ERIC BARKER, TIME, OCTOBER 16, 2014
Are they harder workers? Do they have brains that can bend spoons? Do they exhibit Bond Villain levels of cunning?
80% were self-made, accruing all their wealth in one generation. And they were doing a number of things you and I probably aren’t.For their books The Millionaire Next Door and The Millionaire Mind the authors surveyed over 700 millionaires to find out.
Here are a few patterns the researchers saw:
1) Most Millionaires Are Self-Employed
Got a great idea for a business? Make sure the profits are going in yourpocket, not your boss’s.
Twenty percent of the affluent households in America are headed by retirees. Of the remaining 80 percent, more than two-thirds are headed by self-employed owners of businesses. In America, fewer than one in five households, or about 18 percent, is headed by a self-employed business owner or professional. But these self-employed people are four times more likely to be millionaires than those who work for others.
Sound risky? It is. Less than a third of new companies survive 10 years.
…no matter how you measure new firms, and no matter which developed country you look at, it appears that only half of new firms started remain in business for five years, and less than one-third last ten years.
But millionaires have a different perspective. They think it’s risky to work for someone else. You could get laid off. Your boss could make a bad decision.
They want to be in control of their own destiny and yes — they’re quite confident. And research shows confidence boosts your income.
But not only is entrepreneurship risky, it’s also hard work.
In only two countries out of all the ones surveyed did the self-employed not work harder than salaried employees:
Why do something so risky and difficult? Research shows one of the main things that makes us love our work is autonomy.
And this is definitely true here. You’d need to earn 2.5 times as much money to be as happy as someone who is self-employed.
These studies have found that people are more satisfied with their jobs when they are working for themselves than when they are working for others. In fact, the studies show that to be as satisfied when he is working for others as he is when he is working for himself, the average person needs to earn two-and-a-half times as much money!
(For more on what the most successful people have in common, clickhere.)
So these aren’t salaried employees. But how do they decide what kind of companies to start?
2) Millionaires Choose Their Careers Strategically
They don’t start a business they’re necessarily passionate about. They don’t even do something they necessarily understand or have experience in.
They start a business that they think is going to make money. They look for areas of big demand and small supply.
Some of you are saying, “Duh. Of course that’s how you should pick a business.” Yeah, but that’s not what the vast majority of people do.
…there is no evidence that entrepreneurs select industries in which profits, profit margins, or revenues are higher.
63% of new business owners admit their venture doesn’t have a competitive advantage. Only a third say they really did a search for good business ideas.
And the industry you start a business in is very important: some industries are over 600 times more likely to be successful than others.
…between 1982 and 2002, start-ups in the software industry were 608 times more likely than start-ups in the restaurant industry to become one of the 500 fastest growing private companies in the United States—608 times more likely!
One of the authors of The Millionaire Mind is a business school professor. Every year he asks his students what the most profitable businesses are.
And every year the students can’t even name one correct answer. If smart, educated business students don’t know, why would the average person?
But millionaires pride themselves on thinking differently and looking for underserved markets and hidden opportunities.
And, frankly, the companies they start usually aren’t sexy. They fall into the category of “dull-normal.” But they make bank.
Many of the types of businesses we are in could be classified as dull-normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.
Despite thinking differently and doing things their own way, they’re not jerks. 94% of millionaires said “getting along with people” was key.
(For more on how not following your passion can be the smartest career strategy, click here.)
So they run their own shop and choose wisely what type of business to be in. But to make it a success don’t they have to be brilliant? Nope.
3) They’re Not Geniuses But They Have A Strong Work Ethic
We’ve all heard the old saying, “If you’re so smart, why aren’t you rich?” What was the average college GPA of an American millionaire?
2.9 out of 4.0.
(Not a lot of Phi Beta Kappa keys jangling around here, folks.)
Few were ever called intellectually gifted and many were explicitly told they didn’t have what it takes for medical school, law school or MBA school.
But what most people don’t know is that GPA is a very poor predictor of success.
