I spent 5 years interviewing 225 millionaires. Here are the 4 types of rich people and their top habits
In 2004, I started doing a 5-year term Research “Rich Habits” to discover how the world’s richest people think about their money. Each of the 225 millionaires I interviewed fell into one of four categories:
- Savers-Investors: No matter what their day job, they do save and invest part of their daily routine. They are constantly thinking about smart ways to grow their wealth.
- Mountain climbing company: Climbers work for a large company and spend all their time and energy climbing the corporate ladder until they reach a senior executive position – with a high salary.
- Virtuosos: They are some of the best at what they do and they get paid a high amount for their knowledge and expertise. Formal education, such as an advanced degree (for example, in law or medicine), is often a requirement.
- Dreamers: Individuals in this group are all pursuing dreams, such as starting their own business, becoming a successful actor, musician or best-selling author. Dreamers love what they do for a living and their passion shows up in their bank accounts.
The Savings-Investor route requires the least amount of risk – at least compared to pursuing a business dream or a passion for the arts. But 88% of the millionaires I interviewed say that saving in particular is crucial to their long-term financial success.
The average millionaire in my study took 12 to 32 years to accumulate net worth between 3 million and 7 million USD.
Here are their three most common habits that anyone can adopt:
1. They automate and save 20% of the net payment.
Every Saver-Investor in my study saved 20% or more of their net salary, per paycheck.
Many have accomplished this by automatically withdrawing a fixed percentage of their net payout. Typically, 10% goes into an employer-sponsored retirement account and the remaining 10% is automatically transferred into a separate savings account.
Once a month, Savers-Investors will transfer their accumulated 10% monthly savings into an investment account, such as a brokerage account.
Even if 20% is too high right now, saving a consistently smaller percentage can still help you meet your financial goals for the future.
2. They regularly invest part of their savings.
Because Savers-Investors continually invest their savings, their money grows over time. When they started, this compound interest was negligible. But after 10 years, they began to accumulate a considerable amount of wealth. By the last years of his working life, the Saver-Investor’s wealth had grown to an average of $3.3 million.
Dream-chasing millionaires and startups (aka Dreamers – Entrepreneurs) are unlikely to invest their savings, especially in the early stages of pursuing their dreams. Any savings they get are used as working capital to finance their dreams.
The interesting thing, however, is that once most of these Dreamer-Entrepreneurs achieve success in the form of available cash flow, they immediately pivot and start investing their earnings.
3. They are extremely frugal.
One of the common denominators for the Thrift Investor, Corporate Climber, and Self-made Millionaire Virtuoso in my research is frugal.
For these millionaires, saving begins as soon as they get their first paycheck. For the Dreamer-Entrepreneurs, their dreams start from the moment they generate enough cash flow for them to save and invest.
Being frugal requires three things:
- Awareness: Be aware of how you spend your money.
- Focus on quality: Spend your money on quality products and services.
- Bargain shopping: Spend as little as possible by shopping around for the lowest prices.
By itself, frugality will not make you rich. The “Rich Habits” puzzle is just one piece, and there are many pieces. But it will allow you to save a larger amount. And the more money you have saved, the more money you can invest.
Tom Corley is an accountant, financial planner, and author of “Rich children: How to raise our children to be happy and successful in life” and “Wealth Habits: Daily Success Habits of Rich People. “
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