero. Not many men have inherited millions, and even fewer people have won the lottery. A sad fact about lottery winners is that almost all of them ultimately lose money. But let’s discuss it separately.
The statistic clearly shows that the vast majority of wealthy Americans got their wealth by following a specific formula: learning a financially valuable skill, working hard, saving regularly, and investing wisely.
Let’s define what it means to be a millionaire. It is not the one who earns a million dollars, but the one who has accumulated a net worth of a million dollars or more. Net worth refers to your total assets minus your liabilities.
Liabilities include your mortgage loan, car loan, and any other debts.
Many of you may know the book by Dr. Thomas J. Stanley, a highly regarded researcher who spent his professional career studying how Americans achieve financial success—The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. The author confirmed that while some inheritances or money gifts are present, most millionaires are self-made (approximately 80%).
As I have learned, his daughter Sarah has continued the work in the same direction. She took her father’s findings and added her own (she is the President of the DataPoints – the company that has studied wealth accumulation).
While her father has concentrated on the things the millionaires did right, Sarah has focused on what they did not get wrong. As a result, she has published the next book: The Next Millionaire Next Door: Enduring Strategies for Building Wealth.
To name a few things that the rich guys DON’T DO:
- They don’t listen to naysayers who tell them they’ll never be able to achieve it;
- They don’t get into heavy debt (except mortgage loans for primary residence and investment-generating properties);
- They do not get into a friendship with people who are money wasters.
- They don’t believe in claims that race, color, gender, or sexual orientation prevent them from succeeding due to the lack of opportunities.
- They never accept the trendy tale of being a “victim” due to all the factors mentioned above.
To add to this, I heard many complaints that the rich elite rig the economy, and the average Joe doesn’t have the chance to thrive. And, most of all, that there is a wide gap between the poor and the rich that is expanding daily. So, what should Joe do? To complain and look for excuses?
Let’s analyze why some people are rich, but most are not. And while we discuss it, I hope you will absorb it with your mind and commit it to memory.
As I mentioned above, most people with a net worth of a million dollars or more did not acquire it for free or due to good luck or good genes. They were not born with an Einstein-level IQ. They did not have privileged connections with important people.
What they did was follow several important and proven principles/rules to build wealth and, ultimately, financial independence. You can purchase the books mentioned above and discover that the rules are simple enough to be applied by the average Person.
Let’s review some rules.
- Choose the right profession.
I cannot emphasize the #1 rule. Choosing the right occupation is a crucial factor in determining your future wealth.
Years ago, we discussed with my son what occupation to choose and what career he would like to have. Like any young male, he had some idealistic notions, such as researching the field of medicine.
I told him that it is fine to dream, but reality dictates something different. He would spend a considerable amount of money and time to earn his Ph.D. in the corresponding field, and then would depend on government grants while receiving low compensation.
So, my son told me in the best way teenagers express themselves: “I’d rather live on low compensation than do something I don’t like.” Clever fellow, isn’t he?
My response was simple. I told him that when he has a family, he will work full-time for a salary, and then, after work, deliver pizza until midnight to earn a few extra bucks.
In short, years later, he switched to the IT field after spending two years in college with medicine as his major. Today, he earns a sizable income and is on his way to financial independence.
2. Live well below your means.
When you have a tight budget in the early years of your working life, you become accustomed to spending less and buying only essential items. Do smart shopping with coupons and prepare food at home instead of spending money on restaurants or eateries daily.
Over time, your habits may change as your earnings increase. However, I still hope you spend only as much as is necessary for living and avoid wasting money on unnecessary expenses, such as luxury cars and vacations.
My old buddy, who is still working as a computer programmer, has ignored that rule. He bought an expensive house, but if it was not enough (considering the size of his mortgage loan), he spent about $100,000 on home decoration.
Sure, his house looked amazing… but did he think about the future, about retirement when no earnings were on the horizon? Guess what? The man has lost his job and experienced financial hardship for a while until he was hired, albeit with lower compensation.
Living below your means is a basis for saving and investing. I know that Warren Buffett (the man who has more than enough) still drives an old Chevrolet because he doesn’t have to display his wealth. For him, the car is just four wheels that deliver him from one point to another.
And now, we come to the following rule:
- Believe that financial independence is more important than displaying a high social status
Can I afford to drive a Mercedes or Porsche? Yes, indeed. Yet, I don’t need it because I prefer spending money efficiently, and I don’t have any personal problems that would necessitate buying an expensive car to show that I am doing very well.
I don’t need an expensive car to feel confident. I am optimistic enough without displaying my social status.
Hey, man, I understand that it is fun driving a new Mercedes. But I bet that you will mostly enjoy it in the first one to two months. After that, you won't even think about what car it is, unless you get something broken and are shocked to learn how much it costs to repair.
Instead, I am driving a Subaru that has proven to be a very reliable, safe, and relatively inexpensive car with every technical feature I wanted in it.
- Allocate your time, energy, and money efficiently, in ways beneficial to building wealth.
Time and energy are the most critical components. You must learn a lot about investing. It takes time and serious effort to acquire investment skills. If you think it is too much and you won’t be able to do it, you are giving up to those naysayers who have the same approach.
Maybe I am a strange creature, but I can’t sit and do anything. I have to learn, create, write notes, and store files that contain essential information. You live and you learn. Never stop it, no matter what your age is.
If other people were able to follow the rules of building wealth, you can do it, too. Please don't worry about your abilities. Could you write your goals on a piece of paper and stick it to your fridge? Take one small step toward your goals each day, and you will be surprised by the results later!
- Get proficient in targeting market opportunities.
Read the books, learn from other successful investors, and get involved in the social groups that target investments. Select the option that best suits your needs.
I have personally started with Real Estate investments. It proved to be the best step I could take for building financial independence.
I have invested my time in learning about buying properties with a minimum down payment, getting decent tenants, maintenance tricks, and how to handle all kinds of tenants. I will share my experience in the upcoming articles.
- Do everything possible to make your adult children economically self-sufficient.
I don’t have to explain it in detail. It is self-explanatory. If you don’t want to be the slave of your children who suck your money away over and over, educate them properly. Let them earn enough on their own, so you will be able to concentrate on building wealth for yourself and your spouse.
It has been proven overwhelmingly that economically successful individuals make informed choices and develop habits that create and build wealth.
Beyond following the above rules, these habits include integrity, optimism, ambition, persistence, flexibility, and prudence.
So, why isn't every man a millionaire? The rules and habits to follow apply to anyone. So, what is wrong with this picture?
In most cases, people either failed to develop the skills to earn a higher income or were reluctant to live beneath their means.
During a conversation about wealth around the table with some friends, one of them shared a story about a man who had followed the rules but was left with almost nothing in the end.
Can it happen to you? Yes, indeed. You may marry the wrong girl who might strip you of your wealth with a divorce (as it has happened to one of my old friends twice!). You may leave all your money in one basket and lose it (due to various unfortunate events), which is a “no-no” rule for prudent investing. You may, god forbid, get very sick or get involved in a horrible accident and spend your savings on medical needs.
Most unfortunate or unforeseen circumstances can wreak havoc in your life. Still, it is not a reason to give up and become another naysayer. That’s why it’s always important to focus on risk as well as opportunity.
Please continue reading Part II of this article.
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