8 Things Millionaires Do
It’s been said that imitation is the sincerest form of flattery.
While I don’t necessarily disagree, I would add that imitation is often also the quickest path to replicating success.
Clearly, when trying to reach a common destination it makes sense to follow the trails that have been blazed by others as opposed to bushwacking your own.
As it happens, this is especially and conveniently true when it comes to finance.
There are currently over 24 million millionaires in the United States, which represents almost 40% of all millionaires in the world and just over 6.5% of American households.
So, assuming you’re reading this in the U.S., there are plenty of examples for aspiring millionaires to follow.
Here are several common things millionaires do, or don’t do, to help you along your own path to wealth.
1) Millionaires Don’t Borrow Money (Very Often)
This is always a challenging point to cover because there’s a bit of a “chicken and egg” dynamic going on here.
Are millionaires debt-averse people which allows them to become millionaires? Or are millionaires debt averse because they are millionaires and don’t need to borrow money?
Well, the answer is yes.
I think both points of view are true because you don’t have to have a PhD in quantitative methods of finance to understand how debt is destructive to net worth.
Clearly, people don’t borrow their way into financial success.
In fact, 76% of millionaires claim to have never carried a credit card balance. With interest rates often well over 20%, it’s no wonder why they try to avoid such a punitive cost for borrowing.
On the other hand, millionaires don’t seem to shy away from mortgages. About 40% of millionaires still owe money for their homes and 5% of millionaires have a mortgage balance in excess of $1 million.
I think the key to keep in mind is that millionaires are generally intelligent people. They understand both the usefulness and the dangers of debt.
Debt on a secured, appreciating asset like a home has a completely different risk profile than an unsecured credit card or other consumer debts.
So maybe it isn’t so much that millionaires are completely against any and all kinds of debt, they just educate themselves on how to use it wisely.
2) Millionaires Don’t Typically Have High Incomes
According to Ramsey Solutions’ National Study of Millionaires, only 31% had incomes of more than $100,000 over the course of their careers.
And if you consider that the five most common careers among millionaires are lawyers, accountants, teachers, engineers, and “managers”, it’s not as if you need to find your way into a super-niche career to build significant wealth.
In fact, I would argue that while income is certainly an important factor, it’s not the most important component for generating the level of wealth that will push one into millionaire territory.
The value of compounding interest cannot be overstated when it comes to achieving high levels of wealth, which brings me to my next point.
3) Millionaires Invest
Frankly, there isn’t a better path to wealth than investing.
Maybe you invest in your own business, stocks, real estate, or some combination of all. Whatever you choose, just know that investing in something will get you to the millionaire mark much faster than just piling up cash in a savings account.
The reason for this is compounding interest.
Compounding interest allows your money to grow exponentially, whereas saving with little to no interest will leave you with a much more linear, and longer, path to wealth.
For example, if you save $5,000 each year and don’t invest it, you’ll reach $1 million in 200 years.
Good luck with that.
However, if you invested $5,000 per year and managed to obtain just an 8% rate of return, you’d reach $1 million in just 37 years.
That’s the same amount of money, less than one-fifth of the time, with less than one-fifth of the contributions, all because of compounding interest.
Millionaires understand this concept and it’s not surprising that 75% of millionaires attributed their success to consistent, long-term investing.
And “long-term” is key to that investing track record.
Another 49% of millionaires have saved 20% or more of their income from the first day they started working.
4) Millionaires Buy Modest Drive Cars and Drive Them for a Long Time
If you think all millionaires drive fancy cars, you’re wrong.
One stat I found pointed out that 90% of millionaires drive cars that cost less than $75,000.
Honestly, I assumed 90% of cars cost less than $75,000, so this statistic didn’t exactly blow my mind.
What I did find interesting is that according to the Millionaire Next Door Blog, 86% of people who drive the traditional “prestigious” brands are not millionaires.
Let’s just sit on that for a second.
Eighty-six percent of people who drive luxury cars are not millionaires. I’m not sure I’ve seen a piece of information that more clearly made a case for “being rich versus acting rich” than this one.
