Wealth is Good
Cash Flow Is Better

Attitudes and Behaviors  of the Affluent – How do you Compare?

Thomas J. Stanley and William D. Danko have met with and conducted research among wealthy Americans since the early 1970s.  As the title of their first book The Millionaire Next Door suggests, the profile of a typical millionaire might surprise you.

For example, most millionaires are self-made:  80% are first-generation rich.  The minority who do inherit their wealth have very different profiles and behaviors; they didn’t earn it, so they don’t appreciate it or manage it as effectively.

Over 65% of millionaires who are still working are business owners.  By contrast, only 20% of the U.S. population are business owners (self-employed).  But the types of businesses owned by the wealthy don’t suggest affluence.  While some are self-employed professionals such as doctors and accountants, the majority are what the authors refer to as “dull-normal.”  They include “welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.”

How about their lifestyles?  I’m afraid the tabloids and the producers of TV’s “rich and famous” shows will be disappointed.  Most live in what would be considered middle income neighborhoods, drive two- or three-year old cars or trucks (usually Fords or Chevys, not BMWs), and much prefer putting their hard-earned money into savings or investments rather than luxury items.

The profile of a typical millionaire household

is not one of an overindulgent family

living in a high-status neighborhood

but instead of a practical, unassuming family

who might even be your own neighbors.

Here’s why.  Millionaires tend to share a common set of values.  Stanley and Danko call them “common denominators.”   They’ve identified seven.  Here are a few:

• “They live well below their means.”  This is probably the most important one.  That’s right, millionaires are frugal.  It’s how they accumulate their wealth in the first place, and it’s how they keep it.  By contrast, other high income earners who should easily become millionaires instead become “hyperconsumers.”   But when you keep overextending yourself with bigger and bigger purchases  (as illustrated in our “money pit” pieces)  it’s hard to catch up, much less get ahead.
• “They believe financial independence is more important than displaying high social status.”  No McMansions, no luxury automobiles, and no $2,000 timepieces (aka watches). It’s meat and potatoes, not caviar and Dom Perignon.
• “Their parents did not provide economic outpatient care” for them.  In other words, most millionaires accumulate their wealth independently.  Nor, by the way, do they allow their children to become economically dependent on them.

So the picture Stanley and Danko paint is not of an overindulgent household living in an exclusive, high-status neighborhood but instead of a practical, unassuming  family who might even be your own neighbors.

The message to you?  It’s not rocket science and it’s not beyond your reach.  Your household can become wealthy if you stay focused and follow some common-sense “millionaire next door” principles.  But remember, wealth by itself isn’t enough; you want wealth that generates cash flow.  To get there you’ll need to follow Cashflownavigator principles.

Keith Whelan is Cashflownavigator's founder and author of the "Wealth is Good, Cash Flow is Better" e-booklet. He is a graduate of Columbia University Business School, teaches at Rutgers University, and has over 30 years experience in the banking and financial services industry. Keith, his wife Cindy, and their two sons live in New Jersey.