Via The Millionaire Mind:
I find no substantial statistical correlation between the economic-productivity factors (net worth and income) and SATs, class rank in college, and grade performance in college…
And this may be part of the reason they’re so successful as entrepreneurs: “smarter” people are less likely to take such risks.
Via The Millionaire Mind:
Overall, there is an inverse relationship between taking financial risk and various measures of analytical intelligence such as SAT scores.
And maybe this is why former drug dealers are more likely to start businesses.
…people who dealt drugs as teenagers are between 11 and 21 percent more likely than other people to start their own businesses in adulthood. And their higher rate of self-employment isn’t the result of wealth accumulated dealing drugs, greater likelihood of having a criminal record, or lower wages.
In entrepreneurship, you’re the boss. So it requires leadership. And some research shows being super-smart actually makes you worse at being a leader.
Cognitive ability tests have been notoriously poor predictors of leadership performance…. Leader intelligence under certain conditions correlates negatively with performance.
(Though research shows if you want to be a successful terrorist, definitely study hard in school.)
But future millionaires do work hard. When asked what their teachers did compliment them on, what was the most common response?
“Most dependable.”
When asked what they did learn in college, 94% replied “a strong work ethic.” And research shows self-discipline trumps IQ when it comes to success.
(To see the type of schedule successful people follow every day, clickhere.)
So we know how they bring their money in. Is there another part to the equation? Yeah. Don’t let that money out.
4) They’re Cheap
When the authors of The Millionaire Mind interviewed the wealthy, they didn’t want them to feel uncomfortable.
So they rented a penthouse in Manhattan, loaded it with four types of pâté, three kinds of caviar and plenty of fine wine.
The millionaires arrived… and felt completely out of place. All they ate were the gourmet crackers.
When offered the fancy wine one interviewee said he only drank two types of beer: free and Budweiser.
The researchers were stunned. They quickly realized the media images we see of millionaires aren’t representative.
Expect a millionaire to be a fancy dresser? 50% have never paid over $399 for a suit. (10% had never paid $195.)
In fact, if you do see someone wearing a $1000 suit, it’s more likely they’re not a millionaire.
For every millionaire who owns a $1,000 suit, there are at least six owners who have annual incomes in the $50,000 to $200,000 range but who are not millionaires.
Fancy car? More than half have never paid over $30,000 for a car.See someone in a Mercedes? They are probably not a millionaire.
…approximately 70,000 Mercedes were sold in this country last year. This translates into about one-half of 1 percent of the more than fourteen million motor vehicles sold. At the same time, there were nearly 3.5 million millionaire households. What does this tell us? It suggests that the members of most wealthy households don’t drive luxury imports. The fact is that two out of three purchasers or leasers of foreign luxury motor vehicles in this country are not millionaires.
Most millionaires live a lot more like you and me than Jay Z, Elon Musk or Donald Trump.
They’re thrifty, not very materialistic, and they think a great deal about how much they spend.
There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one’s financial future.
And the more materialistic people are, the less satisfied they are with their lives.
Among participants in one study, those whose values were the most materialistic rated their lives as the least satisfying. – Ryan and Dziurawiec 2001
Research shows people are better with their money when they think long term. Experts say you should have a system.
Are you as money-conscious as a millionaire? Most millionaires answer “yes” to these four questions. Can you?
- Does your household operate on an annual budget?
- Do you know how much your family spends each year on food, clothing and shelter?
- Do you have a clearly defined set of daily, weekly, monthly, annual and lifetime goals?
- Do you spend a lot of time planning your financial future?
(For more on research-backed ways to spend your money so it increases your happiness, click here.)
So it’s clear how millionaires make their money. But what should we take away from all of this?
Sum Up
Being a millionaire must be nice. But we won’t all get there. And that’s okay. Money isn’t everything.
So even if you don’t get rich, what lessons can we all learn from millionaires?
- Take control of your life as best you can.
- Plan and be strategic, whatever your career might be.
- Work hard.
- Watch your money.
That’s advice anyone can follow and everyone can benefit from.
This piece originally appeared on Barking Up the Wrong Tree.
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