We are often asked, “How do I become a millionaire?”  The answer is, “By living simply!”  

This may seem an unlikely answer when we have been conditioned to think of millionaires as people who live in mansions, drive exotic cars and fly in private jets. The truth is that the flashy millionaires glamorized by the media are just a tiny fraction of America’s rich.  

Over two decades ago, Thomas Stanley and William Danko wrote a book called “The Millionaire Next Door.”  Stanley and Danko were professors at the University at Albany, State University of New York studying consumer behavior, specifically, wealth formation. According to Danko’s website, the book spent more than three years on the New York Times best-seller list.  

Stanley and Danko spent more than 20 years studying how people became wealthy.  They began by surveying people in expensive neighborhoods throughout the United States. In doing so, they uncovered something they did not expect. Many people who appear rich based on what they drive and where they live, don’t have any real wealth at all.  Further, they discovered that many of those who have real wealth don’t live in huge mansions and drive expensive cars. Their research demonstrated that many in America look at wealth the wrong way.

From afar, we judge wealth by consumption, but that can be an illusion. Having a large income means that you have more to spend, but if you spend it all, you are not building wealth. True wealth is what you accumulate, not what you spend.  Inheritance, luck, intelligence and education are often viewed as sources of wealth, and sometimes that is true.  More often, wealth is “… the result of a lifestyle of hard work, perseverance, planning, and most of all self-discipline,” according to Stanley and Danko.

So, what does the typical American millionaire look like? According to Stanley and Danko, 85% are male, owns a small business and lived in the same town for all of his adult life. He is married and has stayed married to the same person. He doesn’t live in the fanciest neighborhood, but instead lives among people with a fraction of his net worth. Stanley and Danko describe him as, “a compulsive saver and investor.” Perhaps most surprisingly, 80% are self-made, according to Stanley and Danko.

Based on their research, Stanley and Danko argue that wealthy Americans share seven traits. First, they live well below their means, saving and investing a sizable portion of their income.  Second, they allocate their time, energy and money efficiently, in ways conducive to building wealth. We all have the same number of hours in the day, but the self-made millionaires tend not to waste it. Third, they believe that financial independence is more important than displaying a high social status.  They buy their clothes off the rack, on sale, and are more likely to wear a Timex than a Rolex. Fourth, their parents didn’t give them substantial monetary gifts in adulthood.  Fifth, their adult children are self-sufficient. Sixth, they are proficient in targeting market opportunities. They recognize opportunities when they present themselves, and they are not afraid to pursue those opportunities. Lastly, they chose the right occupation.  

According to Stanley and Danko, about 20% of affluent households in the US are headed by a retiree. Two-thirds of the rest are headed by self-employed business owners. However, there is no pattern to the type of business they own. They found a business they loved and that they were good at. Wealth accumulation tends to follow, particularly in individuals with the other six characteristics.

The research that Stanley and Danko have done provides a surprising profile of the affluent in America.  However, the book offers great insight into how almost anyone can accumulate wealth with the correct lifestyle choices. Even two decades after its initial publication, “The Millionaire Next Door” provides useful ideas in the quest for financial independence.

For more information, you can listen to the podcast of Smart Money Management radio show on this topic, along with others, at www.alderferbergen.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  

Securities and Advisory services offered through LPL Financial, a registered investment advisor.  Member FINRA/SIPC.