This is Mike. He lives in a big house with five bedrooms, a swimming pool, and a tennis court. He drives the most expensive cars and only wears designer brands.
On the other side of town lives Natalie. She has lived in the same house with her family for the last 15 years and drivers are used Toyota and spends a few hours per month budgeting her family's expenses. If I told you that one of them is a millionaire and the other one isn't, who would you pick?
Most people think it's Mike, but the truth is that the most millionaires are people like Natalie, and they live right next door to you. It's easy to look at Mike's expensive material possessions and assume he's wealthy. After all, he runs a successful business and has a high-income.
Still, he has little accumulated wealth, simply because he spends everything he earns. Wealth and income are not the same thing. Your income is what you earn.
Your wealth is what you accumulate. If, like Mike, you make a lot of money and spend it all, you're not wealthy. You're just living a high consumption lifestyle.
That might look good on social media, but if tides are to turn and something happens to your income, as it often happens in the thing we call life, disaster is on the horizon pretty quickly. You'll be surprised to learn that many higher income people can barely keep up with their expenses, and just like many lower income people, they couldn't survive more than a few months without a paycheck. But if you embrace the proper habits, you can increase your chances of accumulating enough wealth to become a millionaire.
So what makes millionaires different? First of all, they did not inherit their wealth. The author's research on millionaires shows inheritance plays a minimal role.
Fewer than half receive any inheritance at all, and under 20% inherit the 10% or more of their wealth. 80% of millionaires accumulated their wealth in their lifetime as a result of their work, investments, and financial decisions. Quite the opposite of the typical image of a young, somewhat spoiled adult whose parents have financed their flashy lifestyle.
And don't get me wrong, they do exist, but they're a very small percentage of wealthy people. Next, many millionaires are self-employed. They're entrepreneurs or professionals in non-flashy fields.
For instance, they may be welding or paving contractors, factory owners, accountants, or even auctioneers. They live below their means. They live in modest looking, rather than showy homes.
They wear none-brand clothing and accessories, and often drive used cars. They're highly frugal and budget their expenses. And on average, they invest 20% of their realized household income per year.
They pay for expert financial and legal advice, study the markets, and make their own investment decisions. And last but not least, they've accumulated enough to live without working for at least 10 years. And most of all, all millionaires smash the like button.
Of course, that is a joke, but if you click that like button and give it a thumbs up to this video, I would really appreciate it. And all of these habits sounds simple enough, right? Now, to help you getting started, let's find out what your net worth is.
You can think of net worth as everything you own minus everything that you owe. And to calculate it, all you have to do is subtract your debts from your assets. Mike, for instance, has $900,000 in assets that includes all bank accounts, cars, and real estate, and he has $850,000 in liable.
Things like debts, loans, car payment, and mortgages. So, Mike has a net worth of only $50,000. Ouch.
Now that you know what your net worth, it is time to determine if you're on the right track and what your net worth should be based on your income and your age. The formula is simple. You take your age, you multiply it by your yearly income, and you divide all of this by 10.
The the result is what's called expected net worth, and of course, exclude any inherited wealth. So here's an example. Mike's income is $347,000 per year, and he's 49-years-old.
This means that his expecting net worth should be 49 by $347,000 divided by 10, or a little over $1,700,500. So, Mike, if case you're watching this video, it is time for you to get back on track. Similarly, 40-year-old Natalie, with an earned income of $250,000 plus $35,000 of investment income, her net worth should be around 40 by $285,000 divided by 10, a little over $1,140,000.
So now it's time for you to calculate yours and see how well you're doing. Those who earn what they're expected are considered average accumulators of wealth, but nobody wants to be average, right? So if you want to be a prodigious accumulator of wealth, or PAW, you should gather a fortune that is twice the amount of what the formula suggests.
What about those whose wealth is lower than the formula? Those are labeled under-accumulators of wealth, and if this is your case, don't panic. Instead, try to adopt the habits of millionaires, and you'll be one step closer to changing your circumstances.
So what are these habits that the millionaire next door have? Habit number one, they are frugal. The word that best describes many millionaires is frugal, which means using your resources economically and not being wasteful.
And as I'm sure you know, it is not easy to be frugal in today's world. Our consumption-oriented society celebrates lavish lifestyles, and it's easy to join the carousel. But the typical millionaire's lifestyle would not make it on a TV show.
They don't stand out in their neighborhoods. In sports term, they play defense by controlling their spending and budgeting their expenses. Habit number two, they are investing in stocks.
Wealthy people spend a significant amount of time, around eight hours per month or 1% of their time planning their financial future. Of course, simply increasing the amount time you spend planning does not automatically translate into building wealth. You need to focus on the right kind of investments, educate yourself, get quality financial advice, and follow that advice.
95% of millionaires own stocks. Most keep 20% or more of their wealth in Publicly traded companies. However, very few millionaires are active traders.
Most don't closely track the daily ups and downs of the market or trade stocks in response to the current events. 32% keep their investments for more than six years. In other words, millionaires are long-term investors who are not trying to time the market.
And in a 24/7 cryptocurrency market that changes by the minute, long-term might seem like a dirty word, but wealth requires time. Habit number three, they budget their expenses. You might think that because someone is a millionaire, they don't ever think about money.
Still, the fact is that they become wealthy and remain that way in large part by budgeting and controlling expenses. Here's how they do it so you can follow along and do the same. Step number one, create and live by monthly and annual budgets.
Visualizing the longterm rewards of achieving financial independence will give you the extra motivation you might need. Number two, know what your family spends annually for the basic needs. This includes stuff like food, clothing, shelter, and any other basic needs.
Most millionaires know how their monthly expenses are doing at any time of the month. And if this sounds a little bit overwhelming because you've never done a budget before, start by tracking every expense for just one month. At the end of it, I can guarantee you, you'll be completely shocked to see where your money is actually going.
Number three, set specific daily, monthly, yearly, and life goals. Setting specific goals will help you stay on the right track. And number four, spend time planning your financial future.
We all know that one person who hears about the new cryptocurrency and decides to invest without doing the research. Well, Natalie and any other millionaire is not that person. Instead, she spends significant time planning and leveraging her knowledge by investing in areas where she has some sort of an expertise.
Habit number four, millionaires drive used cars. Most millionaires don't buy the most expensive cars in the market. In fact, many millionaires don't even purchase brand new cars.
The often by quality and reliable vehicles that are several years old and they never lease or finance them. Why? Because they understand that new cars are overpriced.
The steepest depreciation happens in the first few years, and if you buy a car just three-years-old and sell it three years later, chances are you're going to get your money back. Interestingly, most car buyers spend 30% of their net worth on a vehicle, while millionaire spend only 1%. And now you know who the millionaires next door are and how they live.
Their lifestyle and their habits are so simple that anyone could adopt them, and if you do, you'll be that much closer to becoming a millionaire yourself. Now, go out there and do the work. And here's the little recap so you know exactly what you're doing.
Understand the difference between income and wealth, calculate your net worth and understand what type of accumulator of wealth are you. Then adopt the habits of the millionaires next door by being frugal, planning your investments, budgeting your expenses, and never buying a new car. And I'll leave you with a quote from the book.
It's amazing what you can do when you set your mind to it. You'll be surprised how many sales calls you can make when you have no alternative except to succeed. And if you like this video, you're going to love what's coming.
So click on the subscribe button, join the family. There's a new video coming out each and every week. Go become a millionaire, and I'll see you in the next one.
