Close your eyes and picture a millionaire. What do you see? A man in a custom-made suit behind the wheel of a luxury car, smoking an expensive cigar? Or maybe a woman dressed from head to toe in designer clothes, sitting in a cafe sipping a cappuccino while surrounded by shopping bags from high-end stores?
The people in these pictures could be real millionaires, but they could also be living the high life on credit. A real millionaire is much more likely to be the old guy in line behind you at the supermarket with a fistful of coupons, or the neighbor who’s always out in her garden pulling weeds in her torn dungarees.
These people belong to the “invisible rich.” They have plenty of money, but they don’t splash it around — which is one reason they have so much. If you aspire to become a millionaire, learning how these real millionaires live could be the key.
How the Invisible Rich Live
When people think about what it means to be rich, they often picture scenes out of the 1980s TV series “Lifestyles of the Rich and Famous” and successors like MTV’s “Cribs.” These shows toured the fabulous homes of the glitterati, dwelling lovingly on luxurious features such as massive swimming pools, fleets of cars, private jets, and gold-plated bathroom fixtures.
This is the opposite of how the invisible rich live. A more accurate picture of their lives appears in the book “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, written in 1996 and updated in 2010. When these authors set out to study the wealthy, they started by looking in upscale neighborhoods, only to discover that most people in those areas weren’t really rich. So they started seeking out people with high net worth and found several interesting — and often surprising — things these folks tended to have in common.
The millionaires next door (MNDs) whom Stanley and Danko talked to had an average net worth of $3.7 million (about $6.1 million in today’s dollars), and most of their fortunes were self-made. Typically, they were the first generation in their family to be wealthy and had not inherited anything from their parents.
Their median income was $131,000 (about $216,000 today), and about two-thirds of them earned that money working for themselves. The authors noted that many of them worked in businesses most people would label as prosaic or even dull, such as “welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.” Most of them worked between 45 and 55 hours per week.
Home & Family Life
Nearly all of Stanley and Danko’s MNDs — about 95% — were married. However, most of them did not have two-income households, which could have given them an edge in accumulating a sizable nest egg. For about 70% of these couples, the husband earned at least 80% of the household income, and about half of the wives didn’t work outside the home at all. (Most of the book’s subjects were older men, born in the 1930s and 1940s when this was a typical pattern for family life; a survey of modern millionaire households might well find different results.)
However, this doesn’t mean the women of the house contributed nothing to its financial success. Most men Stanley and Danko spoke with said their wives were “planners and meticulous budgeters,” often more conservative with money than themselves. Being on the same page financially could explain why these marriages were generally successful ones; most of the MNDs had been married to the same person for the majority of their adult lives.
Most MNDs also had kids and were raising them to stand on their own financially. The MNDs never received what Stanley and Danko call “economic outpatient care” — substantial gifts or other financial help — from their parents, and they were not providing any to their adult children. The only aid MNDs believed in providing to their children was a good education. Over half of them sent their children to private schools, and many boasted about having enough saved up to put their children through college.
You’ve probably heard the expression “champagne tastes on a beer budget,” which refers to people who love luxuries but can’t afford them. Most MNDs live a lifestyle that’s just the opposite: beer tastes on a champagne budget. Here are some of the things the invisible rich spend modestly on:
- Homes. Stanley and Danko found that the average MND owned a house worth $320,000 (about $528,000 in today’s dollars). In many cases, this was far more than they’d paid for the house. Nearly half of all MNDs had been living in the same home for over 20 years and had seen its value rise significantly.
- Cars. Most of the MNDs in the book drove cars that were at least two years old. They preferred to buy cars rather than lease them, and they leaned toward American-made cars. The average MND had paid $24,800 (about $40,900 in today’s dollars) for his current car; the average American car buyer at the time, who had far less wealth, was paying about $21,000 for a car. Nearly 37% of MNDs said they bought their most recent car used rather than new.
- Clothes. More than half of Stanley and Danko’s MNDs said they had never paid more than $400 (about $660 in today’s dollars) for a suit. Their typical top price for a pair of shoes was $140 ($230 in today’s dollars), and for a wristwatch, it was $235 (about $390 today).
