The Personal Finance Podcast - The 80/20 Millionaire: The Few Habits That Create Most Millionaires

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Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, the 80-20 millionaire, how a few habits can create most millionaires. What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.com. And today on the Personal Finance Podcast, we're going to be talking about the 80-20 millionaire. If you guys have any questions, make sure you join the Master Money newsletter by going to MasterMoney.com slash newsletter. And don't forget to follow us on Spotify, Apple Podcasts, YouTube or whatever podcast player, you love listening to this podcast on it. If you want to help out the show, consider leaving a five-star

Starting point is 00:01:57 rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now today, you know your boy is pumped because we are going to be talking about things that millionaire is doing. I love talking about millionaire habits because there are some very common themes that we can find when it comes to into what true, real millionaires do. And so the goal for this episode today is what I wanted to do is I wanted to find a way to figure out, okay, if we looked at millionaires, what are the things that millionaires do that really is 20% of the effort that creates 80% of the results? This is going to be one of those lessons where if you just do the 20% of those things

Starting point is 00:02:39 that are out there that most millionaires do, it will create 80% of the results for you to become a millionaire. And overall, we are being thrown so many things at us when it comes to finance. The world is full of noise when it comes to financial products. You may be seeing people say, oh, life insurance is an investment. Go and buy an annuity. Go out there and buy these different mutual funds. Go and buy individual stocks.

Starting point is 00:03:02 Go buy dividend stocks. And you have no idea what the heck people are even talking about or where to even turn. Well, my friends, today we're going to be talking about what the 80-20 millionaire does. they focus on the 20% of things that will actually result in 80% or more of the results. And we're going to back this episode up by a lot of different statistics. So we dove deep into different millionaire studies to show you, hey, this is what true millionaires do. And so we want to go dig in and find those specific things.

Starting point is 00:03:32 So I am really pumped for this episode. I hope you get a ton of value out of this episode as well. And if you want our free guide to the 80-20 millionaire, we're going to link that up down below in the show notes. So make sure that you check that out. We have a free guide that you can do. Just click that link below, and we will send the 80-20 millionaire guide to you. Because these small set of behaviors are going to explain the majority of millionaire outcomes.

Starting point is 00:03:54 So if that's something you're into, let's get into it. So number one is I want to make sure that we all understand one of the biggest myths that is out there with millionaires. And there's the myth of inheritance. So a lot of people will say, oh, most people became millionaires because they inherit. a bunch of money or they won the lottery. That's how they became millionaires. That's the broke mindset. That's what broke people think. Because here's the statistic. 80% of millionaires are self-made. And this came from multiple different studies that found this. Ramsey Solutions did a study. One of the largest studies of millionaires of all time.

Starting point is 00:04:29 And it said that 80% of millionaires are self-made. There was a national study of millionaires that found that 80% of millionaires are self-made. Northwestern Mutual did a 2004 planning and progress study that found that 79% of the millionaires. studied were self-made. This comes up over and over and over again. Now, this is a beautiful stat. Why is this a beautiful stat? Because that means anybody in this world can build wealth. If 80% of the people who were millionaires became millionaires on their own, what's stopping you? You can do it too. I know you can do it too. And that is the entire motivation and goal. And this is why we're talking about this at the top of the show, because I want you to understand

Starting point is 00:05:06 that you can do this too. You just need to make sure that you have the right habits in place. only 11% of millionaires primarily inherited their wealth. So that means 89% of them, the primary reason why they became millionaires was not an inheritance. Okay? Just 3% according to Ramsey Solutions inherited more than $1 million. That, my friends, is some of the most reassuring stats that you could ever have. Now, 80% of millionaires grew up in families that were middle class or poorer and not wealthy. And so this is showing.

Starting point is 00:05:42 you, okay, a lot of millionaires did not come from wealth. They did not inherit their wealth and only a extremely small portion inherited more than $1 million. This means million don't start with a trust fund. They don't start with someone handing them a family business. They don't start with a safety net. Instead, they began in ordinary circumstances, just like you and I did, and built wealth through consistent financial behavior. So I want you to take some action steps based on this data. I want you to take some action steps based on what you just found out. because I don't want you to wait for an inheritance. I don't want you to wait for a handout.

