In 2004, I set out to conduct a five-year Rich Habits study to examine how the world’s richest people feel about their money. Each of the 225 millionaires I interviewed fell into one of four categories:
The saver-investor path requires the least amount of risk—at least compared to pursuing an entrepreneurial dream or artistic passion. But 88% of the millionaires I surveyed said that saving in particular is critical to their long-term financial success.
The average millionaire in my study took between 12 and 32 years to accumulate a net worth of $3 million to $7 million.
Below are their three most common habits that anyone can adopt:
1. They automated and saved 20% of net wages.
Every saver investor in my study consistently saved 20% or more of their net pay on every paycheck.
Many achieved this by automating the payment of a fixed percentage of their net salary. Typically, 10% went into employer-funded retirement accounts and the other 10% was automatically transferred to a separate savings account.
Once a month, saver-investors then transfer their accumulated 10% monthly savings to an investment account, such as a brokerage account.
Even if 20% is too high right now, consistently saving at a lower percentage can still help you achieve your financial goals for the future.
2. They regularly invest part of their savings.
Because saver-investors consistently invested their savings, their money compounded over time. When they started, that compound interest wasn’t very significant. But after 10 years they began to amass considerable wealth. In the final years of their working lives, Saver investors’ wealth averaged $3.3 million.
The millionaires who pursued a dream and started a business (aka dreamer-entrepreneurs) didn’t have the opportunity to invest their savings, especially in the early stages of realizing their dreams. Her savings were used as working capital to fund her dream.
Interestingly, however, most of these Dreamer entrepreneurs immediately turned around and began investing their profits as soon as they saw success in terms of available cash flow.
3. They were extremely frugal.
One of the common denominators for saver-investors, big-company climbers, and the virtuoso self-made millionaires in my study was thrift.
For these millionaires, frugality began the moment they received their first paycheck. For the Dreamer entrepreneurs, it started the moment their dream generated enough cash flow to allow them to save and invest.
Being frugal requires three things:
Being frugal alone will not make you rich. It’s just one piece of the rich habits puzzle, and there are many pieces. But it will allow you to save a larger amount of money. And the more savings you have, the more money you can invest.
Tom Korley is an accountant, financial planner, and author of Rich Kids: How to Raise Our Children to Be Happy and Successful in Life and Rich Habits: The Daily Success Habits of Wealthy Individuals.
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