What does a millionaire look like? Do they all drive BMWs or Mercedes, live mansions on the hill and live the good life of travel, eating out, and evenings at the opera? Maybe on TV and the movies, that is what the millionaire looks like. In fact most millionaires, you wouldn’t notice if they drove by you. In fact there are probably a couple that live in close proximity to you, but you don’t know it. They are the Millionaire Next Door.
The millionaire next door is usually someone that worked hard all their lives, and managed to save more than they spent. They usually aren’t a doctor, or the CEO of a big company as you would suspect. They didn’t necessarily have a six figure income, or a corporate card or a car allowance.
Starts and Ends With Savings
Being a millionaire isn’t about how much you make. It is completely about how much you didn’t spend. A millionaire is someone that lives beneath their means, spends less than they make, and invests the remaining amount in something that will provide a return.
A millionaire understands compound interest, and takes advantage of it to increase the value of their investments. Compound interest needs two things to work. The first is a return and the second is time. So if you either make a high return, or you have more time for your investment to earn a return, compound interest will work hard for you.
Let Time Do Its Thing
It’s not surprising to learn that many millionaires are older. They didn’t chase big returns, like bitcoin, or amazon. In fact alot of them simply invested in GICs, which are low interest bearing vehicles. So they used time to earn their millions. Their savings grew over decades. Their advice is to start as early as you can.
Most millionaires aren’t showy. They live in a modest house in a modest neighbourhood. They don’t buy a big house to impress their friends and family. With a modest house, they spend less than they need, and they can pay off their mortgage sooner. They will pay less in taxes, and less on utilities.
Drive Domestic Cars
Their car will be inexpensive, and a few years old. It is more likely to be a Ford, or a Chevy than a Mercedes, Lexus or BMW. They know that the car is meant to get them from A to B, and a used domestic car can get them there on time, and a lot less cheaper.
No Credit Cards
They know that the biggest waste of money is interest on debt. It adds up very quickly, and can steal retirements, travel dreams, and lifestyle. When your paycheque goes toward paying off debt, rather than building assets, it is a waste of time. So they either don’t use credit, or they use it for the rewards, but pay it off very quickly.
Pay Yourself First
The idea of pay yourself first is based on an idea that the government figured out early. If you depend on people putting their taxes away every month, and paying it at the end of the year, most people won’t be disciplined enough to put the money away. So, instead, they require that companies remit a portion of every employee’s paycheque to a government account. The government is happy because they don’t have to wait for the money, and in most cases they get what is owed to them.
Beyond taxes, the next people that get money are the banks, utilities, grocery store, gas station, restaurants, etc. After everyone else gets paid, most people don’t have anything left to put into savings. So that is where the idea of paying yourself first comes. When you become the second payer of your paycheque, after the government, money will automatically be put into savings before you pay everyone else.
Being the Millionaire Next Door may not be as glamorous as what you see on TV, but unless you are building the next great internet start up, it is probably the best chance you have of becoming a millionaire. Live stress free. Live happy.