How Exactly do People get Rich?

What does an average millionaire look like?

What does an average millionaire look like?

If you’re picturing a billionaire tech bro, a flashy celebrity, or someone living in a mansion on a hill... you’re probably wrong.

According to one of the most groundbreaking studies on wealth ever published, the average millionaire is probably your next door neighbor.

That one neighbor driving a five year old Toyota, mowing his own lawn, and wearing a simple casio watch.

The research of these findings were published in a very famous book, The Millionaire Next Door by Thomas J. Stanley and William D. Danko.

The authors spent several decades interviewing and surveying thousands of American millionaires.

Their major goal was to find out how exactly do people get rich.

Their findings were shocking as it went against the accepted popular understanding about wealth.

They discovered that most millionaires don’t live in high end neighborhoods such as Beverly hills.

They lived in average, middle-class neighborhoods.

They were business owners, engineers, accountants, and franchise owners.

They were, quite literally, the millionaire next door.

Their findings introduced two key concepts:

1. Prodigious Accumulator of Wealth (PAW).

This is someone whose net worth is far greater than expected for their income.

They are wealth builders.

They live well below their means and are on track to become financially independent.

2. Under Accumulator of Wealth (UAW).

This is someone who has a high income but a low net worth.

They live a high consumption lifestyle.

They look rich, but they have little real wealth to show for it.

The book calls this “Big Hat, No Cattle”.

So, how do you become a PAW?

The authors identified five interesting common traits.

Trait 1: They Live Well Below Their Means.

Millionaires are frugal.

They don’t feel the need to display their wealth with status symbols.

They buy reliable cars, shop for good deals, and live in houses they can easily afford.

Trait 2: They Allocate Their Time, Energy, and Money Efficiently in Ways Conducive to Building Wealth.

Millionaires are intentional.

They budget their money and their time.

They spend most hours on planning, learning and managing their investments.

Their financial efficiency is a key driver of their success.

Trait 3: They Believe that Financial Independence is More Important Than Displaying High Social Status.

Millionaires don’t care about impressing other people.

They care about freedom.

The respect of their peers is less important than their financial discipline.

They’d rather be anonymous and free than famous and broke.

Trait 4: Their Parents Did Not Provide Economic Outpatient Care.

This is a fancy term for saying they didn’t get a lot of financial help from their parents.

They learned to be self-reliant.

Conversely, the book found that adults who receive regular cash gifts from their parents are far more likely to be Under Accumulators of Wealth (UAWs).

Trait 5: Their Adult Children are Economically Self-Sufficient.

The cycle continues.

Millionaires teach their children the same principles.

They might help with education, but they don’t fund a lavish lifestyle for their grown kids.

So, how do you know if you’re on track to financial freedom?.

The book provides a very simple formula.

Multiply your age to your annual income and divide by ten.

This is what your net worth should be.

For example.

If you’re 30 years old and make $50,000 a year, you multiply 30 by 50,000 to get 1,500,000.

Divide that by ten. Your expected net worth is $150,000.

The ultimate message of The Millionaire Next Door is that wealth is not about what you see.

It’s not the car, the house, or the watch.

wealth building is a slow, steady, and often boring process.

But it’s a process that is available to far more people than we are led to believe.