Five Lessons From The Minds Of Millionaires
Some of the lessons that follow will likely surprise you, while others probably won't. The important thing about the insights in this article is that they are derived from empirical studies of wealthy people. In his landmark book The Millionaire Mind, Ph.D. and scholar Thomas J. Stanley chronicles the habits and mindsets of wealthy people. The data in the book comes from 733 surveys from affluent individuals, whose average net worth was $9.2 million. Not a bad bunch to emulate, eh? Reading the full book is highly recommended- it can be purchased here.
Lesson One: They don't attribute their success to IQ or academic achievement.
Near the beginning of The Millionaire Mind, Stanley shows us a table of 30 factors the millionaires ranked from most important to least important to their financial success. Surprisingly, "Having a high IQ/superior intellect" came in at number 21 and "Graduating near/at the top of my class" came in dead last at number 30. In fact, Stanley's research of the academic records of the millionaires showed that they had an average SAT score of 1190 and an average undergraduate GPA of 2.92. Instead of stunning intellect and stellar grades, Stanley's research showed that tenacity and leadership ability were the two essential attributes which helped them earn the financially successful earn their wealth.
Stanley also highlights the results of research which found that intelligence explained less than ten percent of leadership and managerial performance. As he states, "Unfortunately, counselors rarely tell students that 90 percent of the variation in leadership performance is not explained by standard intelligence measures. How many kids gave up on themselves early in the game of life because they did poorly in school or ranked low on the SAT totem pole? Perhaps they should be told, 'You still have a chance. You may have to work harder, but you may also have the ability to lead other people.' It is the hope that they can succeed that motivates people to do so."
Lesson Two: They are honest and disciplined.
Of all the "success factors" that the millionaires ranked, "being honest with all people" and "being well disciplined" were tied for number one.
Despite Gordon Gecko being an interesting movie character, Stanley's research shows that integrity is absolutely key to financial success. As Stanley says in The Millionaire Mind, "This factor is so vital because integrity is a critical element of success when one manages other people's property or money."
Merriam-Webster's dictionary defines discipline as "to train or develop by instruction and exercise especially in self-control." Discipline leads to financial success not only by the millionaires working hard to accomplish their goals, but also by these wealthy individuals not squandering their earnings (see lesson number five). In addition, discipline keeps one on track when pursuing one's career or financial goals. As famed author Frank Herbert once said, "Seek freedom and become captive of your desires. Seek discipline and find your liberty."
In Stanley's words, "Most millionaires are well disciplined. They set their own high goals and then go on to reach these standards. More often than not, they don't have others telling them what must be done. In fact, one of the hallmarks of discipline is one's ability to become economically successful without being given a road map. Millionaires make their own road maps, and no one tells them what time to wake up or go to work."
Lesson Three: They get along with others and cultivate key relationships.
So if being honest and disciplied are the top two factors in building wealth, what are the other important factors? Turns out number three is "getting along with all people". This shouldn't come as a surprise, given that the majority of the millionaires own their own businesses or are in professions like medicine or law. These millionaires must get along with and nurture positive relationships with their customers, suppliers, patients and clients.
In The Millionaire Mind Stanley states, "It's rare that anyone becomes successful without the assistance of others. A group of individuals, no matter how gifted, is not a team at all. How many running backs became All-Americans without their lineman opening up opportunities? Zero. Becoming wealthy in America is very similar. I have never met one affluent person who takes complete credit for his economic success. Most will give credit to their spouse, key employees, mentors, and others. No man or woman is an island, whether the context is sports, business, or building wealth- nobody gets to the highest peaks without the help of others."
Lesson Four: They take risks, but don't gamble.
One thing that Stanley repeatedly emphasizes is that millionaires aren't afraid to take risks, but they are calculated risks. Many of the millionaires own and manage their own businesses, which is taking a risk in a sense. Keep in mind though, that working for someone else and relying upon others for one's livelihood is also taking a big risk. Stanley also finds that in addition to investing in their own businesses, many of the millionaires own shares in publicly traded corporations. They know that though stocks can be risky in the short run, but if they have the courage to weather the storm and stay invested for long periods of time equities offer a far better rate of return than most other asset classes.
"What do most self-made millionaires have in common? They have courage. Do you have the courage to take financial risk, given the right return? If you do, then you have the mind-set that most millionaires possess. But having the courage to take financial risk doesn't mean that millionaires are gamblers. Few gamble at all. In fact, the higher a millionaire's net worth, the less likely he is to ever gamble. Yet there is a positive correlation between taking financial risk and net worth."
Lesson Five: They are frugal.
Stories abound about Warren Buffett's stingy spending habits. The research in The Millionaire Mind shows us that Buffett is not unique among wealthy people in his thrifty habits. Keep in mind that basic accounting teaches us that earning credits is only half of the financial equation. Avoiding debits is the other half. In terms of your personal balance sheet, this means that avoiding liabilites is just as important as accumulating assets. Click here for a masterful explanation by Pete Adeney, AKA Mr. Money Moustache of how this works.
Back to The Millionaire Mind, here are some of the frugal habits reported by the millionaires:
70 percent reported "Having shoes resoled/repaired", 57 percent reported "Raising the thermostat setting on your air conditioner during the summer/daytime", 71 percent reported "Developing a shopping list before grocery shopping" and 49 percent reported "Buying household supplies in bulk at warehouse stores, i.e. Sam's, Costco".
When is the last time you had a pair of shoes resoled?
Invest in yourself and your financial education today. Click here to purchase The Millionaire Mind.