- Dining. The first time the authors held a gathering for a group of people with a net worth of $10 million or more, they tried to make them feel at home with a buffet featuring pâté, caviar, and two fine wines. However, their guests didn’t touch this fancy fare, except for the gourmet crackers. Stanley and Danko had much more success at future gatherings with a menu of club sandwiches, coffee, soft drinks, beer, and, for the evening sessions, Scotch whiskey.
- Shopping. The authors found that MNDs seldom purchased luxury items or high-end brands of any kind. One of their favorite retail stores was J.C. Penney; over 30% of all MNDs had a Penney’s credit card. More recent research has found that wealthy people also have other frugal shopping habits, such as using coupons. A 2010 Nielsen study on coupon use found that the heaviest coupon users were people with incomes of $100,000 or more (about $120,000 today).
Key Habits of the Invisible Rich
As you can see, the lifestyle of the invisible rich isn’t glamorous or exciting. However, it does have a lot of other benefits. Along with their financial independence, the invisible rich enjoy happy, stable marriages and kids who don’t depend on them for money as adults. According to Stanley and Danko, most of them also love the work they do.
If this kind of life sounds appealing to you, adopting the habits of the invisible rich can help you achieve it. Here are seven key practices that could help you become a “millionaire next door” one day.
1. Live Within Your Means
One thing all invisible rich have in common is that they consistently spend less than they make — a lot less. Stanley and Danko say the three words that best describe the rich people they’ve met are “frugal frugal frugal.” These people consistently save at least 15% of the money they earn each year, and often much more. Although they could easily afford tailor-made suits, sports cars, and vacation homes, most of them don’t indulge in these luxuries.
How to Do This
Of course, it’s much easier to live within your means when you’re bringing in over $200,000 a year than it is when you’re struggling to make ends meet on minimum wage, or even living on the average household income of $60,293 per year (based on a 2019 Census Bureau report). However, no matter how small your income is, it’s much easier to live within it if you make a budget through an app like Tiller.
According to Stanley and Danko, more than half of all MNDs stick to a budget, despite their high incomes. Even the ones who don’t make a formal budget usually make a point of setting aside money for savings by “paying themselves first,” or stashing away a chunk of each paycheck in investments before they pay for anything else.
2. Educate Yourself
Though the invisible rich don’t spend a lot in most areas, one thing they don’t skimp on is education. About 80% of Stanley and Danko’s MNDs were college graduates, and 38% held advanced degrees. Although only 17% of them attended a private school themselves, more than half were sending their kids to private schools and had set aside money to put their children — and sometimes even their grandchildren — through college. When Stanley and Danko asked them if they would agree that formal education “is/was of little use to [them] in the real world of making a living,” only 14% said yes.
Formal education isn’t the only kind that matters to the invisible rich. They also do their best to learn and educate themselves throughout their lives, especially in their chosen fields. For instance, Stanley and Danko write about a department store manager who “always studied trade journals to learn how to make his store more productive.” Later, he used the information he gleaned to invest successfully in stocks in the retailing sector.
More recent research backs up this view. Steve Siebold, who has interviewed more than 1,200 of the world’s richest people and is now a self-made millionaire himself, writes in his book “How Rich People Think” that most rich people are avid readers for educational purposes, not just for pleasure. An article on the book in Business Insider quotes him as saying the average wealthy person’s house has “an extensive library of books they’ve used to educate themselves on how to become more successful.”
Another Business Insider article reports a similar view from Thomas C. Corley, who spent five years researching the daily habits of 177 self-made millionaires for his book “Change Your Habits, Change Your Life.” According to Corley, 88% of all rich people devote at least 30 minutes per day to reading for education or self-improvement.
How to Do This
There’s strong evidence that having a college degree makes it easier to earn a good living. According to the Bureau of Labor Statistics (BLS), in 2018, people with a bachelor’s degree earned an average of $1,198 per week and had only a 2.2% chance of being unemployed. By contrast, those with only a high-school education had a 4.1% unemployment rate and earned only $730 a week on average. So, if you’re still young and trying to decide whether it’s worth going to college, the answer — at least in terms of future earnings — is probably yes.
For graduate school, however, the answer is less clear-cut. People with advanced degrees have the lowest rate of unemployment, but the highest earnings go to those with professional degrees, such as law and medicine, rather than doctorates. Also, Stanley and Danko note that while many people with advanced degrees earn high incomes, that income doesn’t always translate into high net worth. They point out that because these people spend so many years in school, they get a late start on earning and investing money, which makes it harder for them to build wealth.
