I started reading the book "The Millionaire Next Door" when I was a teenager. I stopped reading it...because I was a teenager ("Ain't nobody got time for that!"). I picked it back up a few weeks ago and I have found my financial spirit animal. The word "millionaire" typically brings up images of a lavish, jet-setting lifestyle, but behind the scenes, that may not always be the case. Like Warren Buffett, who famously still lives in the relatively modest house in Omaha, Nebraska, that he bought in 1958 for $31,500, many millionaires (and billionaires) live a modest, if not downright frugal lifestyle--a lifestyle that may have helped them become millionaires in the first place. For those who haven't read it, it's about a study done in the mid 90's on the"typical millionaire" and their habits that result in a net worth of $1 million or more, which they all were well above. The ones who live in your neighborhood, own small businesses, live well below their means, and you wouldn't even know they were millionaires. One thing I realized is all have one thing in common. BEING FRUGAL FRUGAL FRUGAL!!! Let's talk about this concept.
The Frugal Mindset
Many people equate being frugal with being cheap, but that's not really correct. Being frugal means carefully watching your dollars and not spending more than you need to, a trait many millionaires carry. To assist in cultivating a frugal mindset, get in the habit of asking yourself this question: "With a little extra effort and/or sacrifice on my part, is there any way I can save money here?"
We all need things. The key is not spending above your means. Money you save can then be used to build your savings and investment accounts. Don't let the price tag of your car, home, or designer suit define your character. For example, a reliable car that safely gets you from Point A to Point B may be completely sufficient for your needs. According to the book The Millionaire Next Door, the top car brand among millionaires is Toyota, not Mercedes or BMW. Even Mark Zuckerberg, the billionaire founder of Facebook, has been spotted driving an Acura TSX, an entry-level luxury car whose base price is about $30,000. As you move up the net worth ladder, avoid the temptation to elevate your "status" by overspending on luxury goods. You can be smart about everyday consumer purchases, too. You might be surprised to learn that many millionaires clip coupons, buy in bulk, wait for sales, scour eBay and Craigslist for deals, limit clothing purchases, fly coach, avoid credit cards, and save half their restaurant meal for lunch the next day--habits that can free up cash for the occasional splurge.
Debt In Moderation
Debt is bad...mostly. At times taking on debt is necessary, for example when buying a home or attending college, because without it, many people won't have saved enough money. But generally speaking, you should be leery of taking on debt for things that cause you to live above your means. Remember, every dollar you borrow today is a dollar you'll have to pay back tomorrow, with interest. People who turn a modest financial base into wealth often do so by living frugally, saving regularly, investing wisely, and avoiding debt. By contrast, people who end up in a perpetual cycle of debt are often those who spend and borrow excessively to support an unsustainable lifestyle.
Many millionaires don't sit around waiting for things to happen. They make things happen by getting up early, working hard, looking for opportunities, constantly educating themselves, taking calculated risks (i.e. starting small businesses), networking, staying active, and generally trying to improve themselves day in and day out. And with the explosion of information online 24/7, learning new things has never been easier. I'm all about turning your passion into a paycheck, doing what makes you happy, and working towards financial through hard work, commitment, and consistency.
Source: The Millionaire Next Door by Thomas J. Stanley & William D. Danko, 360 Degrees of Financial Literacy (AICPA)