Why Millionaires Appear Broke (Should You Do It Too?)
Have you ever wondered why millionaires appear broke?
If you think millionaires spend lavishly however they want, you would be surprised to see how they spend their wealth and what percentage of the money they allocate to each category.
Even though many of these millionaires have different backgrounds and experiences and began from various places with their income, they all had many things in common, especially the self–made ones.
The average person would reap the benefits of adopting the spending habits of millionaires.
4 Different Types Of Millionaires
Although most people don't know this, there are different types of millionaires.
Number 1: Savers-Investors
Millionaires in this category make saving and investing part of their daily activities.
It doesn't matter what their job is; they always think of intelligent ways to grow their income by saving at least 20% and investing the money in smart businesses.
Often, they spend years building wealth.
But they become wealthy in the long run.
Number 2: Company Climbers
Millionaires under the category start by working for large companies such as Coca-Cola.
Those in this group devote all the time and energy available to them to climb the corporate ladder until they reach the top position where big salaries come to them.
Company climbers are often college-educated and spend many years working in the corporate world before earning a high salary.
Number 3: Entrepreneurs (Dreamers)
Individuals in this group start by having a dream and pursuing it.
They start their own business and work to make them successful.
They love their jobs, and their passion ensures they become wealthy in the long run.
Good examples of dreamers include best-selling authors, successful musicians, successful movie stars, and self-made industrialists such as Elon Musk.
Number 4: Virtuosos
The millionaires under this category are the best in their fields, which explains the big paycheck.
They have formal education, such as advanced college degrees.
Examples of virtuoso millionaires include doctors, lawyers, and engineers.
They are similar to the company climbers but don't have to wait for a promotion before getting high salaries.
They are paid a high premium because of their rare and valuable knowledge and expertise.
Since we know the types of millionaires, we must understand the ideology behind how millionaires spend money because this is the main difference between them and the average person.
Reason 1
Several studies showed that over 80% of millionaires have a similar way of spending money. Ultimately, there is an idea behind the way they spend their income.
First, millionaires are prudent.
A clear example is seen in their houses and choice of clothes. Most millionaires own their homes, and over 50% have lived in them for more than two decades.
In addition, most of them purchased used cars. This prudent spending behavior also reflects in their leisure activities too. Most wealthy people spend far less on average when it comes to vacations and avoid gambling.
Furthermore, they spend less on nonessential items like shoes, bags, and watches compared to those with far fewer incomes.
Being prudent with money requires three things:
- Awareness – being conscious of how you spend money.
- Next is a focus on quality – millionaires spend money on quality products and services, which ensures they don't have to replace their worn out items frequently.
- Finally, bargain shopping implies spending the smallest amount possible by searching for the lowest prices on quality products.
Interestingly, being prudent with money alone won’t make you a millionaire, but it is a habit that will help you reduce expenses over time.
And the more money you have left over, the more you can contribute to your savings and investments.
Furthermore, they use reward credit cards.
These are credit cards that offer points when utilizing them for day-to-day expenses. These points can be accumulated to reduce the cost of flight tickets or other leisure activities such as spa treatments.
Reason 2
Second, most millionaires are intentional with their money.
The concept of saving is one that millionaires keep in mind. So, they start saving from the first day they begin working.
Saving is a concept most people adore but need help in accomplishing.
It can be difficult to maintain the habit of saving, especially if you are paying your bills first and have close to nothing left over.
However, more than 50% of the millionaires known worldwide save at least 20% of their income. Most have retirement savings accounts they started many years ago.
Millionaires don’t save money by keeping it in banks: instead, they use the savings to start another source of income.
A good example is the top three richest men in the world. They all have multiple streams of income:
- Bernard Arnault owns LVMH, a luxury goods holding company that owns Christian Dior and Louis Vuitton.
- Elon Musk owns Tesla, Twitter, and SpaceX. On the other hand,
- Jeff Bezos owns Amazon, Blue Origin, and The Washington Post.
With multiple income streams, they aren’t afraid when one of the income sources diminishes. Learning to follow this ideology will help you build wealth steadily.
Another important point that separates millionaires from the average person is their mindset when it comes to money.
Most people think wealth comes from one good idea or is attained overnight, while millionaires take their time to build their wealth over an extended period.
Reason 3
We all know that we need to save, save and save.
But how do those millionaires resist that temptation to spend on things they enjoy when their paycheck enters their bank accounts?
Simple!
