When most of us think of the “millionaire”, we might picture a class of people removed from us, who do not share our values and life struggles. However, it is more than likely that you know a millionaire personally, and may not even know it!
Not every millionaire drives a Bentley, sips champagne for breakfast and lives in a mansion – in fact, the majority live a surprisingly frugal lifestyle. Current estimations predict that there are around 3 million people in the United States today who have millionaire status – around 1% of the population.
The media prefers news stories about millionaires with lavish lifestyles and extreme spending habits. These habits often lead to the loss of their fortunes. Iconic Hollywood actor, director, and producer Burt Reynolds spent millions on real estate, as well as a private jet, 150 horses, and over $100,000 on toupees! Add an expensive divorce and dwindling career, and Reynolds declared bankruptcy in 1996, $10 million in debt. Rapper 50 Cent also famously went bankrupt, at one point owing $36 million, and 40% of professional footballers file for bankruptcy after retirement.
However, these high-profile cases tend to be exceptions to the rule, despite getting a lot of media coverage. Most millionaires are able to acquire and retain millionaire status through wise financial investments, budgeting, and maintaining a frugal lifestyle.
The main thing that seems to separate these frugal millionaires from most people is their mindset. Most people, from poor people to tycoons, match their spending habits to their income. The more they make, the more they spend. With each pay rise comes a new car, a holiday, a bigger house. This is known as “lifestyle creep”. This lifestyle leaves little left to save or invest, and doesn’t equate to assets. While expensive houses can accumulate value, cars are famously an asset that depreciates incredibly quickly, and you can’t sell a holiday you’ve already taken!
Most millionaires understand these principles and take care to live below their means. This modest lifestyle means that they are people that you would never guess have so much wealth. It makes sense that a lot of millionaires get rich by saving, rather than spending, their money. They buy used, rather than new, cars like the rest of us, and drive them for many years. These millionaires care more about long-term financial independence than flashy status symbols – early retirement and financial security for their families is more important than a Ferrari.
A smaller home comes with a smaller rent/mortgage, and usually less money spent on tax, insurance, upkeep, etc. Warren Buffet, the richest person in the world for many years, still lives in a home that he purchased for $31,000 in 1958! Millionaires who came from working-class or middle-class backgrounds, and retain a sense of frugality are common, and more likely to keep their fortunes.
When it comes to saving, millionaires are more likely to invest in income-generating assets such as rental property or stocks, rather than keep their money in savings accounts where interest rates don’t match inflation and money actually loses worth over time.
The average public perception of millionaires is that they are extravagant – however most millionaires keep their fortunes through sensible financial planning, and these are the ones that you should learn from when managing your finances!