Starting point is 00:06:15 I want you to focus on those things that you can control. So plan your wealth as if nothing else is coming. Nobody's going to come and save you. The only person that is going to save you is yourself. So what you need to do is say, I'm going to do this for myself, I'm going to do this for my family, I'm going to do this for my kids,

Starting point is 00:06:32 and I'm going to become a multimillionaire. One of our goals that Master Money Academy is to create a million millionaires. Why? Because we believe every single person in this world can do it. and I believe you can do it, which is why we're talking through this. Now, focus on the levers that you can control is number two. I want you to focus on saving.

Starting point is 00:06:48 I want you to focus on investing. I want you to focus on career goals. And I want you to focus on debt management. We're going to talk about statistics around all those different areas coming up here in a second, but I want you to focus on those major areas that you can control. Also, I want you to teach your kids about this stuff. A lot of people who are listening have kids. A lot of people in Master Money Academy have kids.

Starting point is 00:07:09 And I want you to teach your kids financial independence. instead of expecting to just pass on wealth and handing them money. Why? Because it shows right here that doing it yourself is going to be one of the most rewarding things. And statistically, most people who inherit money, they blow it by the third generation. So we want to make sure that first we are teaching our kids how to manage money. So if you have kids making sure that you have a plan in place to teach them how to manage money so that when you do pass on wealth, if you decide to do so, then they know actually how to handle those dollars.

Starting point is 00:07:41 Next, where do millionaires invest? This is the biggest question that I think a lot of people have because they want to learn how to grow their wealth. They want to understand where those dollars need to be going. Do I need to be buying businesses? Do I need to be buying annuities? Do I need to be buying all these different things? Or can I build wealth just at my nine to five? Well, that's a great question because eight out of 10 millionaires invested in their employers 401k during their working life according to Ramsey Solutions. And about 75% also invest outside through IRAs and a tax taxable brokerage account, my friends, why do you think all the time we really harp on making sure that you try to max out those retirement accounts? The reason for this is because the data shows

Starting point is 00:08:21 that most people out there who actually build wealth over time do so in retirement accounts. Why? Because the tax benefits are so spectacular. But in addition, this is a great place to just force yourself to save your dollars so that over time you can reap the benefits of compound interest and grow your wealth. Now, 75% say consistent long-term investing was the single biggest driver of wealth. So you've heard me talk about this a ton of different times. We here at Master Money in the Personal Finance Podcast, we are long-term investors. We do not day trade.

Starting point is 00:08:52 We do not get in and out of stocks. We buy things and we hold them for decades. That is the mantra that we harp on here. If you're a short-term investor, I'm just going to tell you right now, our performance is going to beat you in the future. Why? Because we stick with what the market does. And investor emotions will not.

Starting point is 00:09:10 outperform the market. In fact, 90% of professional money managers do not outperform the market year and year out. And of the 10% that do, they are not the same year in and year out. They have Harvard graduates. They have Yale graduates. They have Princeton graduates, all working for them. And they still can outperform the market. Why do you think that you can as an individual? Why? Because you definitely can't. And so overall, it is best for most situations to make sure that you are investing in things like low-cost index funds. Now, 90% of millionaires own their primary residence. This is a very interesting statistic. And 20% own additional investment properties such as rentals or vacation homes. So I think you hear a lot of people say real estate has made most people millionaires.

Starting point is 00:09:52 And it has because of primary residences. A lot of folks who have a net worth of a million dollars, especially early on, have equity in their homes. Now, you have heard me talk about this a number of different times. A home typically is not the best investment. But if you are going to live somewhere, buying a home could be the best investment if you run the numbers. You need to run total cost of ownership before you ever buy a house where a lot of people will say to you, hey, I am going to go and buy a house because it is a fantastic investment. Well, if you look at the historical data, you may think that. It's ingrained in your brain, but you got to go look at the data. And typically, the data shows that at home appreciates right around 3% every single year after you factor in total

Starting point is 00:10:30 cost of ownership and everything else associated with that house. So maintenance, repairs, capital expenditures, upkeep, all those different things are going to be. really, really important to factor in. We have something called the total cost of ownership calculator. So if you go to mastermoney.com slash resources, we have a total cost of ownership calculator. It will take you step by step on how to calculate total cost of ownership for a house. But when you start to get to that point in time where you want to buy a home, it is very

