Becoming a millionaire is rarely something that happens overnight unless of course, you happen to inherit a sh*t ton of money or win the lottery.

For the argument sake, let's assume that's not you and you wish to be a self-made millionaire. How, might you ask? It's actually fairly straight forward, intuitive, but boring and slow.

Thomas J. Stanley spent 20 years studying american millionaires and patterns in their habbit. The result of his research is the bestselling book, The Millionaire Next Door. This is a condensed version of the book's ideas.

Think long term

As already stated, this sort of thing doesn't happen over night. You need to think long term. Compound interest is king and you have to make it work for you.

Warren Buffet is amongst the richest in the world and is famous for harnessing the power of compound interest. It didn't happen overnight, but over decades. Here's a basic overview of his net-worth over the years:

  • $20,000 by age 20
  • $1 million by age 30
  • $25 million by age 40
  • $35o million by age 50
  • $3.8 billion by age 60
  • $36 billion by age 70
  • $55 billion by age 80
  • Today’s he’s 86 years old and worth $73 billion

I'm not saying you can do the same or should aim for it. I don't think it'd be possible to replicate Buffets result today as a lot of factors has played in.

Most experts on wealth agree that the earlier one starts investing one’s income, the greater the opportunity to accumulate wealth.

— Thomas J. Stanley

Start investing today, let compound interest work for you and not against you and think long term.

Live below your means

Twenty years ago we began studying how people became wealthy. Initially, we did it just as you might imagine, by surveying people in so-called upscale neighborhoods across the country. In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.

— Thomas J. Stanley

Frugality is probably one of the most important things in becoming a millionaire and it starts before you become one. Thomas noticed that a lot of millionaires live on something like 10% of their income.

I'm not saying you should too. I wouldn't be able to. But the less you spend, the more you can invest.

It also means that as you get promoted and earn more, your spending shouldn't increase (at least not by much), thus allowing you to invest even more and having compound interest working even more in your favor.

It's not about displaying status

Are you jealous of the people driving around luxury cars? Me too! But did you know that 45% of people with fancy cars are leasing? Most people with fancy cars can't even afford them. It's all about an unnecessary display of status.

But the lavish lifestyle sells TV time and newspapers. All too often young people are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.”

— Thomas J. Stanley

Warren Buffet still lives in the same home be bought back in 1958 and Mark Zuckerberg still drives around in a manual transmission Volkswagen hatchback.

Stop trying to appear wealthy. It's much better to actually be it instead.

Allocate resources to building wealth

On average, millionaires spend significantly more hours per month studying and planning their future investment decisions, as well as managing their current investments, than high-income nonmillionaires.

— Thomas J. Stanley

An often cited method of becoming rich is "Earn more. Spend less. Invest the difference". You can't ask your boss for a raise every day, nor can you switch job every month to get a larger paycheck. At some point, you can't cut your spending much more.

At that point, you should study, study and study some more. Invest your time in learning and studying how to invest your money more intelligently or educate yourself so you become qualified to ask for another raise.

Have multiple sources of income

This is the hardest for most people and depending on which industry you're in, the difficulty varies.

Like portfolio diversification, having multiple sources of income reduces risk.

What is risk? Having one source of income. Employees are at risk. They have a single source of income. What about the entrepreneur who sells janitorial services to your employers? He has hundreds and hundreds of customers… hundreds and hundreds of sources of income.

— Thomas J. Stanley

Having multiple sources of income might not only reduce your risk but may also increase your confidence and let you take chances.

Not relying on your monthly salary may allow you to be more ballsy at work, even though you haven't reached financial independence yet.

Examples of sources of income:

  1. Earned income (salary)
  2. Profit income (business profit)
  3. Rental income (real estate)
  4. Royalty/patents income (depending on your business)
  5. Dividend (4% every year on average in index funds)
  6. Interest (lending money to someone else)

Your partner

Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth if one of its members is a hyperconsumer. This is especially true when one or both are trying to build a successful business.

— Thomas J. Stanley

You're the average of the five people you spend the most time with. You've no doubly heard the famous phrase from Jim Rohn.

I'm betting your partner is one of those five, and if he/she is a hyper-consumer while you try to accumulate wealth, it's gonna take you a bit of extra time.