It’s been more than a quarter century since Stephen Covey’s groundbreaking bestseller, “The 7 Habits of Highly Effective People” set the business world ablaze. In the wake of its publication in 1989, nearly every permutation of the title’s concept has been explored. Success, as psychologist and social scientists like to tell us, is all about emulating the top players. Walk the winner’s walk and talk the winner’s and you’re off to a bright future in any endeavor.
If we can become effective people by imitating other effective people, why not cut to the chase and become wealthy by imitating those who have already amassed fortunes? The logic is sound enough, but as an erstwhile successful and effective Texan by the name of Ross Perot was fond of saying, “The devil is in the details.”
What is it about the behavior of millionaires that we can define and imitate? Are there habits, systems, personality traits or investment techniques that average people can borrow from the book of wealth in order to achieve financial success? Are the wealthy really that much different? Do they know something about Wall Street, economics or human behavior that other people don’t?
It turns out that wealthy people indeed possess a few core habits that set them apart, as well as attitudes and behavior patterns that appear to give them a leg up in the world. Of all those traits, perhaps the single most important one is their ability to create multiple streams of income early in their careers.
What exactly are millionaires?
Every good study begins with definitions, and this one is no exception. What are millionaires? Why is one-million always mentioned as some sort of magic number? And why hasn’t the benchmark changed since the term first came into widespread use in the 1920s?
Think about it. In order to be as well off in 2015 as a literal millionaire was in 1920, today’s tycoon would have to possess $12.4 million. Remember John D. Rockefeller? He was once the wealthiest person in the U.S. In today’s dollars, JD would be worth upwards of $340 billion, yet historians routinely refer to him as a millionaire.
For the record, the first-ever use of the term “millionaire” was by a French writer name of Steven Fentiman. The first use of the work in the United States is thought to be in the 1843 obituary of Pierre Lorillard II, the tobacco mogul.
The essential rules of the millionaire game
Like everything else worth pursuing, there are rules to the creation of wealth. Those who have already reached the pinnacle of success advise that the overall goal should be the creation of multiple income streams. The important thing to note is what should happen before you set out to build a second, third or fourth stream. Here’s the short version of the rules, culled from various economists and wealthy investors:
- Become financially secure and relatively free of debt
- Sit down and compose a list of your personal strengths
- Plan, on paper, your first additional income stream. This entails using your imagination and doing some research. Besides your “day job,” how will you begin to generate income from another source?
- Network via social media and personal interaction with as many acquaintances as possible, discussing your plan and getting feedback from people whose opinions you value.
- Pick a specific day to begin your new project and decide how much time per day you can devote to it. Stick to the schedule and fine tune the plan as time passes.
How to avoid detours on the road to wealth
Building a financial empire is a tricky business, and most new entrants into the endeavor get caught in common traps. Here are the ones you should be on the lookout for:
- Trying to build more than one income stream at a time can instantly strangle your plans. Many people get a small taste of success with a new income stream and then decide to embark on the next project right away, while their head is still in the clouds and they have yet to solidify the first stream. Patience is the watchword here. Wait until one stream is on virtual auto-pilot before delving into the next mission.
- Neglecting your network will stifle success. Entrepreneurs on the road to wealth need to constantly work with their various teams in order to keep the process fresh, healthy and connected. It’s all too easy to let the networking slide after a burst of success.
- Budget your time and money and watch those bottom lines like a hawk. Keeping a close eye on your financial resources and your time will pay huge dividends. Losing track of either one can put an end to your wealth creation journey.
The common traits of millionaires
Millionaires do many of the same things, just as “highly effective people” have common traits. What is the millionaire secret that helped them get wealthy and stay that way? Three percent of the U.S. population falls into the “millionaire” category. Nearly all of them:
- Value education and get as much of it as they can
- Place a high value on their time and avoid wasting it
- Are frugal (not cheapskates) and live within their financial means
- Tend to be innovators and are not afraid to employ new strategies
- Have, or had, a mentor that helped them reach their goals
- Have realistic goals and specific strategies to get to the next step of success
- And, of course, have several sources of income, some passive, others active
The mystery of “multiple income streams”
During the planning phase of your quest to build multiple income streams, you will decide whether those sources will be passive, active or a mixture of the two. There are several categories of income that people consider when creating a wealth plan. Thanks to the IRS (a rarely used phrase, that), each type of income falls into a well-defined section of your tax return. The types of income are:
- Dividend income from any stock that you own: This is the way that many of the wealthy folks back in the early 1900s made, and kept, themselves wealthy.
- Earned income: This is usually the first income stream for most people, and typically consists of their paycheck from an employer.
- Rent and Royalties: If you own property or derive income from selling the rights to use something you’ve written or invented, you will have rent and royalty income.
- Capital gains: If you sell assets (like stocks or bonds) that have increased in value since you purchased them, then you’ll report that increased amount on your tax return as a capital gain.
- Profit: Income from a business that you own is profit, whether you are the sole or part owner of the enterprise.
- Interest: When you lend money and derive income from doing so, you will record interest income. Most of us know this type of income from savings accounts and certificates of deposit that pay us a regular percentage on the principal.
Specifically, what types of income streams to millionaires have?
I asked Chaz and Kriss about themselves and their millionaire buddies. Here are some examples they gave. “On top of their main jobs and businesses, our buddies have these “side income streams:”
- Rental properties – Individual homes, condos, and even large apartment buildings (Monthly income)
- Commercial real estate – both crowdfunded and equity (They have seen buddies clear many millions of profit from buying, renovating, holding, and selling commercial properties.)
- Internet companies (One of their friends bought a company for ~$75k, and is bringing in $7k/month for it. It’ll be paid off in one year and then the rest is “gravy.” Chaz and Kriss have multiple web properties.)
- Franchise businesses (While these take a bit of work, if you get a great manager, the business should be able to “run itself.”)
- Private lending (Nearly all of their rich friends are lending out their money and making great returns.)
- Buying, holding, and selling off art and antiques
- Investments in oil and gas wells
- Exclusive investment opportunities (For example, currently, one of Chaz’s buddies is giving him access to a 30%/yr ROI opportunity that’s been proven for the last 15 years. Kriss is evaluating buying into a business that a trusted executive is giving him exclusive access to.)
What you probably don’t know about millionaires
Yes, they are diligent, frugal and good networkers, but there are a few things about millionaires that you perhaps don’t know. For example, millionaires in the U.S.:
- Say that they get much more satisfaction out of investing and saving their financial resources than they get from spending them.
- Rarely spend money on jewelry and boats. In fact, the most recent data shows that about 94 percent of S. millionaires do not even own a boat and seldom buy jewelry.
- Comprise about 4 percent of the population
- Are mostly working people (80 percent) as opposed to retirees (20 percent)
- Are responsible for 40 percent of all taxes paid to the federal and state governments
- Are primarily self-made, while only about 20 percent inherited their riches
- Tend to be college graduates (80 percent) and own or manage their own businesses
- Numbered just 5,000 in the year 1900. One hundred years later their ranks had grown to 5,000,000.
An ancient, anonymous fable features an old man advising a child: “If you want to be like me, then do what I do.” There is probably no better way to describe the path to financial success. Watch what the achievers do and imitate them. If you want to be a millionaire, that means you will need to create multiple streams of income.