Starting point is 00:10:56 beneficial to own that home because it's going to build up equity over time if you own that home for long periods. Now, it doesn't always make sense to buy a house. In fact, the time I'm recording this, we are in a time where it does not. make sense in most areas to buy a house when you run the numbers. But when the time comes where it does make sense, that's where you pounce on those opportunities and you can own your own home. In fact, this shows right here. 90% of millionaires own their primary residence and 20% own own additional investment property. So if you think, ah, I'm not buying real estate. How am I going to

Starting point is 00:11:24 become a millionaire if I don't even own real estate? You're going to hear people on social media. They're going to be leaning on a Ferrari or a Lamborghini and they're going to say, you need to own real estate 401ks or a scam or Roth ARAs or a scam. Guess what? Those folks are trying to sell you a course. I have a lot of rental real estate in the past. And let me just tell you right now, it is not a passive endeavor whatsoever. It is something that you are going to actively have to work at in order to make sure that you can become profitable with those properties. And so it is a great thing to own. I love real estate as an asset class. I love how real estate can produce cash flow. I love the tax benefits. I love the appreciation benefits long term. And I'm talking ultra long term. But in the short run,

Starting point is 00:12:02 don't feel like you have to own real estate to become a millionaire because you don't. Now, one thing I want to note also is where millionaires invest is if you go and read that Ramsey study that he did, and it was the largest millionaire study ever, not one millionaire credit single stock picking, day trading, or timing the market for their success. Not one single person. And they surveyed over 10,000 different millionaires and not a single one attributed that to their success. What does that tell you?

Starting point is 00:12:29 is that you see all these people coming up and they're running ads for their day trading course or they're running ads for their stock picking courses. My friends, don't fall prey to this stuff. This is the stuff that's going to get you into trouble and instead we need to make sure that we are focusing on the things that are historically proven to work. So millionaires build wealth by using tax advantage accounts. They do this by investing in real estate. They do this by looking at index funds and they do this by doing the boring stuff. Long term investing over long term time. horizons. Boring builds wealth when it comes to investing. And you need to understand that. And I'm going to say this over and over and over again. Boring builds wealth. So what are some

Starting point is 00:13:10 action steps you should take based on this information? Well, one is I would look at your company's 401k, making sure you get that 401k match, then you can go to the Roth IRA, then back to the 401k once those are all maxed out. And then beyond that, going to your taxable brokerage account as well. Another thing I would do is prioritize low cost index funds like the S&P 500 or the total market index fund. There are low cost index funds out there, a ton of them that are absolutely fantastic, and the market has really shifted to index funds and ETFs, which I absolutely love because they keep your costs low. Morningstar just did a study, and they came out to see what was the biggest factor to long-term market success. And the long-term market success that they

Starting point is 00:13:48 found was keeping investment fees low. That was the number one factor to success, according to Morning Star, which is a really, really important statistic to understand. Now, if you're new to index funds or ETS. We have a course called Index Fund Pro if you go to mastermoney.co slash courses or if you join Master Money Academy, it's actually in Master Money Academy there. Now, the next thing is to consider homeownership as a long-term asset builder, but only if you're financially ready. Again, you need to run the numbers on total cost of ownership. And when the time comes where it makes sense to buy a home, then that's the time to pounce and buy a home. I think homeownership is fantastic. I've owned a home for a very long time, but the numbers made sense. If I was looking at buying a home

Starting point is 00:14:26 at this point in time right now where interest rates are really high and affordability is at an all time low and there's a lot of sellers having to sit on the market because affordability is so terrible, I probably wouldn't even consider it. I'd probably consider renting because I've run the numbers before on total cost of ownership and our calculator will do this for you. It will tell you, well, does it make more sense to rent or doesn't make more sense to buy? And that is one of the best things that you can do. Again, mastermoney.com slash resources, go run those numbers. But once it's time to buy, buy a house that you want to live in for longer period of time and hold it for a long period of time. That's the way to go when it

Starting point is 00:14:59 comes to home buying. So next, we're going to look at the professions of millionaires to see, are they all doctors and lawyers? Or what do they actually look like? All right. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster. Your post jumps up to the top of the page, making sure it reaches the right candidates. And it makes a huge difference. Sponsored jobs on Indeed get 45% more applications than non-sponsored ones. And there's no need to wait any longer.

