Wealth is not the same thing as income. If you earn a lot of money and blow it every year, you’re not getting rich. You’re just living high. Wealth is what you accumulate, not what you spend.
As Thomas T. Stanley and William D. Danko wrote over a decade ago in “The Millionaire Next Door”: Affluent people typically follow a lifestyle conducive to accumulating money. In the course of our investigations, we discovered seven common denominators among those who build wealth successfully.
Give 10% of your income to charity first. Pay yourself 10% next; then do the following with the remaining 80%:
1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.
In short, they discovered that most millionaires don’t inherit their wealth or hit a sudden jackpot. Most of them accumulate their wealth gradually, by earning as much as they can, spending as little as they can, and religiously saving the difference.
But do you really need to keep doing this even as your investment portfolio swells?
Absolutely. Never underestimate the firepower of money compounding.
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