That means only 14% of prestigious or luxury cars on the road are driven by millionaires. The rest are just trying to look the part, I guess.
Another stat I found from Tom Corley showed that 55% of millionaires he surveyed actually buy used cars.
Obviously, many millionaires choose not to drive beaters, but most of them aren’t spending over six figures on automobiles either.
For the most part, millionaires drive cars that are modest and reliable, but not luxurious.
The most popular brand driven by millionaires? Toyota.
Oh, and if you’re wondering how long they own their cars, I don’t know. In my research, I saw many, many references to millionaires owning cars for long periods of time but never found any data to back it up.
For what it’s worth, of the people I know who are millionaires, I can confirm that they do not turn over cars very frequently. I know several who drive cars with over 250,000 miles on them every day.
5) Millionaires Have Emergency Funds
This one shouldn’t be all that surprising either. If you have a good bit of cash, it’s only natural to want some portion of that on hand to provide a buffer if an emergency expense pops up.
Cash is like another form of insurance. It protects your net worth from taking a major hit even if you suffer a significant unexpected expense because it saves you from having to either borrow money or sell assets at a less-than-optimal time.
The typical suggestion for an emergency fund is three to six months of expenses, but millionaires tend to keep much more than this available in cash or something similar.
One study I read showed that some millionaires keep at least 25% of their liquid money available for emergencies.
That seems a little too safe to me but to each his own.
6) Millionaires Leverage Employer Provided Benefits
According to Ramsey Solutions, 80% of millionaires use or have used their employer-sponsored retirement plans at work as a major component for building wealth.
In fact, most people reach their first million in large part because of their 401(k) plan at work and it’s not hard to see why.
If your employer provides a matching contribution it can serve as a major tailwind for your net worth in addition to the benefits of tax-deferred or tax-free earnings (depending on whether you use a Roth or Traditional account).
Other employer-provided benefits millionaires commonly take advantage of include:
- Disability Insurance
- Employee Stock Purchase Plans
- Health Savings Accounts
7) Millionaires Are Tax Wise
The highest marginal tax bracket in 2024 is 37% but the average income tax rate of the wealthiest 5% of American households is just 22.4%
How do the wealthiest people keep their taxes so low? By holding unrealized capital gains within the value of their assets.
As I’ve already pointed out, millionaires like to invest. The handy, tax-saving characteristic of assets is that you don’t owe any taxes on the appreciation of those assets until you sell them.
As a result, wealthy Americans can watch their wealth grow without having to worry about paying taxes for any of it until they want to.
Not only that, but when capital assets are sold, the gains are taxed at far lower rates than income. So, even when they do pay the tax it is almost always lower than their marginal income tax rate.
Additionally, millionaires tend to be more willing to pay for tax and financial advice than most people with lower incomes.
This is another chicken and egg situation, but in many cases these financial professionals pay for themselves in the form of avoided taxes or more profitable investment strategies.
8) Most Millionaires Live Modestly
We’ve already covered several of the modest tendencies of millionaires when we talked about cars, but millionaires also don’t tend to buy very expensive homes.
Around 60% of millionaires live in a home valued under $500k.
This modest standard of living is exceptionally reviewed in the famous book, “The Millionaire Next Door” which was released in the late 90s.
An updated version called, “The Next Millionaire Next Door” was issued just a few years ago and reaffirms the basic fact that most millionaires live unassuming and modest lifestyles.
In addition to simple cars and homes, most millionaires are frugal and don’t spend copious amounts of money on clothes, jewelry, or overtly expensive vacations.
The result of years of study by the authors, Stanley and Danko, illustrated how most millionaires live so humbly that you may live next door to one and not even know it.
Wrap Up
Obviously, none of this is meant to be understood as a guaranteed path to a millionaire’s net worth, but living your life like a real millionaire can’t hurt your odds of joining their ranks.
Also, be sure to check out our Next Dollar Roadmap for our own outlined guide to financial independence. No matter where you are currently, you can jump into the roadmap and use it as a guide for your own success.
