How Do Millionaires Think?

Business philosopher Jim Rohn once wrote,

Becoming a millionaire is not that difficult, but it is not the most important thing. The most important part of becoming a millionaire is the person that you have to become to accumulate a million dollars in the first place.

This is a wonderful insight. In order to become wealthy, you must develop a completely different mindset from the average person who worries about money most of his life. You must develop a completely different character, personality, and set of habits if you are to achieve your financial goals and then hold onto the money.

My financial advisor once told me, "The first millionaire is extremely difficult to acquire, but the second million is almost inevitable."

When you become the kind of person who can earn and accumulate a million dollars or more, you will also be the kind of person who can earn the second and third million as well. Even if something unfortunate happens, and you lose all your money, you could make it back again fairly quickly because you would have become the kind of person who can become a millionaire. And once you become that kind of person, you never lose the ability.

The First Habit of Millionaires

Perhaps the most easily identifiable habit of self-made millionaires is the habit of frugality. Wealthy people are careful with every penny and every dollar. They allocate their funds carefully and with great deliberation. They never buy new when they can buy used. They never buy if they can lease, and they never lease if they can rent. They never rent or lease if your can borrow. They know that, as the English saying goes, "If you take care of your pennies, the pounds will take care of themselves."


Most new cars drop 20 percent in value as soon as you drive them off the lot. After two years, many cars have lost 30 to 50 percent of their value. They are still in excellent condition and often still covered by factory warranties. When you buy a good-quality car, you can save many thousands of dollars, all of which can be invested and allowed to grow at compounded interest toward your ultimate goal of financial independence.

Save your Money

Self-made millionaires develop the habit of regular saving and investment from an early age. As multimillionaire W. Clement Stone once wrote, "If you cannot save money, the seeds of greatness are not in you."

George Classon, in his best seller, The Richest Man in Babylon (Signet reissue, 2002), wrote that the key to financial success is to "pay yourself first." He recommends that you save at least 10 percent of your income, off the top, before any expenditure, for the entirety of your working life.

Human beings are creatures of habit. We very quickly adapt to almost any external condition or circumstance. If you save 10 percent off the top of your paycheck and discipline yourself to live on the other 90 percent, you will soon adjust your lifestyle downward slightly so that you are quite comfortable on the lesser amount. In no time at all, living at this level becomes a habit, and you stop thinking about it.

Many people are deeply in debt, and the idea of saving 10 percent of their income, off the top of each paycheck, is too difficult for them even to consider. In this case, which is quite common, I recommend a gradual process where you begin by saving 1 percent of your income and living on the other 99 percent.

For example, if you are earning $2,000 a month, make a decision today to save $20 a month, or 67 cents per day. You can then live on the other $1,980.

Go down to the bank and open up a separate account, your "financial independence" account. Money that goes into this account flows only one way - inward. Once you put money into this savings / investment account, you never, ever take it out or spend it for any reason. It has only one purpose: to enable you to achieve financial independence as soon as possible.

Once you become comfortable living on 99 percent of your income, increase your monthly savings rate to 2 percent off the top. Within one year, you will find yourself living quite comfortably on 10 percent of your current income. Continue this process until you are saving 15 percent and then 20 percent of your income, off the top. You will not even notice the different in your standard of living because it will be so gradual. But the difference in your financial life will be absolutely extraordinary.

Financial Planning Lessons From The Olympics

"Focus, discipline, hard work, goal setting and, of course, the thrill of finally achieving your goals. These are all lessons in life." -Kristi Yamaguchi, gold medallist in figure skating in 1992

The Olympics are with us again! It's that time every four years where we stay up late (or get up early) to watch some of the best sportsmen and women compete against each other across a range of different sports.

I don't know about you, but I always seem to end up watching some obscure sports that I usually have no interest in, just because "it's the Olympics"!

As I was watching the swimming a few nights ago, I began to think about how the Olympic athletes can teach us some valuable lessons about finance.

Training and Preparation - most athletes have spent years training for their events. They didn't wake up one morning magically transformed into an Olympian. It took time. It's similar with your financial plan - changes won't instantly happen, but instead you'll begin to see gradual improvement over time. You need to be patient, but still put in the hard work.