In short, if your goal is to become rich, it makes more sense to educate yourself in ways that don’t interfere with your ability to earn and invest money early on. One option is to work while you’re in college and invest your earnings. You can also educate yourself during your working years by reading books and magazines, listening to educational podcasts, or watching TED talks on YouTube. This kind of informal education helps you build useful knowledge that can make you even better at earning and investing down the road, all without interrupting the earning and investing you’re doing right now.
3. Choose Your Career Wisely
One of the hallmarks of the invisible rich, Stanley and Danko found, is that they “chose the right occupation.” About two-thirds of them were self-employed, with about half of them running their own businesses. The others were self-employed professionals such as doctors, lawyers, architects, and financial professionals.
However, that doesn’t mean these MNDs chose their careers based on earning potential. Instead, they chose jobs they liked enough to work hard at them, often putting in 10- to 14-hour days, without ever feeling tired of the job. As one multimillionaire interviewed by Stanley and Danko put it, “The successful man is a guy who works at a job, who likes his work, who can’t wait to get up in the morning to get down to the office.”
How to Do This
Stanley and Danko stress that, even though most millionaires are business owners, that doesn’t mean most business owners become millionaires. In fact, according to the BLS, roughly half of all new businesses fail within five years of their startup date. Even “successful” businesses often barely manage to eke out enough profit to survive year after year.
The few business owners who have gone on to make millions have one thing in common: they love what they do. So if you’re thinking of starting a business, the first thing you need — before a business plan, startup cash, customers, or suppliers — is a passion for the business. Similarly, if you’re choosing a career or considering a career change, don’t just look at the salary; think about whether it’s a job you can love enough to put in the effort needed to succeed.
4. Invest for the Long Term
The invisible rich get a lot of their money from investments. According to Stanley and Danko, they invest an average of 20% of their income every year, and they devote considerable time to planning and managing their investments. They also tend to be “buy and hold” investors where stocks are concerned. They buy good stocks and hold on to them through market ups and downs, rather than trying to figure out when is the best time to sell them for a profit.
The buy and hold strategy works best when you’re able to hold on to your investments for a long time, which allows you to ride out the dips in the market and take full advantage of the rises. As the S&P 500 Return Calculator from DQYDJ shows, an investor who bought and held stocks in the S&P 500, reinvesting the dividends, over any 30-year period from 1950 on would have seen annualized returns of at least 9%. Even an investor who had put money into the market right before it crashed in 1929 would have earned over 7.5% on it by holding those investments for 30 years.
How to Do This
When you’re investing for the long term, it pays to get started as early as you can. If your company offers a retirement plan, such as a 401(k) or 403b, start putting money into it as soon as you qualify. Invest at least enough to take advantage of employer matching funds, since this is basically free money.
Another way to get started with investing is to set up your own automatic investment plan. Open an investment account through a broker like M1 Finance or Stash, then set up automatic transfers from your savings account into this investment account on a regular basis, such as once a month or once a quarter. If you don’t have much money to invest, you can use a micro-investing platform, such as Acorns, to get started with nothing but your spare change.
An example from “The Millionaire Next Door” shows how even small investments can add up over time. The authors profile a family called the Friends who had “modest means” but smoked approximately three packs of cigarettes a day between them. If the Friends had put all the money they spent on cigarettes into tobacco company stocks instead, by the authors’ calculations, they could have made more than $2 million.
Pro tip: If you’re investing in a 401(k), IRA, or another retirement account, sign up for a free portfolio analysis from Blooom. After connecting your accounts, they will make sure you’re properly diversified and have the right asset allocation. They’ll also check to see if you’re paying too much in fees.
5. Pay Off Debt
In general, the invisible rich prefer to avoid debt. They borrow money to invest, particularly in their businesses, but they never rely on credit to finance their purchases. Most of them do carry credit cards, according to Stanley and Danko, but they’re usually basic Mastercard or Visa cards, not gold or platinum American Express cards or high-end department store cards. In their descriptions of MNDs, the authors frequently mention that they are completely debt-free.
How to Do This
In some cases, debt can be useful. Borrowing money to buy a home, get a college degree, or start a business helps you in the long run because these are assets that will put money in your pocket. Other kinds of debt, such as borrowing to pay medical bills or buy a car so you can get to work, aren’t really investments, but they’re necessary.
