How do Self Made Millionaires Make Their Money is the kind of book that has the potential to change your life, because if you can create a vision of what you want your future to look like, plan for it with an escape route, visualize it day in and day out, then take massive action towards making your vision come true, then at some point, that vision will become reality.
Millionaires weren’t born into money. They made it themselves. There is a proven system that you can follow to become financially independent and create the life you deserve. In this book, jam-packed with powerful strategies, I reveal to you how millionaires make their money and the 5 steps you can follow to do the same.
What traits do millionaires have in common?
The Fidelity study results showed that even though millionaires have different ways of making money, they often share these traits:
- They set ambitious goals and act on them. Self-made millionaires put their ideas and dreams into action, whether that’s starting a business or achieving other professional or personal pursuits. This determination is a common driver among many who made their millions without an inheritance.
- They have mentors. Many self-made millionaires are quick to admit that they cannot possibly know how to do everything. They reach out to others who know the ins and outs of different types of saving and investing, tapping into the best minds on each subject for perspective and insight. That certainly pays off.
- They look for feedback. For a self-made millionaire, self-improvement never stops. Self-made millionaires look for critique and feedback in their ideas and business practices, ensuring that they can better identify blind spots and guarantee that their ventures will succeed.
- They are not afraid of failure. Millionaires understand the benefits of learning lessons through failure. However, the risks they take are thoroughly calculated and each scenario played out. Once they commit to something, they give their all.
- They understand the value of time. Time is money, and millionaires know this all too They quickly learn how to manage their time, and they know that there is no reason to trade time for money.
They’re frugal.
Frugality — a commitment to saving, spending less, and sticking to a budget — is one of the wealth factors that help millionaires build wealth, according to Sarah Stanley Fallaw, the director of research for the Affluent Market Institute and an author of “The Next Millionaire Next Door: Enduring Strategies for Building Wealth,” for which she surveyed more than 600 millionaires in America.
Many of the millionaires Stanley Fallaw interviewed stressed the freedom that comes with spending below their means.
“Spending above your means, spending instead of saving for retirement, spending in anticipation of becoming wealthy makes you a slave to the paycheck, even with a stellar level of income,” she wrote.
They keep their housing costs low.
A prime example of frugality is that millionaires typically live in a home and neighborhood they can easily afford, according to Stanley Fallaw.
She said that most of the millionaires she studied had never purchased a home that cost more than triple their annual income. The median home value for millionaires in her latest study was $850,000 (3.4 times their current income), with a median original purchase price of $465,000.
They save a lot of their income.
Being frugal and living in an affordable home enables millionaires to save. They recognize that income isn’t enough — they have to save what they’re making.
John, who runs the personal-finance blog ESI Money and retired at 52 with a $3 million net worth, has interviewed 100 millionaires over the past few years and found that the median millionaire spent $90,000 a year while earning $250,000 in income — a 64% savings rate. Saving it, he said, allows for investment.
While this savings rate might be slightly off because of things like not counting taxes as spending, the main takeaway, he said, is that millionaires “save a large portion of their income.”
If you make $250,000 and spend $250,000, “you are no better off at the end of the year,” he wrote.
They don’t budget.
But millionaires are able to be frugal and save without budgeting. Many of the millionaires John spoke with said they didn’t have a budget.
“While it was not expected, the reasons millionaires don’t need a budget makes sense — they make a lot and have self-control,” he wrote in a blog post. “In other words, they make a ton, spend only a portion of it, and have plenty left over. Who needs a budget?”
He added: “A budget is great for the early phases of a financial plan, but if you can grow your income and develop self-discipline not to spend, it’s not vital to your success later on.”
They take on a side hustle.
Many millionaires favor moonlighting, or taking on a side hustle, according to Stanley Fallaw, who said it’s a good way to explore options while remaining employed full time.
“Those who are able to create multiple opportunities to generate revenue, who can translate hobbies into income-producing activities, will be successful at becoming millionaires next door in the future,” she added.
John also found that millionaires develop multiple streams of income, enabling them to grow their net worth exponentially, he said.
They invest in real estate.
One side hustle they’re prone to taking on once they’ve built wealth is investing in real estate, according to John.
“Investing in real estate seems like a natural result once the basics are covered and excess cash is generated,” he wrote.
According to Dana Bull, a real-estate investor, the financial advantages of investing in real estate are plentiful: positive cash flow, appreciation in terms of housing values, leverage, and tax advantages.
Develop a Rich Mindset
There is indeed something known as a ‘millionaire mindset.’ To become wealthy, you need to elevate your thinking, focus on abundance, and ditch your poverty mentality.