Sacrifice - I'm glad my sons don't want to be swimmers because I'm not sure I could cope with the early morning training sessions! But every athlete has had to make sacrifices in the short term in order to excel. When it comes to money, there's no such thing as a free lunch. You need to make sacrifices in the short term in order to be better off in the longer term.

Having Clear Goals - Top athletes and sportspeople have very clear goals. Their training is structured to give them the best chance of achieving those goals. We can all learn from their example. In my experience the number one reason people don't save for their future is that they don't have any clearly defined goals to work towards. One of the most effective things you can do today is spend ten minutes writing out a list of goals you'd like to achieve.

Practicing the Right Things - Just practicing a particular sport doesn't guarantee you'll get better at it. You may be practising the wrong thing! This is why sportsmen and women all over the world seek out and learn from the best coaches. When it comes to finances, it's possible to be doing the wrong things and not know about it until it's too late. Are there better ways to save for your future? Possibly? But you won't know unless you seek out an expert.

Enjoy the Moment - I can't even begin to imagine what it must feel like to compete in an Olympic event. But from what I've seen on TV and read, it's an amazing experience. Many athletes say that it's a bit of a blur, and you need to make a conscious effort to acknowledge where you are and to enjoy the experience. Our lives are like this. We can get so busy and focussed on doing things that we forget to enjoy the moment. It's got nothing to do with money - it's all about being present and enjoying your life for what it is, not what you want it to be.


Achieve Your Personal Best - Why would you bother swimming 100m if you can't do it as fast as Michael Phelps? Because for 99% of swimmers, beating Michael Phelps isn't the goal. The goal is to be the best swimmer they can be, based on their bodies, fitness and level of training.

This is especially true when it comes to money. We need to stop measuring ourselves against other people, and start doing the best that we can with the resources we have.

We're all at different stages of life and everyone has a unique financial story to tell. The key is to manage what you have to the best of your ability. In order to do this you may need to invest a bit of time into learning more about your options and you may even need to make some small sacrifices today so that you don't need to make big sacrifices later.

The End Game - Making A Difference

When you're 90 years old and look back on your life, you'll probably want to feel like you've made a difference.

I'm sure there are things in life that you want to experience and achieve, both for your own benefit and the benefit of others. I'm sure you want to have that feeling long after you're gone from this earth, that bits of you live on in the form of knowledge or experiences or memories that are passed on to others.

Do You Know How to Play the Numbers Game?

When it comes to the financial world, the ideal is to succeed. But sometimes navigating your way through the financial world can be like walking on a tightrope, with a very thin line between failure and success. And like walking along the tightrope, your chances of success are affected by the levels of risk involved in every stage of the game. But what does risk really mean in the world of personal finance, and how easy is it to understand?

In terms of investments, the way that risk is presented often affects the way it is perceived. For example, when preparing financial plans, I look at the client's chances of success (i.e., dying with an estate worth X amount). If the chances of success are low, I look at factors that the client can control in order to increase his chances (i.e., increasing savings, decreasing spending, retiring later, etc.). If the plan shows high chances of success, I look at the factors that could be changed in order to improve the person's current lifestyle without harming anticipated future success.

What is a "high" or "low" chance of success? Unfortunately, there is no magic number. People's judgments about risk are subjective. One 50-year-old might be satisfied with hearing that he has an 80% chance of success, while another person might not sleep well at night until his odds of success have increased.

Which is riskier?

If I tell someone that he has an 80% chance of meeting his retirement goals, it may sound pretty encouraging. In fact, clients are frequently happy to continue with that status quo. However, in "real" terms, 80% translates to one in five people in similar situations where the clients outlive their money. I certainly wouldn't want to be that one!

People may not be enthusiastic about receiving 5% returns when inflation is 3%. But the same investor may be happy to get a 7% return when inflation is 5%. While both are receiving the same 2% real return, the second scenario seems like a better deal because the numbers are higher.

Don't let numbers lie

Don't be lured into a false sense of complacency just because a statistical simulation gives you X% chance of success in your financial plan. Think about the number that you feel you need to achieve in terms of odds of success. Before you accept a percentage of chance of success, ask yourself if this grade is really appropriate in your particular case. Remember - even if the market fluctuates, you play a large part in determining your financial success.