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Starting point is 00:17:35 engineers always at the top of that list, that is something that I think is a really telling indicator. Number two was an accountant, so a CPA. So those two were like, yeah, I can see that. I mean, those are folks who understand numbers. They understand systems and processes and they understand how to make sure that they keep a good portion of their income so they can invest in long term. So those two you completely understand. Here's where it gets fun. Number three is teacher. Teacher was number three on all the professions.

Starting point is 00:18:00 So there was a book that came out called The Millionaire Teacher, and this guy wrote this book talking about exactly how he actually became a millionaire because of a teacher. Steven Chen, if you've ever seen him call to leap, I think is his social or Instagram handle. He is a multimillionaire teacher that now teaches personal finance. There's a ton of teachers out there who have built a tremendous amount of wealth on a low salary. And these are really good examples of people who honestly are just really good at saving money and figuring out ways to save small amounts of money over time that are going to grow to very large amounts of money. Number four is manager. So a manager, a middle level manager at a corporate job was number four.

Starting point is 00:18:36 And then number five is attorney. So those are the top five. You don't see doctors on this list, which is absolutely fascinating to me. But those are the top five. Now, only 15% held executive roles such as a VP or a CEO. So if you have this preconceived notion that you need to be a vice president at your company or you need to be a CEO, only 15% of them held those roles. One in three never earned six figures in a single year of work. So 33% according to Ramsey Solutions never earned six figures ever.

Starting point is 00:19:04 And only 31% average more than $100,000 per year during their careers. That, my friends, is a really telling stat because you can build wealth even if you don't make $100,000 per year. I think a lot of us out there, we think we need to make $100,000. dollars per year or else, but a lot of folks never made $100,000 per year. Now, sure, the argument coming back would be these people work during a time where you didn't need to make $100,000 per year yet, and that may be true. But I want you to stop those limiting beliefs and understand that you can build wealth even on smaller amounts of money. Now, 88% were college graduates. That's a very telling stat. And 62% attended state schools, only 8% from elite private colleges. So if you think I need

Starting point is 00:19:45 to go to this elite private college in order to be able to become a millionaire. That is absolutely not true. But 88% were college graduates. So that is somewhat telling in terms of that is at least your baseline to help you get a job. So a lot of people will come to me now and say, do you think college is worthless? I will tell them I didn't learn a ton academically in college. Sure, I learned a ton about, how to solve math problems and how to do certain things. But when it came to business, things like that, that I learned in the real world. It was a lot of my own self-education platform and the books that I wanted to read after college. Now, I learned a ton about economic theories, and I learned a ton about theories that didn't work, and they would teach you about that. And then they would teach you about theories

Starting point is 00:20:23 that they think do work. But outside of that, there was just not a ton that I took away from college to put in my pocket. Now, what I did learn from college also was how to live on my own, because when you start to get into the real world and you're 18 years old, you're going to your freshman year of college, all of a sudden, hey, I got this apartment or I've got this dorm and I am living on my own. I got to find my own meals. You know, nobody is there to save you when you're at college. So that's one of those things that I think is really, really important. But people will ask me, do you think my son or daughter needs to go to college? And what I'll say is, well, if they do go to college and they can go at an in-state school, keep the costs low, what happens is they have a baseline

Starting point is 00:20:59 of earnings. Because if you have that college degree, you can at least go out and get a job at a corporate level and have that baseline earnings that you can go out and earn. Whereas, if you don't have a college degree, your options are less limited. So you need to go get a certification as something else. maybe you're an electrician or a plumber or a lift operator. Some of those different types of things needs to happen so that you have a baseline earnings. If you don't have a baseline earnings, then you could be really stressed out if you lose a job and you're going to try to find a new career. You definitely need to make sure that you have that baseline first.

