What do millionaires do differently?
Do they work harder than normal? Do they have brains that can bend spoons?
The authors of The Millionaire Next Door and The Millionaire Mind surveyed over 700 millionaires to find out. 80% were self-made, accruing all their wealth in one generation and they were doing quite a number of things you and I probably aren’t.
Here are a few patterns the researchers saw:
- Most Millionaires Are Self-Employed
Got a great idea for a business? Make sure the profits are going in your pocket, not your boss’s.
20 percent of the affluent households in America are headed by retirees. Of the remaining 80 percent, more than two-thirds are headed by self-employed owners of businesses. In America, fewer than one in five households, or about 18 percent is headed by a self-employed business professional or owner. But these self-employed people are four times more likely to be millionaires than those who work for others. Sound risky? It is. Less than a third of new companies survive 10 years.
Via The Illusions of Entrepreneurship
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No matter how you measure new firms, and no matter which developed country you look at, it appears that only half of new firms started remain in business upto five years, and less than one-third last ten years. But millionaires have a different perspective. They think it’s risky to work for someone else. You could get laid off or your boss could make a bad decision that would put every employee out of work. They want to be in control of their own destiny and yes — they’re quite confident; research shows confidence boosts your income.
Not only is entrepreneurship risky, it’s also hard work. In only two countries out of all the ones surveyed did the self-employed not work harder than salaried employees. Why do something so risky and difficult? Research shows one of the main things that makes us love our work is autonomy. This is entirely true here. You’d need to earn 2.5 times as much money to be as happy as someone who is self-employed.
Via The Illusions of Entrepreneurship
These studies have found that people are more satisfied with their jobs when they are working for themselves than when they work for others.
- Millionaires Choose Their Careers Strategically
They don’t start a business they’re necessarily passionate about. They don’t even do something they necessarily understand or have experience in.
They start a business that they think is going to make money and look for areas of big demand and small supply.
Some of you are saying, “Duh. Of course that’s how you should pick a business.” Yeah, but that’s not what the vast majority of people do.
Via The Illusions of Entrepreneurship
There is no evidence that entrepreneurs select industries in which profits, profit margins, or revenues are higher. 63% of new business owners admit their venture doesn’t have a competitive advantage and only a third say they really did a search for good business ideas. Also the industry you start a business in is very important; some industries are over 600 times more likely to be successful than others.
Between 1982 and 2002, start-ups in the software industry were 608 times more likely than start-ups in the restaurant industry to become one of the 500 fastest growing private companies in the United States—608 times more likely!
- They’re Not Geniuses But They Have A Strong Work Ethic
We’ve all heard the old saying, “If you’re so smart, why aren’t you rich?” What was the average college GPA of an American millionaire?(2.9 out of 4.0). (Not a lot of Phi Beta Kappa keys jangling around here, folks.) Few were ever called intellectually gifted and many were explicitly told they didn’t have what it takes for medical school, law school or MBA school.
But what most people don’t know is that GPA is a very poor predictor of success.
I find no substantial statistical correlation between the economic-productivity factors (net worth and income) and SATs, class rank in college, and grade performance in college and this may be part of the reason they’re so successful as entrepreneurs: “smarter” people are less likely to take such risks.
Overall, there is an inverse relationship between taking financial risk and various measures of analytical intelligence such as SAT scores.
In entrepreneurship, you’re the boss. So it requires leadership. And some research shows being super-smart actually makes you worse at being a leader.
- They’re Cheap
When the authors of The Millionaire Mind interviewed the wealthy, they didn’t want them to feel uncomfortable. So they rented a penthouse in Manhattan, loaded it with four types of pâté, three kinds of caviar and plenty of fine wine. The millionaires arrived and felt completely out of place. All they ate were the gourmet crackers lol. When offered the fancy wine one interviewee said he only drank two types of beer: free and Budweiser. The researchers were stunned. They quickly realized the media images we see of millionaires aren’t representative.
Expect a millionaire to be a fancy dresser? 50% have never paid over $399 for a suit. (10% had never paid $195.) In fact, if you do see someone wearing a $1000 suit, it’s more likely they are not a millionaire. For every millionaire who owns a $1,000 suit, there are at least six owners who have annual incomes in the $50,000 to $200,000 range but are not millionaires.
Fancy car? More than half have never paid over $30,000 for a car.
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Research shows people are better with their money when they think long term. Experts say you should have a system.
So are you as money conscious as a millionaire? Most millionaires answer “yes” to these four questions. Can you?
- Does your household operate on an annual budget?
- Do you know how much your family spends each year on food, clothing and shelter?
- Do you have a clearly defined set of daily, weekly, monthly, annual and lifetime goals?
- Do you spend a lot of time planning your financial future?
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Then what should we take away from all of this?
Being a millionaire must be nice. But we won’t all get there and that’s okay. Money isn’t everything so even if you don’t get rich, what lessons can we all learn from millionaires? (take control of your life as best you can, Plan and be strategic. whatever your career might be, work hard.
Watch your money.
I think the word The Millionaire Next Door used was frugal - not cheap. Look after the pennies and the pounds look after themselves. Millionaires in making do not waste money especially not on flippant things. That does not make them cheap - rather smart.
An important factor that is discussed in The Millionaire Next Door is the attitude to borrowing. It links to frugality - millionaires in making do not borrow to buy flippant things or to show off. They borrow to build their businesses or fund their education or training or hiring the best staff.
There is one aspect that is not covered well in either of the research pieces is to understand how many professionals become millionaires. Becoming a professional (e.g., doctor, lawyer, accountant) requires brainpower. Building a great professional business requires all the entrepreneurial power you describe - I know as I did it. A professional does not have to build a professional firm or an owned business to become a millionaire. Find the right business to work in and build it to a great business and the rewards can flow. I know as my father did that as an accountant who then worked as a business manager for a great business.
What I do know from those two stories. Brains helps. Determination helps. Builiding a great business (owned or not owned did not matter) helps. Frugality helps. Limited borrowing helps. And I know there was nothing inherited. My father started with nothing. I exiled myself fromSouth Africa with nothing.
Smart and articulate summary sir. Thank you.