They automate their savings and save up to 20% of their monthly net pay. Every millionaire used this method under the saver-investor category.
The automated saving technique ensured that a fixed percentage of their net pay was set aside, with 10% going to employer-sponsored retirement accounts and another 10% sent to a separate savings account.
Once a month, they would transfer their amassed 10% monthly savings into an investment account like a brokerage account.
Although we spoke about saving 20% of your net pay, you can save a smaller amount consistently and achieve financial independence in a few years.
Millionaires often invest a portion of their savings. The regular investment might not grow your money immediately, but it would compound your money in the long run.
Most wealthy people consistently invested their money during their younger years and after a decade, they would have accumulated significant wealth.
By the time of their retirement age, both the savers-investors and corporate climbers saw their wealth grow to an average of $3 million.
Even the entrepreneurs (dreamers) were included. Although, they could only invest their money after they used it as capital for their businesses in the early stages.
However, once most of them in the entrepreneur (dreamer) category achieved success and had sustained positive cash flow, they immediately pivoted and started investing their money.
But Why Do They Do It?
Now, we are going to explain why millionaires appear broke.
The simple answer is frugality.
They understand that wearing expensive clothes, driving luxury cars, and living in mansions are only sustainable over an extended period with proper investments.
Also, they realize that such luxury doesn't have long-term benefits.
Research shows that most millionaires spend 5% of their income on clothes, vacations, and entertainment, including eating at restaurants.
Then, they allocate 10% to household expenses, including groceries.
With such a carefully laid-out plan, they have enough money to invest and meet their daily expenses.
While regular people shop at expensive boutiques, wear designer clothes, or take a huge mortgage on spaces they don't need, saver-investors prefer to wear regular clothes and live a minimalist lifestyle.
They only rent more space when necessary or buy up to two cars.
And that is why they appear broke to the average person.
What Else Do They Do To Grow Their Wealth
Besides appearing broke, what other steps do millionaires take to grow their wealth?
Millionaires love their jobs
One common trait for millionaires would be their love for what they do in life, more so when it comes to their job.
Most of them express their passion for the work they do.
The entrepreneurs category have accumulated significant wealth because they do what they love.
Millionaires are always learning
Most millionaires realize that information is power.
So, they are willing to put in the time and effort daily to learn, grow, and improve.
Many of them read daily to enhance their knowledge about their work and sector.
Bill Gates is an example of a wealthy man who reads at least two books a month.
Some listen to audiobooks on their way to work, the gym, or at home.
The mindset comes from their respect for education, even if they were not the brightest students during their younger days.
Millionaires plan ahead
Most wealthy people keep a to-do list, which helps them plan for the day before they go to work.
Often, they wake-up at least three hours before their work day starts.
Then, spend at least an hour organizing their day.
Organizing the day is essential because it helps these millionaires focus on what matters most to them and avoid insignificant things that can affect their productivity.
They have a positive outlook on life
Saving and investment are necessary for growing wealth.
However, investment involves taking calculated risks.
It’s not guaranteed to make a profit, which is why most people fail at least once.
However, millionaires don’t shrink away from investment opportunities because they have had one or two setbacks.
Instead, they learn from their mistakes and then try again.
They tend to stay positive and vividly envision their future, especially in difficult times.
Their positive outlook helps them see investment opportunities while the average person is too scared of failure to take action.
They keep emergency funds
Emergency funds imply a stockpile of cash that people use in the short term for unexpected costs.
Most financial analysts suggest saving three to six months' worth of living expenses in an emergency fund.
However, the amount you can save depends on your income.
Millionaires plan for emergencies, which is why they differ from the average person.
Having an emergency fund ensures that unforeseen circumstances do not affect your savings plan.
Therefore, they will continue to maintain their automated savings plan.
They are strategic about debts
Millionaires are very smart about carrying debts.
For example, many people take out a huge loan on luxury cars to show off to their peers, however this is unwise as the value of the car would rapidly depreciate.
On the other hand, millionaires love debt not because of the luxury items that it can buy them, but because of the ability to speed up the process when it comes to building their net worth.
For example, real estate value appreciates over time. They can take out a mortgage to buy a home, live in it, and then sell it at a profit.
In the meantime, they would also be building home equity and will have potential for tax breaks.
A mortgage is usually considered a good debt as it helps you generate income and build your net worth.
To answer the question: should you do it too?
The simple answer is yes.
Following the smart money-saving strategies millionaires use will make you financially independent in the long run.
- Ivan