Millionaires Have Knack For Holding Onto Money

So you got that big promotion and raise. You’re thinking about buying a luxury car. You need to sharpen your wardrobe with some snazzy new suits. Maybe it’s time to move into a bigger house.

There’s something else you should do, says Thomas J. Stanley.

STOP!

Stanley, who has become a millionaire by studying the habits of millionaires, says the key to being rich is holding onto the money. And that means consumption takes a back seat to doggedly cultivating financial security and independence. “The real problem for people that make good or moderate or high incomes that don’t accumulate wealth is they spend money on things that have absolutely no value,” he said.

Stanley said the public image of high-living, ultra-rich moguls distorts the truth about millionaires. The typical U.S. millionaire - there are an estimated 3.5 million of them - has a net worth of $3.7 million, probably owns a small business and doesn’t show many outward signs of being rich, he said.

“The fact is, you don’t have to wear a $5,000 watch, you don’t have to have an expensive car,” Stanley said.

What’s the point of being rich, then?

“It’s not to be a miser. It’s to say to yourself, ‘I do not have to rely on somebody else for 15 or 20 years for my livelihood,”’ he said. “People say it’s dull. You know what’s dull? Dull is waking up each morning and worrying that you might lose your job.”

Stanley has profiled the typical millionaire in a series of books aimed at businesses that seek to identify and attract well-heeled clients.

But his new book, “The Millionaire Next Door,” written with researcher William D. Danko of Albany, N.Y., is directed instead at individuals and families who want to become rich.

The major point of the book, published this month by Longstreet Press, is summed up in one of its chapter titles: “Frugal Frugal Frugal.”

Among that chapter’s findings: After MasterCard and Visa, which also are the most popular credit cards with the general public, the most widely held card among wealthy households is the Sears card. About twice as many millionaires have a Sears card as a Neiman Marcus card, according to Stanley.

Further, the most popular car brand among millionaires is Ford, the authors found.

“For every luxury car buyer that’s a millionaire, there are six that are not millionaires,” Stanley said. “So it’s the higher-income, low-net-worth person that’s driving a luxury car.”

Stanley recalled one millionaire to whom friends planned to give a Rolls Royce for his 65th birthday. The man found out and put a stop to it.

“He said, ‘It’s totally incompatible with my lifestyle.’ What he was saying was: If you have the car, you’ve got to change the house. You change the house … you’ve got to have a rug that’s compatible with it, you’ve got to have the furniture.”

The authors also asked millionaires the highest price they ever paid for a suit. More than half said they’d never spent more than $399.

A large portion of the book is devoted to what the authors call “economic outpatient care,” the showering of financial gifts on the children of wealthy parents.

That’s a trap many otherwise prudent millionaires fall into, Stanley said. For example, according to the authors, 43 percent of millionaires who have grandchildren pay for all or part of their private school tuition.

But the authors’ research found the recipients of “economic outpatient care” end up less affluent than the givers, though they may achieve professional success. The self-restraint that allowed the parents to attain wealth disappears from the children, Stanley said.

“The more ‘outpatient care’ that you give to adult children, the more they spend,” he said. “We asked a lot of millionaires, how did you raise such great kids? They said, ‘We never told them we were wealthy.”’

Stanley, who started his career as a $20,000-a-year assistant professor, has taken his research to heart. Wealthy himself, Stanley favors flannel shirts and loafers. He lives in a handsome, though not opulent, two-story house in suburban Atlanta with a 1993 Camaro and 1994 Ford Explorer in the garage.

“It’s discipline and hard work and focus,” he said. “It’s just like losing weight or exercising. A lot of people know they should do it. They have a room filled with exercise equipment. But they never do it themselves.”

MEMO: This sidebar appeared with the story: Close-up Portrait of a typical millionaire: A 57-year-old man, married with three children. Self-employed. Involved in “dull-normal” business, such as welding contractor, pest controller or paving contractor. Average annual income of $247,000. Average household net worth of $3.7 million. Homeowner, with average property value of $320,000. First-generation affluent. Lives below means, wears inexpensive suits and drives U.S.-made car. Has enough money saved to live about 10 years without working. Attended public school, but children attend private schools. Works 45 to 55 hours a week. Invests about 20 percent of taxable income each year. Source: “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko.