The following is a guest post by Eschewing Debt. Read more about the blog after the post.
Researchers Thomas Stanley and William Danko uncovered a startling truth in their landmark book The Millionaire Next Door:
The average American millionaire does not look, think, or act like we think American millionaires look, think, and act.
Rather than driving expensive sports cars, the typical millionaire drives an old, used sedan. Instead of a 7,000 square foot mansion, the typical millionaire lives in a quaint, middle-class suburb. Millionaires typically send their children to public instead of private schools.
Most millionaires did not inherit their money, and most did not earn their money through acting, playing sports, or winning the lottery. About 80% of millionaires, according to their research, became millionaires through a lifetime of applying one simple principle:
Millionaires Spend Less than They Earn and Invest the Difference.
This secret to wealth is no secret at all. Any financial coach, financial blogger, or personal financial adviser will tout this advice to any reader or client they encounter. If you want to be rich, you must spend less than you earn and then invest the difference.
The repercussions of this study are astonishing.
This study implies that the secret to becoming rich depends not on the whims of a boss, a CEO, or some random string of good luck. Instead, the ability to become rich depends on YOU!
YOUR Actions Will Determine YOUR Wealth!
What an empowering statement!
Certainly bonuses and pay raises are nice, and good luck never hurt anybody. But overall, each of us individually has the power to create our own millionaire status- regardless of income and current social standing. In fact, the researchers discussed a man who never in his life earned more than $25,000 per year and retired a millionaire.
Unfortunately, we as Americans have an addiction: An addiction to spending. We do the opposite of what we should do. We spend more than we earn and never think of investing. If you desire to retire a millionaire, you must STOP this cycle and start making choices that will create wealth!
Here is a small sampling of simple changes you can make today to build wealth:
- Cancel cable
- Learn how to coupon
- Bring your lunch to work
- Use your library card instead of buying books, DVD’s, and CD’s
- Make your own coffee instead of heading over to Starbuck’s
Theoretically, just these simple changes could net you approximately $700/month- tax free! Remember, you don’t pay taxes on money you save by simply not spending!
Just to be conservative, however, let’s assume you make minor financial changes to the tune of $500/month. Using this compound interest calculator, we can see how $500/month will grow over time to help us on our path to wealth: If you put away $500/month for 20 years, in total you will put away $120,000. Calculating for compound interest, after 20 years at an annual 6% return, your $120,000 will grow to $233,956.36!
If you put away $500/month for 30 years, you will have $502,810.06! Do you think giving up your Morning Joe is worth having an extra half million dollars for retirement? If you can cut expenses further and max out your 401k- or $17,500/year or $1458/month, after 30 years you will have $1,466,529.35. You will be a millionaire!
When it comes to finances and compound interest, the little things matter. Cutting costs, avoiding debt, and investing your money instead of squandering it on useless consumerism can and will allow you to reach whatever financial goal you may have! The more you save today, the more you will have tomorrow.
What costs can you cut today? What are you willing to give up so that you can be a millionaire?
Editors Note: There are some little things I cut out because I don’t get joy out of them. There are others, like cable, that I won’t cancel because I thoroughly enjoy them. Be conscious of what effect your spending has and cut back in the areas where you spend and aren’t getting any enjoyment or value.
Eschewing Debt is dedicated to helping people avoid consumerism in order to get and stay out of debt, invest in their future, and achieve financial freedom. Head on over and check out their blog!