Starting point is 00:21:29 Now, according to the millionaire next door, two thirds of non-retired millionaires are small business owners. And small business owners are four times more likely to be millionaires than employees. Now, this is something in a statistic that I want you to take and think about this for a second. Okay, small business owners obviously can become millionaires, but also there is a lot of small business owners that fail. And so you got to take this with a grain of salt. These are these successful small business owners, but at the same time, we got to make sure that we realize you don't have to be a small business owner to build wealth. Your nine to five has a tremendous amount of benefits, including your 401k plan, including your stock options. I mean, stock options

Starting point is 00:22:06 are in a fantastic way to actually build a tremendous amount of wealth. I've spoken to a lot of people as of late who have built tons of wealth based on their stock options. We did an entire episode with Brian Ferraldi talking about just some of the stock option plans that you have and some of the opportunities that you have available within your company. So what does this all mean for you? Well, you don't need a massive salary. You don't need a C-suite title. You don't need an IEB league degree.

Starting point is 00:22:31 Instead, you need to take action to become a millionaire. So ordinary careers paired with extraordinary financial habits are what are going to get the job done. So don't assume that your modest career path blocks you from building wealth because teachers, engineers and managers become millionaires all the time. Secondarily, if you run a business, prioritize reinvesting some of those profits and protecting your income with retirement contributions. That is very important to make sure that you are doing.

Starting point is 00:22:56 And then pick careers based on alignment and growth opportunities, not just prestige. Then let your money habits do the heavy lifting. So if you have the right money habits, which is what we teach you here, then that can do the heavy lifting based on whatever your career. path is. So these are going to be all opportunities overall that are going to help you tremendously. Okay. Now let's look at the savings habits of millionaires. So among Fidelity's 401k millionaires, the average savings rate is 17% of their income and this includes employer matches. Okay. So Fidelity did a study, looked at this average saving rate, looked at all the millionaires

Starting point is 00:23:28 within their people who had million dollar portfolios, their average savings rate, they came back and stated it was 17% on average. Okay. This is why you say, well, why do you always say the minimum you should be saving is 20% of your income. Well, this is part of the reason. When we look at data, we see, okay, you need to at least save 20% of your income at a bare minimum. We really want you to be at 25 to 30%, but we will get you there at some point in time. But we want you to save 20% of your income at a bare minimum. Why? Because this is the opportunity and the path to become a millionaire. 94% of millionaires live on less than they make, obviously, but that's a study by Ramsey Solutions. You need to make sure that if you're not doing this already, you are living

Starting point is 00:24:07 on less than you make, you are living below your means. 73% have never carried a credit card balance. Wow. So, this shows that most millionaires are financially responsible when it comes to managing their debt. Credit card debt, as I have stated before, is a pants-on-fire emergency. And if you carry a credit card balance, this can cause a real problem in your financial progress. And so you have to make sure that you avoid credit card debt at all costs. If you are in credit card debt, then we need to treat that as an emergency. We will get you out of that credit card debt so we can take care of this and make sure this never happens again 93% occasionally use coupons now you've heard

Starting point is 00:24:43 my take on coupons before i think it's a complete waste of time unless you find you know if you want to go and find 10 dollars off your online shopping really quick when you're checking out that's completely fine but if you're coupon clipping all the time and you're going to the grocery store to save yourself $20 i think it's way too much time spent you can spend that time elsewhere to make a lot more money than just coupon clipping now average monthly dining out spend is about $200 which is far less than the stereotypical rich lifestyle. So a lot of people think, oh, dining out and these lavish lifestyles are spending, you know, $700 on dining out. The average dining out was about $200. Now, I'll tell you something right now. Your boy spends a lot more than $200 every single month dining out, but that was

Starting point is 00:25:22 what the study showed. Now, what does this mean? What this means is that millionaires are disciplined in the way that they save their money. And a lot of them are getting to this millionaire status based on their financial habits. And so for you, I want you to set a goal to save an investment, at least 20% of your income. Now, if you are at the point in time where you're like, I can't save 20% of my income, I can barely save 10% of my income. Well, if you can save 10% of your income, I want you to start to increase that number by 1% every month or every quarter until you can get to 20%. And so slowly increasing that dial is going to help you get to that point in time where you don't have to worry. Number two is automate contributions. So saving happens

Starting point is 00:25:59 before spending. Meaning you want to automatically make your contributions go into your emergency fund and go into your investment accounts before you can even spend those dollars. Always, always, always, pay yourself first. Number three is never carry a credit card balance. This is one of our number one rules here at Master Money is to never ever buy anything with a credit card when you don't already have the cash in your checking account. If you go and do that, you are causing yourself a major problem, even if you're going to get paid in a couple of weeks. I want you to make sure that you never spend a dime on a credit card unless the cash is already in your checking account. Otherwise, you're going to get yourself into trouble. And if you are in credit card debt, let's prioritize that first.

