Tom Corley, accountant, financial planner, and author of Rich Kids: How to raise our children to be happy and successful in lifeand Rich Habits: The Daily Success Habits of Rich People, a 5-year study to understand “Habits of the Rich,” an attempt to explore how the world’s richest people think about their money.
In an article for CNBC, he wrote that each of the 225 millionaires he interviewed fell into one of these four categories:
1. Saving Investors: Regardless of their day job, these people make saving and investing a part of their daily habits. They are constantly thinking of smart ways to grow their wealth.
2. Climbers: These people work for a large company and dedicate all their time and energy to climb the corporate ladder until they reach a senior executive position, with a very high salary.
3. Talented: They are among the best in what they do, and are paid high wages for their knowledge and experience. Formal education, such as advanced degrees (eg, in law or medicine), is usually a requirement.
4. Dreamers and Entrepreneurs: Everyone in this group is pursuing a dream, such as starting their own business, becoming a successful actor, musician or a famous writer. Dreamers love what they do for a living, and their passion shows in their bank accounts.
The path of savings investors is the least risky — at least compared to pursuing an entrepreneurial dream or artistic passion — but 88% of the millionaires Corley interviewed said that saving in particular was critical to their long-term financial success.
Corley said that it took an average of 12 to 32 years for a person to become a millionaire to amass a fortune ranging from $3 million to $7 million, according to his study.
Three basic habits
1. Automate and save 20% of the net salary.
Corley explained that every investor who saved in his studies consistently saved 20% or more of his or her net salary on a regular, semi-automated basis.
Many have achieved this by automating the withdrawal of a fixed percentage of their net pay. Typically, 10% went to employer-sponsored retirement accounts and the other 10% was automatically directed to a separate savings account.
Once a month, savings investors then transfer their accumulated 10% monthly savings to an investment account.
Even if 20% is a lot at the moment, saving a consistently lower percentage can help you achieve your financial goals in the future.
2. Regularly invest part of their savings.
Since saver investors invest their savings constantly, their money has doubled over time. And when they started, this compound interest wasn’t all that important. But after 10 years, they began to accumulate a large fortune. In the last years of their working lives, the wealth of savings investors grew to an average of $3.3 million.
Millionaires who pursued a dream and started a business (also known as Dreamer-Entrepreneurs), were not able to invest their savings, especially in the early stages of pursuing their dreams. Whatever savings they made was used as working capital in order to fund their dream.
It is interesting, however, that once most dreamy businessmen achieved success in the form of available cash flow, they immediately converted and started investing their profits.
3. Economy in expenses
One common denominator among the three categories of self-made millionaires, according to Corley, was frugality.
For these millionaires, frugality began from the moment they got their first paycheck. For dreamers or entrepreneurs, it all started the moment their dream created enough cash flow to enable them to save and invest.
To be frugal, there are 3 things to do:
Awareness: Realizing how your money is being spent.
Focus on Quality: Spend your money on quality products and services.
Shopping Deal: Spend the least amount possible by shopping at the lowest price.
“Being frugal in and of itself won’t make you rich,” Corley said. “It’s just one piece in the ‘rich habits’ puzzle, and there are many pieces. But it will allow you to save more money. The more you save, the more money you can invest.”