7 key learnings from the book: The Millionaire Next Door
This newsletter has always been about making you the best investor out there. Not just technically in terms of concept and theoretical knowledge but also behaviour-wise.
But in order to build on that, it requires a particular mindset.
A mindset you need to adapt to become not just a successful investor, but a better human being.
I recently completed reading this phenomenal book. Here are my key learnings that you can start instilling in yourself:
1. High-income ≠ High wealth:
Income does matter. But, the size of a paycheck accounts for only ~30% of the variation of wealth among households. What really matters, is how much of the income is invested.
On average, millionaires invest nearly 20% of their income!
2. You Need A Budget:
Most millionaires have a budget.
Those who don't, have what the authors called “an artificial economic environment of scarcity,” more commonly known as “pay yourself first.” i.e. They invest a chunk of their income before they spend any!
3. Track your spending:
~65% of millionaires can answer “yes” when asked: “Do you know how much your family spends each year for food, clothing, and shelter?”.
But only 35% of high-income, non-millionaires answered yes to this question.
Summary? Millionaires track their spending.
4. Know your goal:
When asked: “Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?”.
Millionaires answered "Yes".
Know what your financial goals are - if you want to retire early, you need to know how much you must invest to get there etc.
5. Time is Money:
Budgeting & setting goals take time. But millionaires are willing to invest that time to get where they want to be. The authors found a strong positive correlation between investment planning and wealth accumulation.
6. Learn to love your house:
The house you buy, as well as how often you move will determine your ability to accumulate wealth. In The Millionaire Next Door, that wealthy family has been next door for a while.
Half of the millionaires have lived in the same house for >20 years.
7. Becoming a millionaire takes teamwork:
The majority of wealthy people are married and stay married to the same person.
Of course, marriage isn't all about money, but studies have shown that people who are married accumulate more wealth than those who are single or divorced.
Cheers!
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End-Week Wisdom:
“High gross margins are the most important single factor of long run performance.” - Christopher Mayer
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