What does it take to build wealth?
Like many in my generation, I grew up watching Gilligan’s Island. My idea of a rich person was shaped by the behavior of Thurston Howell III and his wife “Lovey.” Week after week, they washed and dried their green-backs and did other silly things. What they wanted the currency for while stranded on a desert island was never clear.
But the world is full of lots of non-fictional millionaires. Their lifestyles can be instructive. In his book The Millionaire Next Door Thomas Stanley examined how they live and, more importantly, what their attitude is about money. What he learned is instructive.
First, they tend to live modest lifestyles. The average home price of someone with $2-5 million was about $350 thousand—comfortable, but not opulent. They rarely buy new, late model cars, preferring older models or even used cars. And they rarely financed their purchases, preferring to avoid the interest expense.
On the other hand, they were willing to borrow—for business opportunities. When the situation presented itself, they weren’t afraid to borrow to invest in their business. For the most part, they love what they do, and are usually more interested in building a business than in making a bundle.
Above all, they lived within their means, spending less than they made. Sometimes that meant detailed budgets; other times it was a savings plan that set aside the money before they saw it. In most cases they understood that the best things in life aren’t things, and that what really counts in life can’t be counted.
What’s really striking about this study is the fact that if people focus on status and what they can buy, they usually can’t afford it. But it’s the patient saver who maxes out his 401(k) and re-soles his shoes who often ends up owning the business.
Douglas R. Tengdin, CFA
Chief Investment Officer