Starting point is 00:26:38 Make sure we get that paid down as fast as we possibly can. Next is keep lifestyle creep in check. So some lifestyle creep is good. I want you spending more money on things that you love. I want you spending more on if you want that brand new car. I want you to be able to buy that. But you need to keep it in check and make sure that your savings rate is also growing when you increase your lifestyle. So what's going to solve this problem? Increasing our income. That is the number one goal. And that is the number one benefit to increasing our income is we can do so much more with our money. Next is the track spending and cut recurring waste. So any unused subscriptions, any excessive dining out where you don't even really care, if you're going out to

Starting point is 00:27:14 lunch every single day with your coworkers, like it's just clockwork and it's just something that you do every single day. And you know you're wasting 20 bucks a day going out to eat. I mean, you literally can't go out to eat anymore for one meal without spending $20. It's crazy. So if you know you're spending $20 every single day, well, hey, that's $100 a week, $400 per month. $400 per month, if you invest those dollars over the course of 35 years, it's going to become a million dollars just so you know. So that is something where it could be a huge, huge difference if you really just cut back some of the excessive stuff, do it once in a while. You know, if you go out to eat every day with their coworkers, do it on Fridays only. You know, do that kind of

Starting point is 00:27:49 stuff where you're making sure that you're cooking at home. It's cheaper. And then over time, you can take those extra dollars and invest them. Your habits are going to dictate what happens in your future. And if you are not disciplined, then you will not be able to build wealth long term. Next, let's talk about some of the myths with millionaires. So cars, this is a big one. What do millionaires drive? Well, 61% of wealthy households earning $250,000 or more, drive Toyotas, Honda's, or Ford's. Luxury cars only account for about 39%. And this is according to Experian Automotive, where they looked at wealthy households and how much, be meaning any household that earns more than $250,000, the majority drove Toyota's, Hondas, and forts. Unbelievable statistic.

Starting point is 00:28:30 education. Sixty-two percent of millionaires went to public state schools and only eight percent went to elite colleges like we talked about. Investing. 83 percent of multimillionaires credit buy and hold investing and 89 percent said plain stocks, bonds, index funds are their main source of wealth. That's according to the U.S. trust of insights on wealth and worth. Lifestyle, many millionaires budget and live modesty in surveys and a majority don't even consider themselves rich according to Northwestern Mutual study. So they surveyed a bunch of millionaires at Northwestern Mutual, asked them, do you feel rich? Even though they had a lot of, a multi-million dollar portfolio, and most of them said they don't feel rich at all.

Starting point is 00:29:04 It's because if you live the same lifestyle that you started with, or you start to increase your lifestyle, even slightly, you had a little bit of lifestyle creep. But you're still kind of living the same. You know, you're doing the things that you enjoy. You're traveling a little bit. You know, you're spending a little eating out here or there. You're working on your hobbies. Everything feels exactly the same.

Starting point is 00:29:23 I remember, like, when you cross that million dollar milestone, sometimes it can feel like a regular old day because nothing in your life is going to change unless you're become financially independent. Now, the day you become financially independent, that's going to change everything for you and you're really going to feel different. But that's what money is there to do. Money is just a tool. And so once you utilize that tool to actually get what you want, which is your time, energy, and freedom back, that is what's going to change your life tremendously. So what does this mean for you? Action steps. Drive reliable cars and driving for longer periods of time. I am not a luxury vehicle person whatsoever. If you like luxury vehicles, more power to

Starting point is 00:29:55 you, go for it. But I am a regular old car kind of guy. And That is just the way I'm going to be long term. I drive a truck and I drive a 2018 truck. I'll probably drive that thing until it completely dies. And that's just the way I like to do it. Now, you may like to do it a different way. That's completely fine. But you've got to make sure that you can actually afford those vehicles

Starting point is 00:30:13 really, really important. Secondly, is I'm a big believer in this, is not overspending on prestige schools. Most millionaires didn't. And I have not seen many people, unless you're like trying to go to Wall Street or something like that and land some big, big jobs. Most people overspend,

