The Millionaire Mind

A discussion of the book The Millionaire Mind by Dr. Thomas Stanley (Bantam):

I just finished this book and I think I’ll give a copy to each of my kids. It is full of practical advice that, even if you are not a millionaire, is useful. It is not a get rich quick book. In fact it is more of a get rich slow book. Slow and easy. Slow and sure. That’s the message I got from hearing about these folks that have become deca-millionaires (at least $10 million in net worth).

Dr Stanley interprets extensive surveys of over a thousand multi-millionaires. I had a friend once tell me that if you can glean a bit of truth from each book you read or each talk you hear, and implement that truth in your life, then you will be ahead of most people in the game (of life.) Here are a few items that I gleaned from this book.

There are a lot of people who can make money – such high paying specialty jobs such as personal injury lawyers, medical malpractice lawyers, wrongful death lawyers and corporate attorneys. Medical positions such as plastic surgeons and sports medicine physicians are also highly paid. But, according to Stanley, this does not guarantee that you will be wealthy (in the sense of high net worth.) This is because many of these high-paid individuals spend money as soon as they get it. They live the high life while they can, but they don’t save up for tomorrow.

Another type of high income person that has a good chance of becoming a multimillionaire is a small business owner. Millionaires you may run in to every day are your local dry cleaner, the owner of your air conditioner company, your insurance agent or your local flower shop owner. These small business people, if they have been in business for 20 or more years, have had the opportunity to build up a clientele, overcome startup costs, and realize equity growth in their business.

Either of these people might be high net worth individuals, with multimillion dollar worth, or they might be debt heavy and living from month to month. High income does not a millionaire make.

So what’s the difference?

It seems that millionaires make sound choices. All of these descriptions, of course, are for an “average” millionaire – there are always exceptions to every statement. By and large, however, they choose a spouse that will stick with them and support them. They often select a business that is tough to get into and they had startup years that were lean and mean. As they made money, they invested it well. Sure, they had mortgages like the rest of us, but they tended to pay more down, be less in debt, and select property that was under priced (maybe because of a divorce, foreclosure, etc.) They avoided getting over their head in debt. And when they got a loan, it was for something they could handle. Someone once told me that you make money on a house the day you buy it. That’s what they did. Their property was worth something the moment they purchased it, and when it was time to sell they made a ton of cash. And this is indicative of other purchases they make. They don’t like new fancy cars that lose thousands of dollars when you drive them off the lot – they drive 10 year old cars – sure they are nice, but they squeeze all the value they can out of them. Wives may wear designer clothes, but they may have been bought at an upscale used clothing store. They purchase quality furniture and refinish it rather than replacing it every 5 years. In fact, once they buy something of quality – from shoes to sofas, they hold on to it and repair it rather then replace it. These are frugal folks.

Compare that to the guy who makes the same amount of money but spends it foolishly. He (or she) buys the latest hot automobile, lives in a swanky part of town in a house that they can barely make payments on (and they paid a premium price for it.) They buy the latest fashion and every latest gizmo that comes out on the market. Savings is not in their vocabulary. When there is a market downturn, they find themselves unable to make payments on their home. They try a mortgage refinance, but to no avail. Since it’s during a market downturn, the housing market is weak and they have to sell their home at a bargain price. Guess who’s been saving up, and has the cash to afford this deeply discounted house? It is a high net worth millionaire. He buys the property, holds on to it until the market turns around, then sells it to a high roller for a ton of profit.

It seems all of the old Aesop tales and all the clever sayings from Poor Richard were correct. A penny saved is a penny earned – and many of those pennies turn into enough dollars to create a millionaire.

Thus, Stanley describes the mind of the millionaire. A mind that is steady, conservative, not prone to hype, fancy things, or the latest whim. It is a patient mind, willing to wait for an opportunity. It is a mind that thinks through opportunities and spots the ones that have the greatest potential (and then leaps onto them.) It is not an intellectual mind. In fact a millionaire friend of mine told me once that when he graduated college with a “C” average he realized that he’d never make it big in the corporate world, so he started his own business and is now wealthier than most of his classmates. It takes a little bit of stupidity to become a millionaire – yet with the realization that you don’t know everything, that you need help doing lots of things, and so you become a leader, a delegator, someone who has to sell ideas, and someone who is timid enough to realize that he must save up for the future, because someone, someday may find out that he is not as smart as he seems.

© Alan C. Elliott, 2007