In 2004, I set out to conduct a five-year "Rich Habits" study to explore how the world's wealthiest people think about their money. Each of the 225 millionaires I interviewed fell into one of four categories:
- Saver-Investors: No matter what their day job is, they make saving and investing part of their daily routine. They are constantly thinking about smart ways to grow their wealth.
- Company Climbers: Climbers work for a large company and devote all of their time and energy to climbing the corporate ladder until they land a senior executive position — with an extremely high salary.
- Virtuosos: They are among the best at what they do, and they're paid a high premium for their knowledge and expertise. Formal education, such as advanced degrees (e.g., in law or medicine), is usually a requirement.
- Dreamers: The individuals in this group are all in pursuit of a dream, such 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 Saver-Investor route requires the least amount of risk — at least compared to pursuing an entrepreneurial dream or artistic passion. But 88% of the millionaires I interviewed said that saving in particular was critical to their long-term financial success.
It took the average millionaire in my study between 12 to 32 years to accumulate a net worth of anywhere from $3 million to $7 million.
Below are their three most common habits that anyone can adopt:
1. They automated, and saved 20% of net pay.
Every Saver-Investor in my study consistently saved 20% or more of their net pay, each paycheck.
Many accomplished this by automating the withdrawal of a fixed percentage of their net pay. Typically, 10% went into employer-sponsored retirement accounts and the other 10% was automatically directed into a separate savings account.
Once a month, the Saver-Investors would then transfer their accumulated 10% monthly savings into an investment account, such as a brokerage account.
Even if 20% is too steep at the moment, saving a smaller percentage consistently can still help you meet your financial goals for the future.
2. They regularly invested a portion of their savings.
Because Saver-Investors consistently invested their savings, their money compounded over time. When they started, this compound interest was not very significant. But after 10 years, they began to accumulate significant wealth. Towards the final years of their working lives, the Saver-Investors' wealth grew to an average of $3.3 million.
The millionaires who pursued a dream and started a business (a.k.a. the Dreamer-Entrepreneurs) did not have the ability to invest their savings, particularly in the early stages of pursuing their dreams. Whatever savings they did have were used as working capital in order to fund their dream.
Interestingly, however, once most of these Dreamer-Entrepreneur achieved success in the form of available cash flow, they immediately pivoted and began to invest their earnings.
3. They were extremely frugal.
One of the common denominators for Saver-Investors, Big Company Climbers and the Virtuoso self-made millionaires in my study was being frugal.
For these millionaires, frugality began the moment they received their first paycheck. For the Dreamer-Entrepreneurs, it started the moment their dream created enough cash flow to enable them to save and invest.
Being frugal requires three things:
- Awareness: Being aware of how you spend your money.
- Focus on quality: Spending your money on quality products and services.
- Bargain shopping: Spending the least amount possible by shopping around for the lowest price.
On its own, being frugal will not make you rich. It is just one piece to the "Rich Habits" puzzle, and there are many pieces. But it will allow you to save a larger amount of money. And the more you have in savings, the more money you can invest.
Tom Corley is an accountant, financial planner and author of "Rich Kids: How to Raise Our Children to Be Happy and Successful in Life" and "Rich Habits: The Daily Success Habits of Wealthy Individuals."
- There are 4 main paths to becoming a millionaire—and this is the easiest one, says money expert
- Author who studied millionaires for 5 years: Don’t play the lottery if you want to retire rich
- Early retiree shares 13 'stupid simple' money rules that helped him save $1 million: 'I wasn't born rich'
Sign up now: Get smarter about your money and career with our weekly newsletter