One of my all-time favorite personal finance books is The Millionaire Next Door by Thomas Stanley and William Danko.
This book dives hard into the life of real millionaires – not the people who appear to be wealthy but are drowning in debt, but the people who are actually wealthy and you’d never know it.
Every time I start to get frustrated with the fact that I’m driving at ten year old car while the other mothers at school are sporting nicer vehicles at three times the cost, I think of this book. And I smile.
This book has dispelled the myths around what it really is to be a millionaire and has laid out concrete facts on building wealth.
If you’ve never read this book I highly suggest you check it out. Until then, here’s how to become a millionaire next door.
Stop Trying to Keep Up with the Joneses
One of the most important things you can do in your quest to become a millionaire next door is to stop paying attention to what everyone else does. In fact, I’d say that unless you can conquer this step there’s no point in trying to do anything else.
It’s so tempting to want to put on an appearance of having it all – a nice home, an expensive car, new clothes, brand new furniture, etc. This behavior is what broke people do! If you want to build real, lasting wealth you have to change your mindset.
Your financial decisions need to be based off of your own set of values and beliefs and not based on what everyone else around you is doing. This might mean spending less time where temptations arise (like social media or perhaps a certain set of friends) and start spending time doing things that promote the mindset shift.
Becoming the millionaire next door is not about being flashy or having it all. It’s about being secure with yourself and building financial security for your family.
Live Within Your Means
If you’ve decided that you’re mentally prepared to do what it takes to build wealth your first practical step is to live within your means.
Sit down and create a realistic budget for your family. Track all of your income and expenses over the past three months and average them out. From there you’ll be able to see where your strengths and weaknesses are when it comes to money.
If you’re spending more than you earn you need to make some drastic changes.
In the end though, the most important thing is that you make changes you’ll actually stick with. Keep working on your budget every month until you’re living well within your means.
Build Good Habits
A great thing about personal finance is that over time you’ll build solid habits that will help you build wealth on autopilot. At first changing your behaviors will be hard, very hard. But the more you repeat a behavior the easier it becomes.
If you’re just starting out on your millionaire journey here are some habits you should work on.
Living within Your Means – You can never build real wealth or become a millionaire if you don’t live within your means. This habit is crucial for your success.
Paying Off Debt – If you have any consumer debt (like credit cards or car loans) you should first start by making a habit of paying as much extra on that debt as you possibly can. Once that’s gone you can look at other high interest debt you may have.
Saving Money – You need an emergency fund. If you don’t have any savings that you can use for true emergencies you should start by building a savings account with at least three months’ worth of expenses. After that you can work on other type of savings for things you want and need.
Paying in Cash – Yep, it’s time to cut up those credit cards and stop taking out personal loans. Instead of relying on credit you need to start saving for the things you want to purchase and paying cash for them.
Invest Your Money
The way you get your money to earn more money is by investing it. Investing your money is essentially like making your dollars your own employees – you’ve got to put them to work for you.
(You’ll want to make sure you’re living well within your means and get a handle on any consumer debt before you start investing. The only catch to this would be if your employer offers a match on your retirement plan. If this is the case contribute up to the match.)
If you’re freaked out about investing in the stock market, don’t be. Investing isn’t limited to only the stock market and even if it was, stock market investing is truly easy and there are ways to mitigate your risk.
Other ways to invest include:
- Investing in Real Estate
- Renting Items for Passive Income
- 8 Passive and Active Ways to Grow Your Income
Stay the Course
Becoming a millionaire isn’t something that happens overnight – it’s a long process and it will be really hard at times. Just remember, every small step in the right direction will eventually get you to where you want to be.