The Four Things Most Millionaires Do

By Floyd Saunders, Founder of Really Simple Investing

You might not become a millionaire in your lifetime. But you can work to improve your financial status by doing four basic really simple things.

Key Takeaways

Four things millionaires do that you can do:

Set clearly defined goals
Live below your means.
Pay yourself first
Invest in a diversified portfolio

We can all learn a few things from millionaires if we want to increase our wealth. These four basic things are steps that anyone can take and the best part is you can learn these habits from the typical millionaire, not that ones that live a flashy lifestyle. But people like the millionaire next door.

Just don’t expect any rich quick scheme to get you where you want to be. Consider these facts about self-made millionaires from various studies:

From 2016 to 2020, it was estimated that an average of 1,700 people would become millionaires each day.
The average millionaire is 57 years old and has invested consistently from their early 30s.
79% of millionaires did not receive any inheritance at all from their parents or other family members.
8.8 % of U.S. adults are millionaires.
Eight out of 10 millionaires come from families at or below middle-income level.
Only 2% of millionaires come from an upper-income family.

Its rather amazing really but building wealth has almost nothing to do with your income or background. In recent studies about the habits U.S. millionaires the findings show that most millionaires don’t look the part. The majority live in normal, middle-class neighborhoods and drive modest cars.

There are five or six ways you can become wealthy, a few may not even require much work (but in actuality rarely happens).

One way is to marry a wealthy person. Honestly, is that how you want to build wealth? Another is to inherit a lot of money or receive a large settlement of some kind. 21% of millionaires come from inherited wealth. A 2017 survey from Fidelity Investments found that 88 percent of millionaires are self-made. Only 12 percent inherited significant money (at least 10 percent of their wealth).

This means they worked to earn their wealth rather than depending on wealthy family members for finances.

Or you could win a million dollars on the Who Wants to Be a Millionaire? television game show. In reality, though, most millionaires become wealthy the old-fashioned way: they grow rich slowly over time through a combination of hard work, systematic investing and compound interest.

What are the four simple steps you need to follow to increase your personal wealth? that make millionaires successful and take small steps toward improved personal finances:

Set clearly defined goals with a price and a date (like: $20,000 saved within five years).
Live below your means by spending less than you earn.
Pay yourself first” through regular savings (e.g., payroll contributions to a 401(k) plan).
Invest in a diversified portfolio that includes stock to “grow” your money over the long term.

Let’s dive into these four simple steps and see if you can do more things to make them a part of the habits (Millionaire Habits link) you follow.

1. Live below your means

Living below your means is about taking control of your money. It means you will have money to put aside in savings, being able to contribute to your 401(k) and invest for your future. Here are five things you can do to help you live below your means:

Create a plan for your money. Budget your money so you can build for the future.
Save off the top. Save through 401(k) paycheck deductions at work, or automatic monthly transfers to a savings or investment account.
Live off one income. Arrange your household costs so just one person’s pay covers the bills provides significant financial freedom. Save the other income.
Cut meaningless expenses. Eliminating expenses frees up money for things you truly enjoy.
Drive used. If you can pay cash for a good used car, you then have money to direct to investments.

2. Pay yourself first” through regular savings

A pay-yourself-first budget (sometimes referred to as a reverse budget) puts retirement and investments at the top of your budget. Here is how to start:

Calculate your income. You need to know the exact amount of your paychecks, any side hustle and investment income.
Decide what your savings goals are. Ask yourself what your long-term goals are and how much you need to save each month to reach those goals.
Pick where you are saving. This could be a bank savings account, a credit union account or even a money market fund with your broker. Pick an account that you don’t have quick access to, but you can tap for a sudden expense.
Reevaluate periodically and make adjustments. Revisit your budget annually to determine if your plan is working for you and adjust your savings goals to account for changes in your income. You may be able to save more as you continue to control your expenses and savings.

3. Set clearly defined goals

Start by spending some time to identify what is important to you when it comes to your money, Once, you have a clear picture of what is important you can set up your investment goals including both short-term and long-term goals.

Then you can start identifying your investment goals.

Your short-term goals are likely to be a vacation, down payment on a car, or any events likely to occur in the next couple of years.

Longer term goals might include a down payment on a house or even a wedding, depending on how big you want it to be.

Next, align your investments with your goals. For short-term goals use a money market fund or high yield savings account, you don’t earn a lot of interest, but you can be sure that your money is there when you need it.

For goals that are a little bit further in the future, three to five years you can take more risk. For those with a higher risk tolerance, allocate funds to high-quality stocks through an exchange traded fund, or ETF. Pick stocks or an ETF that pays a good dividend and reinvest those dividends. It’s the best way to compound your returns.

Goals that are beyond five years are long-term, and you can take on additional risk in your investments. Stocks or a simple ETF are usually the best investment for long-term goals as part of a diversified portfolio.

Annually do an investment goal check in. Review your investment goals annually to make sure they still line up with your future plans. Goals do change and you will want to adjust your investments when that happens.

It’s also important to adjust your investments as time passes and what were once medium or long-term goals become short-term goals. It doesn’t make sense to have all your money in stocks if you’re planning to retire in a couple of years. This periodic review can help make sure your portfolio is properly aligned with your goals and ability to take risks.

4. Invest in a diversified portfolio

A diversified portfolio is a collection of different investments that when combined together reduce your overall risk profile. Diversification includes owning stocks from several different industries, countries, and risk profiles, as well as other investments such as bonds, commodities, and real estate. The simple way to do this is start with a broad market Exchange Traded Fund (ETF) that invests in the S&P 500 index. Then add a bond fund that covers the bond market.

Great choices are the:

1. Vanguard S&P 500 ETF (VOO)

2. iShares Core S&P 500 ETF (IVV)

3. SPDR S&P 500 ETF Trust (SPY)

Each of these invest in the 500 companies that make up the S&P 500 index. Each has very closely matched the index's performance. They also have very low management fees so more of your money stays invested.

Add a total bond market ETF like the Vanguard Total Bond Market ETF (BND) and you are all set. These two investments are simple, cover the stock and bond market and you can get them started for a small minimum investment.

Is working toward the financial security that being a millionaire represents easy? Maybe not, but you don’t want to be like the nearly 40 percent of American you only have Social Security for retirement income, according to recent research from the National Institute on Retirement Security.

Now that you know what to do to increase your financial security, the ball in your court. Come up with a plan, start controlling your money and how you spend it. Pay yourself first each month and your older self, will thank you. Finally, build up investments that include both stock and bond ETFs.

Five Paths to Wealth by Floyd Saunders, Founder of Really Simple Investing, presents five really simple strategies to help anyone get start building wealth and securing their financial future. The five paths starts with building a secure financial foundation from which to start investing and then presents some really simple approaches for investing for generational wealth over time.

Today anyone can get started using these strategies for buying passive index funds, dividend growth funds, dividend reinvestment plans, using robo advisors and starting real estate investments. You can get on a path toward financial security and wealth, it all starts with the first step. Stay consistent, invest for the long-term and you will be wealthier at retirement, able to afford that dream home and send you kids to college.

Book Cover Design By Ashley Dameron