Thinking Your Way to Wealth: Lessons from America’s Millionaires

Contrary to popular perception, America’s millionaires are surprisingly ordinary and got where they are through hard work. Some 80 percent of our nation’s financially successful individuals are first generation millionaires. They weren’t born rich but applied themselves to a career and tapped into tried-and-true values like thrift and discipline saving.

Learning from them:

They think long term. Establish long-term goals and adjust daily behavior to achieve them. Overcome the need for immediate gratification.

They’re not afraid to take chances. The rich are willing to take risks that don’t involve a guarantee (like a paycheck). Self-employed people are four times more likely to be millionaires than employees.

They live below their means.  Most millionaires don’t drive fancy cars or live in million-dollar homes. They understand they won’t get rich by spending every dollar they make (or spending money they have yet to make!).

They save. They are generally fastidious savers, socking away, on average, 20 percent of their annual income.

They invest wisely. They seek advice from investment professionals, and choose high-quality stocks or mutual funds.

They’re “tax-smart.” The wealthy know income from dividends is taxed at 15 percent for long-term gains, while middle-class wages are taxed at 25 percent.

3 Steps to Wealth

1. Set goals. Compose a basic plan that includes current net worth and debt-to-income ratio. Map out a monthly budget and plan for regular saving and investing.
2. Spend cautiously. Consider investing any extra income instead of spending it. Be wary of debt. Avoid using credit cards.
3. Save often. Consider automatic deposits in your savings account each pay period (10 percent is a good place to start). Educate yourself about investing.

— This article was originally published in the June 2010 issue of AAA magazine