Starting point is 00:30:29 college when they go to these prestigious schools. If you're going to a private school and you're spending $70,000 per year, you're likely spending too much money. And overall, the job that you get outside of college is likely not going to pay back quickly enough for a $70,000 per year degree. And so you've got to make sure that you are cautious when you're doing that. I know, I know what it's like to be a senior in high school and say, hey, I'm going to these prestigious colleges, but a lot of times it doesn't matter as much as you think it does. Invest with patience, discipline, and not speculation. So long-term investing is the key and focus on net worth growth, not your appearances. Stop trying to impress people you don't care about. Stop trying to buy that car, that fancy car to impress those other people. If all the cars in the

Starting point is 00:31:08 world had zero logos on them, nobody knew what kind of car you're driving. Would you actually be driving the current car that you have? If nobody else was in the world, what car would you drive? Would you drive the most reliable, the one that's going to get you to point A to point B and the one that's most comfortable and enjoyable to drive? Or would you drive the fanciest car? Next, we're going to talk about the power of simple investing. So I think a lot of people think that millionaires have these complex investment plans, and it's really difficult to figure out, you know, where to put your dollars, and you've got to have all these different funds, and you've got to have all this real estate, you've got to have

Starting point is 00:31:39 all these different small cap stocks and midcap stocks and international stocks and making sure you have this well diversified portfolio. But 80 to 90% of active fund managers underperform index funds, and we've talked about this again over the course of 10 to 15 years. And Morningstar says, expense ratio is the stangle strongest predictor of future fund performance. Low-cost funds outperform high-cost funds. Third, is the average 401k millionaire is 59 years old with 26 years of consistent

Starting point is 00:32:07 contributions according to Fidelity. This is by far one of the most reassuring stats out there. You're going to say to yourself, oh, I'm 32. I feel like I'm behind. Or, oh, I'm 45. I feel like I'm behind. The average 401k millionaire has been consistently investing for 26 years, and they are 59. 59. This is unbelievable because this means the long term always wins. And I want you to make sure that

Starting point is 00:32:34 you get these stats in your brain, my friends, because most of us, as we are on the journey to building wealth, and as we are in this accumulation stage, most of us out there are thinking to ourselves, I just feel like I'm behind. I just feel like I'm not getting there fast enough. The average millionaire is 59. 59 years old. And And so you got to make sure that you know I'm in this thing for the long haul. I'm in this for the long game. I'm not doing this for any short-term gain. This is a long-term thing.

Starting point is 00:33:05 Also, dollar cost averaging, which meaning investing the same amount every month in regular intervals, helps investors buy during highs and lows, smoothing that volatility. So what does this mean for you? This means you don't need to beat the market. You can do regular old, boring investing and invest primarily in broad, low-cost index funds. Two, keep fund vs low. So your financial advisor, if they're charging you in 1 to 2%, you got to make sure that you keep those fund fees low.

Starting point is 00:33:29 Number three, automatic contributions through payroll or bank auto transfers. Four, stay invested during downturns. I mean, the people that jump in and out of these funds or people who panic every time the market has a downturn and start sending me DMs on Instagram or TikTok saying, what do I do? The market is crashing. You don't do anything. You just hang out and know, then over the course of the long term, the market goes in one

Starting point is 00:33:52 direction. And the next is if you want to rebalance, rebalance once or twice a year. You don't have to, but if you want to rebalance, that's kind of the cadence that most people do. I think it's once a year is completely fine. You can even do once every couple of years if you wanted to. The next thing I want to look at is just some shared millionaire traits because there are a lot of other common traits that most millionaires share. So one, the data shows long-term time horizons. So most millionaires built their wealth over the course of 20 to 30 plus years.

Starting point is 00:34:18 Most of them did not get rich quickly. So you see all these people on Instagram or TikTok or social media. or even on podcasts, and they're saying how fast they got rich. They got rich in three years or five years or seven years. And sure, that's a great goal to have. There's nothing wrong with having that goal. But most millionaires got rich over the course of 20 to 30 years and even longer. Most of them, they took their time.

