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Top 7 Rules Millionaires Gave Me

January 1, 2014


During my life I have received outstanding advice from several millionaires about how to accumulate money as quickly and safely as possible. In the spirit of sharing, here’s what I’ve learned:
Rule #1:  “Live substantially beneath your means and intelligently invest the savings.”  Most millionaires started living beneath their means as early as they could and consistently invested a large percentage of their income, even when they made a modest living.  Saving and investing 50-60% of your income is very doable.  Seem impossible?  Read this great article from someone who did just that – and retired by 30.  A motivated person can retire in 7 to 10 years.  It’s simply a matter of what you want: financial freedom or a job — forever?  The millionaires I know wanted freedom more than they wanted fancy stuff – and as a result of pursuing freedom first, they can have both.
Rule #2:  ”Train yourself to buy almost everything at a discount.”   Forget deprivation, rice and beans.  Go to Disneyland but at half price by buying special tickets on Craigslist.  I bought a Lexus-like car on eBay for 50% below market value (and 130k miles later, I’m still driving it).  My sister has an iPhone plan for $45/mo instead of $125 (saving $1000/year!). Buying a house 20% below market value puts you 12.5 years ahead on a 30 year mortgage!  Become a “saving sninja” by mastering the art of buying everything you need and want – the house, car, clothing, insurance, vacation …. nearly everything … at 30-70% off.  The wealthiest people don’t brag about what they have, but they are excited talk about what a good deal they got on the things they have.
Rule #3:  ”As your income increases, keep your expenses the same.”  Expense creep is a wealth killer.  One of the most common themes I hear from millionaires is to get your expenses very low.  And keep them that way even when your income grows 20%, 50%, or 200%.  Income can change, your expenses should not.  To millionaires, more income doesn’t equate to more stuff, rather more income means more fuel for growing savings and investments faster each year.  Compare the expenses between a spender and an investor who have the same income and, in just a couple of years, the difference in wealth is exponential.
Rule #4:  “Rich people invest money.  Middle class save money.  Poor spend it.”  The rich buy things that grow their net worth – real estate, businesses, stocks, etc.  The middle class park money in CDs, savings accounts, etc, where the money isn’t spent but isn’t particularly growing for them.  The poor buy things that decrease their net worth- cars, boats, clothing, furniture, amazing TVs, etc.  The rich intuitively understand the personal stuff formula which the poor and middle class rarely give a second thought to.

Rule #5:  ”Buy a reliable, inexpensive used car and then drive it into the ground.”  Cars take wealth out to the pasture and shoot it.  When I was 19, I knew 3 millionaires and all of them drove cars worth less than 7k.  Why? Cars kill money.  Millionaires are smart with money.  Yet it often seems people with a small or negative net worth over-compensate and drive 30k cars.  Their retirement account is in their rims.  Even if they put $5k a year in their 401k, their car is going down in value by that amount.  They can’t get ahead and don’t know why.  Understand How the Real Rich Roll.

Rule #6: “Take your financial advice from wealthy people.”  Life often has inflection points:  opportunities that – depending on your decision – can shift the trajectory of the rest of your life.  Faced with an important financial decision, most won’t ask a knowledgeable (read: wealthy) friend/acquaintance.  Instead, they will ask their best friend and take their opinion – even if that friend is living paycheck to paycheck.  That keeps many people as poor as their favorite friend.  Millionaires ask other successful people for money advice. Be friends with people you love; take your financial advice from people who kick financial butt.
Rule #7:  ”Quantify the risk and make calculated bets.”  Situations that have unknowns can leave the smartest people stuck in a loop of indecision and inaction.  Millionaires learn to ask questions and attach numbers to unknowns.  They ask, “if the very worst did happen, what would be the cost?  What are the odds of that happening?  How could I reduce that cost?”  They make the unknown concrete with numbers, estimates or estimate ranges.  After quantifying unknowns, the right decision is frequently obvious.  Millionaires love unknowns or “risk” because with research they can reduce most of it and make a disproportionate amount of money while others sit on the sidelines.
I would add:  “Find a highly successful mentor.  Then absorb everything you can.”  No one who took the time to cultivate a millionaire mentor says, “That was a waste of time and energy.  I wish I could undo that decision.”  Learning from a millionaire is like getting a Masters degree in “money.”  And unlike college, it is nearly free.  Yet very few people do it.  When reading the biographies of successful people, a common thread is the importance of mentors who gave critical advice at critical times, allowing one to leap-frog years of mistakes with their wisdom.  But getting a wealthy person who is busy with their own interesting life, businesses, family and friends to want to mentor you takes real persistence.  At first, my mentor tested me — she wouldn’t return my calls.  Or let me take her out to lunch.  Or dinner. Or coffee.  Or water.  Seriously…she rebuffed me at every turn.  Finally, I delivered homemade brownies to her office and left a note: “I don’t have much money to pay your for advice, but here are some brownies as a thanks in advance for help.”  She called and later we became great friends. That friendship changed my life.  

The most commonly recommended book by millionaires was The Millionaire Next Door – which dispells many myths about how millionaires live and how they got there.  In my opinion, 250+ Ways to Buy Smarter, Spend Smarter, and Save Money is the best for enjoying the good life at 40-70% below retail and the best blog on the internet for finances is Mr Money Mustache.

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