“The best thing money can buy is peace of mind, and the way to buy it is to just pay yourself”
There are approximately 19 million millionaires in the United States in 2020. The average age of a millionaire in the US is 62. Only 1% of the millionaires are under the age of 35 (essentially, 190,000 individuals) making them a very rare breed. These statistics prove that most millionaires built their wealth over a significant period of time. On average it took 28 years. In other words, it took doggedness and discipline to become financially successful. While spending on a whim may feel exciting in the moment, looking back at life when old will invariably bring the realization that meaningful wealth has been elusive. There is an abundance of research suggesting that millionaires have a different mindset. That is what this article is about.
One of the world’s longest research experiment was the Stanford marshmallow experiment of the 1960s. If you haven’t read about it, I recommend googling it. In essence, researchers put a marshmallow in front of a kid and left the room with the promise that if the kid waited to eat the marshmallow until they returned, they would receive an additional marshmallow as a reward. However, if they chose not to wait, they were free to eat the one in front of them right away.
The experiment showed an extremely strong correlation between future success and the choice of delayed gratification. The kids that waited to eat the marshmallow for 15 minutes so that they could have 2 marshmallows, went on to become far more successful in their lives and careers than the ones that chose instant gratification.
Becoming financially successful has everything to do with making the deliberate choice of delayed gratification. Leasing that shiny new BMW, the day you get a job that allows you to afford the payments on it, is taking the path of instant gratification and makes true financial success an unlikely pipe dream. Don’t get me wrong. I have nothing against the $50,000 BMW. I am simply saying that it is better to wait until one can buy a $500,000 Rolls Royce and then buy the BMW. To be completely honest however, most people that can buy a Rolls Royce simply don’t see the point. They get more satisfaction from knowing that they can buy it if they want, than actually doing it. Precisely why most millionaires live a pretty ordinary life.
Living beneath your means and making saving a habit allows you to then deploy those savings to work for you. The average millennial millionaire owns 3 properties. They did not buy into the traditional idea of – Get a job, buy a car, buy a house and upgrade each of those things as you make more money. They continue to live the same way for extended periods of time. They save up and deploy these savings create income generating assets. These assets increase income adding more savings that can be subsequently deployed for more income. It is a snowball that needs more snow to keep growing. Most current and future millionaires understand that lifestyle upgrades take away from this snowball and hence delay the gratification of these frivolous upgrades.
If at 25 years of age, you simply started saving and investing $500 every month in the stock market which earned an average 8% rate of return compounded annually, you’d have just over $1 million by the time you are 60. That means, you’d become a millionaire 2 years earlier than the average millionaire in the United States. As you can see, its not difficult. Again, it just takes doggedness and discipline.
Finally, I encourage parents to think about the legacy they plan on leaving for their children. We all know that kids learn what they see. If they see parents being financially shrewd, those are the ideals that become the building blocks of their own financial futures. The converse holds true as well. We all want the best for our children. Why not raise them so that they can become financially self sufficient and independent early in their lives but we can still become capable to leave them a significant inheritance when we reach the end of ours. By changing how we live our life today, we’d be changing the future of our entire progeny. How powerful is that?
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