While I was browsing on LinkedIn, I stumbled upon an intriguing research study called “The National Study of Millionaires”, which uncovers the keys to their success.
The answer is similar to the age-old question, “Are leaders born or made? Both are determined by a combination of nature and nurture.
A person may have the potential to become a millionaire or a leader but they will need to work hard to achieve those goals.
So, what’s the true secret to becoming a millionaire? Consistent investing, wise spending and avoiding debt like the plague emerged as the cornerstone of their financial success.
Surprisingly, their success didn’t stem from a lucky lottery ticket, a hefty inheritance, or extravagant pay cheques.
This comprehensive study by Ramsey Solutions, featuring over 10,000 American participants, delved into their backgrounds, habits, and behaviours.
The findings reveal that an astounding 79% of millionaires didn’t inherit their wealth, originating from low to middle-class families.
Though 21% received some inheritance, only 3% were blessed with an inheritance of $1 million or more.
The power of consistent investing: Your road to a millionaire
Remember the words of Aristotle: “We are what we repeatedly do; therefore, excellence is not an act but a habit.”
8 out of 10 millionaires emphasised the significance of investing in their company 401(k)—equivalent to UK workplace pension schemes—as a key to financial success.
Additionally, a staggering 75% of millionaires chose to invest outside of company plans.
These millionaires did not risk their money on single-stock investments. They embraced diversification as it’s the holy grail of investing.
By spreading your investments among 10-15 uncorrelated asset classes you can reduce your risk significantly.
Sure, investing comes with risk. But so does crossing the street, right?
There is an opportunity cost for not taking risks in life and investing. If we are not courageous enough to take calculated risks in life it will be difficult to accomplish anything.
According to the study, 75% of millionaires attribute their success to regular and consistent long-term investing.
For instance, imagine investing £10,000 in the stock market and yielding an annual return of around 20% for 25 years—that’s how one becomes a millionaire. The power of investing for the long term is truly remarkable.
The millionaire mindset: It’s more than just numbers
It’s essential to emphasise that personal finance is 80% behaviour and only 20% head knowledge, as Dave Ramsey wisely points out. By mastering money control, you gain self-control.
Contrary to popular belief, most millionaires don’t boast high salaries or occupy top leadership roles. In fact, only 15% of millionaires fall into such categories.
An overwhelming 93% of millionaires attributed their wealth to hard work rather than lofty salaries.
Interestingly, the top millionaire careers span various fields, including engineering, accounting, teaching, management, and law.
The study reveals that only 31% of millionaires averaged $100,000 a year throughout their careers, and 33% never reached six-figure earnings in any single year.
Living within means and smart spending
Intriguingly, 94% of millionaires live within their means, and almost three-quarters have never carried a credit card balance. They also use coupons all or some of the time when shopping.
Education plays a pivotal role, as 88% of millionaires are college graduates, compared to only 38% of the general population in the U.S.
The millionaire secret: make money work for you
The majority of the millionaires in the study said they earned their money through consistent long-term investing. They let their money work for them echoing Warren Buffet’s wise words: ”If you don’t find a way to make money while you sleep, you will work until you die.” It’s important to take control of your finances by starting investing for your future self.
Awet Ghirmay, Head of Investment Research
If you’re interested in learning more about this topic, please find the link here.
More information about the fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
*The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