Starting point is 00:34:37 They got rich real slow. They didn't get rich fast. They got rich real slow. And long-term investing will get anybody there. No matter what your income is, as long as you're saving a portion of that income, the longer the time horizon you have, the better off you'll be. You've heard me talk about this with some of our kid investing content. where we talk about, hey, you just start investing

Starting point is 00:34:54 a hundred bucks a month for a baby, and you stop investing at age 18, and you add a couple of bonuses every year during their birthday and Christmas, they're going to have over $7 million in that account. Why do we say that? Because I want to show you how compound interest works. Another cool thing, if you have a multimillion dollar portfolio,

Starting point is 00:35:09 and if you let that portfolio run another couple hundred years, just do this exercise one day. It's because it's really fun to kind of look at this. If you let that portfolio continue to compound over the next couple hundred years, like one to 200 years, that portfolio is going to be worth multibillion, million dollars, just so you know, because compound interest is just working, just this small amounts

Starting point is 00:35:27 of money over time. Time is your greatest asset. And so really, you just need to know long-term time horizons are keys. They also have high savings rates. So we said this again. The average one has 17% savings rate. Having over 20% is going to get you there. They're frugal. So 94% live below their means. They avert debt. 73% never carried a credit card balance. They're diversified. Most hold stocks, bonds, mutual funds, index funds, and that is their main primary holdings in addition to real estate and businesses. They prioritize reducing risk. Now, this is one I think more people need to note is 60% prioritize reducing risk according to U.S. trust. Maybe limiting how much risk they are exposed to is one of the best factors to just make sure you're on track. Risk is going to

Starting point is 00:36:12 throw you off of your path. And if you take on way too much risk, my friends, this can be a huge problem. 78% also goal set and plan. 78% describe themselves as disciplined planners according to Northwestern Mutual. So what does this mean? You need to have a written financial plan because most are planners. You need to make sure that you are utilizing things like insurance to mitigate your risk. So having term life insurance, term, keyword is term life insurance because it's the cheapest. Disability insurance if you rely on your income, umbrella insurance, if you are wealthy, all of these are going to be considerations. By the way, in Master Money Academy, we have an entire section on insurance that tells you exactly what to do and what not to do, all that kind of stuff.

Starting point is 00:36:50 Keep an emergency fund. So we know, based on the 136 method, what we talk about here, your emergency fund ultimately needs to be about six months of expenses. That's going to help you mitigate risk. Diversify once your foundation is in place. So once you have your investment foundation, you're contributing, then you can diversify into real estate. Then you can diversify into small businesses.

Starting point is 00:37:09 But you got to be hitting your retirement number first, then you diversify out. And then track your net worth regularly so you can see if you're on track. So when you strip all of this down, what does the 80-20 millionaire look like? 80% of their results come from 20% of their actions. And the four major habits that you can look at is save aggressively and live below your means, invest consistently in low-cost, diversified funds, avoid consumer debt, and play the long-term with patience and discipline. If you do those four things, you can become an 80-20 millionaire.

Starting point is 00:37:38 Because if you look at all these different studies that come out, they all have the same thing in common. and I want every single one of you to become a millionaire. And if you follow just all the things that we talk about. Again, in Master Money Academy, we have something called the wealth builder's journey. It is the exact steps. There's 25 steps that you go through that show you

Starting point is 00:37:56 and transform your entire lifestyle into what I want you to become, which is a true wealth builder. And so when you go through those steps, you're going to learn, this is the order that I need to go in in order to become wealthy. And if you just follow those steps and set up those processes, we teach you how to automate your money, we teach you how to set up insurances. We teach you how to find your retirement number.

Starting point is 00:38:17 We teach you how to go through every single steps, where to invest, order to invest, all those different things. This, my friends, is where the transformation happens. And I want every single person in there to become a millionaire and learn how to become a millionaire. That is the entire goal. And so Master Money Academy is going to teach you step by step how to do that. So if you're interested in that, it's going to be launching very, very soon. So thank you guys so much for being here. And thank you for investing in yourself. I hope you enjoyed this episode of talking about, millionaires because I love talking about the habits of millionaires and what they do.

Starting point is 00:38:47 If you guys have any questions, please make sure you join the MasterMoney Newsletter by going to MasterMoney.com slash newsletter, and you can respond to any of those newsletter issues that come out and ask your question there. Again, thank you so much for being here and we'll see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Play-Ojo.

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The Personal Finance Podcast - The 80/20 Millionaire: The Few Habits That Create Most Millionaires

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