$1 million. It’s what we all aspire to have, right?
I used to think that way, but my perspective changed. $1 million is no longer a guarantee of financial freedom. For someone spending $200,000 a year, $1 million won’t go very far. For someone else who spends $40,000 annually and has Social Security income, saving less than $1 million may be appropriate.
Numbers can change. The stock market moves up and down. You may be in a high-paying career now but could end up in a lower-paying profession (or vice versa).
Instead, focus on things within your control and begin with your mindset.
Mindset, Vision & Values
Steven Covey’s 1989 bestseller The Seven Habits of Highly Effective People coined the term abundance mentality. An abundance mindset helps you:
Create meaningful life experiences
Pursue new, interesting opportunities
Live a full and satisfying life
Find happiness even amidst struggle
Feel inspired and creative
True transformation requires an abundance mindset. If you foster an abundance mentality, you see the potential to move beyond present circumstances and have hope in a brighter future. By contrast, you are consistently concerned that there will never be enough when operating under the scarcity mindset. You may feel like a victim most of the time. Emotionally, an abundance mindset makes you feel empowered and engaged while a scarcity mindset causes frustration and overwhelm.
Once you have an abundance mindset, start to craft a personal vision. This vision encompasses your ideal future life – the one you may not be living yet but hope to live within a few years. The vision should be congruent with your values. Next, turn your attention to bite-sized goals.
Goal-Setting for the Long Haul
You’ve likely heard of the SMART goal-setting framework before. If not, here’s a quick recap. Make your goals:
Nonetheless, this SMART framework gives little attention to daily habits. Those habits will consistently drive you towards the goal or further away from it. If your primary goal is to run a half-marathon on June 2, your habit may be a daily run – with one or two rest days weekly. Likewise, if your goal is to increase your net financial worth by $25,000 this year, there are certain behaviors such as automatic savings that will help you reach the goal easier.
Dr. Thomas J. Stanley thoroughly researched wealth-building behaviors and revealed the results in The Millionaire Next Door. In his 1990’s survey of over 14,000 affluent American households, Stanley concluded that households can become wealthy without six- or seven-figure salaries.
Dr. Stanley unexpectedly passed away in 2015, and his daughter Dr. Sarah Stanley Fallaw recently published The Next Millionaire Next Door. Dr. Fallaw confirms that many of the behaviors identified in Stanley’s research continue to play a significant role in wealth accumulation now, and behavior change is possible.
Frugality, diligence, hard work, and time management are more important than salary alone. Choice of spouse, career, and location also play special roles.
Frugality means you spend less than you earn. Most millionaires are able to ignore the temptation to buy a bigger house, newer car, latest tech gadget, and so on. They may notice what other people are buying but don’t go on a shopping spree themselves.
Self-made millionaires are also disciplined. They choose moderation over extremes. If they buy a luxury car, it’s often a used one. You’re unlikely to find them living in the most expensive, elaborate house on the block. As investors, many millionaires don’t try to time the market. Slow and steady wins the race.
Another defining characteristic of millionaires is their hard work ethic. Money wasn’t handed to them on a silver platter. It’s incredibly difficult to build long-term wealth yourself if you’ve relied solely on handouts from parents or other family members. The adage “from shirtsleeves to shirtsleeves in three generations” rings true: a sense of entitlement quickly erodes family wealth, as demonstrated in this Globe and Mail article. Millionaires profiled in Dr. Fallaw’s book are willing to roll up their sleeves, launch businesses, or stick it out in high-paying careers until they’re financially independent.
Effective allocation of time, energy, and resources is another guiding trait of self-made millionaires. Even if hiring an outside financial advisor, a millionaire still monitors the family budget and ensures the investment portfolio matches the level of risk taken. He or she takes the role as household CFO seriously but may also rely on a professional with deep expertise in tax mitigation, charitable giving, or college saving strategies.
Above all, millionaires are able to transform income into wealth. They create a personal vision, evaluate values and interests, set goals, and actively pursue those goals. They are also conscientious, striving to become a better version of themselves.
Which one of these traits most resonates with you? What behavioral changes do you need to make to build wealth more easily?
Do You Have What it Takes?
The Next Millionaire Next Door is a must-read for any adult looking to reach millionaire status (or beyond). It offers excellent examples of Americans who take the road less traveled, ignoring societal pressures to spend frivolously and instead banking their income.
Take this quick, free quiz to see how your financial outlook impacts your ability to build long-term wealth. Already know your score? Please let me know if I can be a resource on your wealth-building journey.