How the rich get rich — and you can, too

Most people would like to live like millionaires, but few understand what that really means. Marketers of luxury products foster the impression that millionaires drive fancy cars, live in mansions and surround themselves with luxury goods.

The reality is that most millionaires live surprisingly modest lives, far from the fast lane. And, most people who act rich are not rich. That’s what Thomas J. Stanley, PhD, America’s foremost authority on the affluent, has discovered during his extensive research for his new book Stop Acting Rich… And Start Living Like a Real Millionaire.

Bottom Line/Personal interviewed Dr. Stanley on how to live like a real millionaire* and become a millionaire in the process…

  • Own a modest home, and use the money you save to invest wisely. Three times more millionaires live in homes valued at less than $300,000 than more than $1 million.

    • What’s wrong with living in a big, fancy house? Though many Americans believe luxury real estate is a great long-term investment — recent years aside — a big home is far more likely to prevent you from becoming a millionaire than to help you become one. While it’s true that real estate tends to increase in value, big homes also have big costs — including big mortgage payments, property taxes, heating and cooling bills, and insurance and maintenance bills.

    Also, expensive homes tend to be surrounded by other expensive homes that are owned by people who buy expensive things. That creates social pressure to spend to fit in. It’s better to buy a modest home that you can easily afford in a neighborhood where you are more successful than most of your neighbors, minimizing the pressure to overspend.

    Invest the money that you save in the stock market. Stocks, not real estate, are the true investment path to wealth — despite big pullbacks in stock prices from time to time.

  • Drive a modest car. When I conducted my research, I found that about 11% of vehicle purchases by US millionaires were Toyotas. Although that’s less than the roughly 17% market share that Toyota has had among US car buyers overall, it still makes Toyota the most popular of all brands among millionaires. Toyotas and a few other brands, such as Ford, Chevrolet and Honda, provide reliability at reasonable prices (although Toyota’s recent safety-related recalls have tarnished its image).

    • Fully 86% of people who drive luxury brands (BMW, Mercedes, Lexus, Jaguar and the like) are not millionaires. These brands tend to attract high earners who also are status-conscious overspenders, which prevents them from ever accumulating significant assets.

  • Don’t buy a second home or a boat. Most millionaires (64%) have never owned a vacation home. They understand the real cost (in terms of dollars and time) of buying, furnishing, maintaining, commuting to, renting and possibly selling a second home. And most don’t want to be “tied down” to one vacation spot.

    • Even more millionaires (70%) have never owned a boat. Of those millionaires who actually purchased a boat sometime during their lifetime, most sold it and never bought another one.

  • Avoid aspirational brands. People buy elite-brand clothes, jewelry and consumer goods because they want to look rich. Actual millionaires know better than to waste money on labels.

    • When millionaires shop for clothes, they are more likely to head to Kohl’s, JCPenney and Target than to Saks and Brooks Brothers. (If a millionaire does wear a Brooks Brothers garment, he/she probably bought it on sale.)

    When millionaires buy a watch, their choice is Seiko, not Rolex. Paying thousands is just showing off, something true millionaires rarely do. (Of those who wear a Rolex, 46% received it as a gift.)

    When millionaires uncork wine for guests, the median price they paid for the bottle is just $13. Only 7% of millionaires own a bottle that costs more than $100.

    Exception: Many male millionaires are willing to pay $100 to $300 for a pair of shoes. They aren’t anteing up to get a flashy brand name, however. The most popular millionaire shoe brands include Allen Edmonds, Cole Haan and Johnston & Murphy — shoemakers known for providing comfort, quality construction and timeless styling. When these shoes wear out, millionaires (70%) have them resoled rather than replaced.

  • Spend time without spending money. Ultrarich “deca-millionaires” — those with more than $10 million — could afford to do almost anything, yet the leisure activities that they engage in most often include socializing with their kids and grandkids… watching those kids or grandkids play sports… entertaining close friends… studying art… attending religious services… fund-raising for noble causes… jogging… praying… attending lectures… and caring for elderly relatives.

  • Befriend the right people. Surround yourself with people who excel at converting a high percentage of their income to wealth, the single most important millionaire skill. Engineers, educators and managers of supermarkets and discount department stores tend to do this extremely well. Why?

    • Engineers tend to be analytical thinkers who value quality and substance. They ignore marketing hype and focus on things that matter. Example: An engineer is more likely to pay extra for a garment with a high thread count — an objective measure of quality — than one with a prestige label.

    The culture at most educational institutions values saving for retirement over spending on elite consumer goods. Few educators earn flashy salaries, yet teachers and professors often manage to amass seven-figure savings.

    Managers of supermarkets and discount department stores look at consumer products not as symbols of economic success but merely as a way to make a living.

  • Choose a tightwad spouse. My research has shown that when a wife covets the trappings of wealth, it doesn’t matter how much the couple earns — the family is likely to wind up living above its means and saving little. Meanwhile, in millionaire families, the husband often reports, “I just can’t get my wife to spend much money.”

    • If you already have married someone who likes to spend, try to hang out as a couple with your more frugal friends. This should dampen your partner’s impulse to spend to fit in.

    *Dr. Stanley defines a millionaire as someone with investments of $1 million or more, not including equity in one’s home, motor vehicles, furniture, etc.