It’s important to draw the line between good debt and bad debt, or borrowing money to pay for things you don’t need. Borrowing money for a big, unnecessary purchase, such as a new stereo, is bad debt. So is borrowing for a one-time event, such as a luxury vacation or even a wedding. There are plenty of ways to enjoy a vacation on a budget, and there’s evidence that a cheaper wedding is more likely to lead to a lasting marriage than a pricey one.
Even with good debt, there’s no point in paying more interest than you have to. If you have to borrow money, shop around for the best interest rate. And if you already have bad debt, such as credit card debt, make a plan to pay it off as quickly as possible.
6. Avoid Lifestyle Inflation
Most MNDs developed their frugal habits in their youths before they became rich. In this regard, they’re just like young people who live on a tight budget. It’s easy to live frugally when you’re young and broke since you don’t have a choice.
The difference is that the invisible rich don’t give in to lifestyle inflation as their earnings increase. Instead of trading up, they hang on to their modest houses, cars, and clothes. For instance, according to Investopedia, billionaire investor Warren Buffet still lives in the house he bought for $31,500 back in 1958. Similarly, Walmart founder Sam Walton bought a Ford F-150 pickup in 1979 and drove it until his death in 1992, according to Ford.
How to Do This
If your goal is to become rich, focus less on looking like a rich person and more on living like these real millionaires. As long as it still runs well, keep driving your old car instead of upgrading to a new one with a hefty monthly payment. When it’s finally time to buy a new car, stick to basic, reliable models instead of fancy or high-status brands.
Follow the same rules with other purchases, both large and small. As long as your house is big enough for your family, resist the urge to trade it in for a bigger house in a ritzier neighborhood. Even if you’ve moved up to the executive suite, don’t be embarrassed to continue buying your clothes at cheaper stores like Sears or J.C. Penney. After all, some of the folks shopping there might be millionaires; you just can’t spot them by looking.
7. Marry the Right Person
Most of Stanley and Danko’s MNDs were married, and importantly, most of them had been married to the same person for the majority of their lives. That’s significant because while there are many financial benefits of marriage, they don’t apply to a marriage that ends in divorce. According to a 2005 study published in the Journal of Sociology, married couples tend to have a significantly higher net worth per person than their peers who remain single. However, couples who marry and then divorce end up significantly worse off than their single peers.
Living like the invisible rich, then, doesn’t just mean getting married; it means marrying the right person. And for Stanley and Danko’s MNDs, the right person was typically someone who shared their frugal values. Most MNDs said their spouses were even more frugal than they were. One multimillionaire joked, “I can’t get my wife to spend any money!” Another recalled how his wife had thanked him politely for giving her $8 million worth of stock in his company before calmly returning to cutting out coupons at the kitchen table.
These frugal spouses played a key role in their millionaire households. As the authors put it, to accumulate wealth, it’s not enough for a couple to “play great offense” by making a lot of money; they also have to “play great defense” by spending as little of it as possible. Both sides of the game are vital if you want to save money and invest it to build a fortune.
How to Do This
The happiest couples share common values and goals, especially financial goals. If your ambition is to become financially independent, while your spouse believes money is for spending, it will be difficult, if not impossible, to keep you both happy.
If you’re still single, it’s a good idea to talk honestly about your financial goals with the people you date. This way, you can find out if you’re on the same page financially before you commit to a relationship that could be going nowhere.
If you’re already married, it’s not too late to sit down with your spouse and have a serious conversation about your financial needs and goals. They’re more likely to be on board with your financial plans if you hammer them out together as a team.
Unfortunately, following all these rules to the letter doesn’t guarantee you’ll end up a millionaire. For instance, if you choose a career you love, but it just doesn’t pay much, it will be hard to save very much out of your low income no matter how frugally you live. Even if you start early and invest wisely, you won’t be able to accumulate as much wealth as your better-paid peers who are following the same plan.
However, even if living like the invisible rich isn’t enough for you to get ahead, it will certainly stop you from falling behind. Living within your means, steering clear of debt, and sensibly investing the money you save can’t guarantee you wealthy old age, but it can keep you from ending up in the poorhouse.
Do you know anyone who belongs to the invisible rich? What is their lifestyle like?