When I first read Napoleon Hill’s classic book, Think and Grow Rich, about a decade ago, it destroyed many of the wrong ideas I had about prosperity.
You can become whatever you desire to be, attain any heights you want to get to, and succeed beyond your wildest dreams.
Stop making excuses for yourself. Have a clear vision of what you want in your life and go for it. If you are going to become a millionaire, you need to start seeing yourself as one, and then work to make it a reality.
Be ready to embrace the pain and sacrifice that success requires. Success often means going through the grind, day after day, until your day of breakthrough comes. Self-made millionaires don’t stop when the going gets hard!
One of the reasons that millionaires are economically successful is that they think differently. — Thomas Stanley in The Millionaire Next Door.
Create a Financial Plan
Write down your financial goals. Be specific.
Self-made millionaires don’t just think 2-3 years out. They plan 10, 15, 20 years into the future and set goals that are not only ambitious but often appear to be impossible to reach.
Know how much you earn and what you spend. If you are going to put your money to work for you, you need to be familiar with how it flows through your account. Celebrate each milestone as you reach your goals and work your way up towards financial freedom.
Planning is bringing the future into the present so that you can do something about it now. — Alan Lakein.
Create Multiple Streams of Income
There is only so much money you can save when you are living from paycheck to paycheck. Focus your energy on increasing your income so you can live comfortably now while also saving and investing for the future.
As per ESI Money who interviewed more than 100 millionaires, most millionaires have higher than average incomes even if they did not start that way.
They work their way up from the bottom, build their careers, and put in tons of extra hours, year after year.
They diversify their income streams.
Hard work pays. However, to join the top 1% as a first-generation millionaire, you often need to make money even when you are sleeping. A majority of self-made millionaires have multiple sources of income.
Thomas Corley who spent 5 years studying the habits of 233 wealthy people, found that 65% of them had three streams of income, 45% had four streams, and 29% had five or more streams.
Don’t put all your eggs in one basket. Maximize your earning ability, so that boom or bust, you can continue to build wealth.
Here are 113 side hustles to get you started.
If you don’t find a way to make money while you sleep, you will work until you die. — Warren Buffett.
Start Investing Early
Compound interest is your best friend. Even folks who have never earned above-average incomes can join the 7-figure club by harnessing the power of compounding returns.
For example, as per this CNBC article, if you invest $5 per day in an account that generates 10% annual returns, you will become a multimillionaire ($2.3 million) in 50 years!
This is just one scenario, but you get the point. A little sum of money consistently set aside in an interest-generating account will over time amount to a lot of money.
Compound interest has a dramatic effect on the growth of your investments over time. The earlier you start, the better.
Maximize your retirement account contributions (401k, Roth IRA, and Traditional IRA). If your employer offers a 401(k) match, take full advantage and don’t leave free money on the table.
Tax-deferred growth is a surefire way to quicken your journey to millionaire status.
Other habits of self-made millionaires in relation to their investments include:
- They minimize their investment fees. Chasing returns or a big sudden breakthrough in the stock markets often lead to heartbreak and an empty bank account. Savvy investors invest for the long term and maximize their returns by using low-cost index funds.
- They take risks. If you sock away all your money in a low-risk investment such as CDs (Certificates of Deposits), it will take forever to grow your money. Millionaires love the stock markets because they understand that ‘the higher the risk, the higher the expected returns.
- They monitor their portfolios. You should know what’s going on with your portfolio and rebalance when required. Monitoring doesn’t necessarily mean activity. Good investors know that they need to focus on the long-term and avoid short-term investing biases.
Time is your Friend, Impulse is your Enemy. — John Bogle.
Invest in Yourself
Millionaires invest in themselves.
Improve your skills and increase your knowledge on a daily basis. Ever wondered why billionaires like Warren Buffett and Bill Gates read several dozen books every year?
Take yourself seriously, understanding that you are your very best asset. Education is not only about going to school. In fact, some of the wealthiest individuals in the world do not have a formal post-secondary education.
Learn from life and the school of hard knocks. Find mentors. Read voraciously and increase your competencies where they count. Here is a list of personal finance books you can start with today.
An investment in knowledge pays the best interest. — Benjamin Franklin.
Automate Your Finances
Take the guesswork out of your savings and investing by automating the process. Self-made millionaires don’t make savings the last thing they do with their paycheck.
Set up an automatic savings plan or direct deposit to your investment accounts such that you only get to spend what’s left over after paying yourself first.
Check out some useful automatic investing apps.
Most investors want to do today what they should have done yesterday. — Larry Summers
Conclusion
How Do Self Made Millionaires Make Their Money? is not your average ‘get rich quick’ book. It’s information anyone can use to make an income with little to no start-up cost (no money needed up front.)