How To Lead a Rich Life

If You've Got It, Don't Flaunt It

Why It's Smart to Live Below Your Means

Robin Leach, you might want to sit down for this. Thomas J. Stanley, coauthor of the blockbuster book, The Millionaire Next Door (Longstreet Press, 1996), author of The Millionaire Mind (Andrews McMeel Publishing, 2000), and the top authority on America's truly wealthy, has some behind-the-scenes scoop you won't see on TV. The average millionaire lives in a $300,000 house and drives a four-year-old American-made car. No champagne. No chauffeur. Not even a swimming pool.

If the real rich aren't living the lifestyle of the rich and famous, then who is? The people who can't afford it, says Stanley. The classic assumption is that if you look rich, you are rich. But as it turns out, the more you spend on looking rich, the less you're worth. Says Stanley: "The hallmark of the well-adjusted wealthy person is that he lives well below his means. He's truly frugal. He's all cattle and no hat."

The people that Stanley has studied for more than two decades are the true Joe (and Jane) Millionaires. There are more than 5 million households in the United States today with a net worth of $1 million or more. Stanley focuses on the 95% of them with a net worth of $1 million to $25 million. The typical portrait is a 57-year-old man who is married with three children. Most in this group are college graduates. Two-thirds are self-employed (and 75% of those are entrepreneurs). Their average annual household income is $247,000; their average net worth is $3.7 million. Typically, they don't pay more than $24,800 for their cars or more than $399 for a new suit. Most have never spent more than $38 for a haircut.

If Stanley could drill just one lesson into the minds of Americans who want to tap into the mind of the millionaire, it's this: Don't confuse wealth with income. "Too many people put all of their energy and attention into earning and spending," says Stanley. "Wealth is what you accumulate in assets, not what you make or spend." That distinction divides the world into two kinds of people: "wealth accumulators" and "hunter-gatherers." The first are what Stanley calls "balance-sheet wealthy." They're "financially independent because they focus on their assets. The members of the other group think about their income statement. They tend to be high income, low net worth. They often did well in school and got a great job, but they love to spend money. Most of America is income-statement affluent. They judge their worth on what their income can buy, not on what their wealth can provide."

Of course, the crucial difference between wealth accumulators and hunter-gatherers isn't the size of their assets, it's the scope of their freedom. Stanley suggests a simple wake-up call for people who are interested in evolving from the hunter-gatherer lifestyle to the unshackled existence of the truly wealthy: "Sit down and make a calculation. How many more hours on the job will it take for you to be free, for you to support yourself and your family comfortably for 10-plus years without working? How many more minutes commuting? How many more memos? How many more budget meetings will you have to sit through? And then ask yourself, Is it worth my life to continue to do this?"

Stanley knows that the exercise works, because he did it himself. "I taught at a university for 23 years. I gave 3,000 lectures and graded about 9,000 exams. I sat down one day and counted how many more I would have to do: 3,500 more lectures and 9,500 more exams. I was a hunter-gatherer -- even with tenure." That did it for Stanley. He decided to dedicate himself to writing books. "I love it," he says. "When I was still teaching, I used to wake up much earlier and write for 8 to 10 hours a day. Now I just put in three to four hours a day of the very best energy and emotion I can muster, and I find that I work faster and better. I spend more time in traffic than I do writing when I'm working on a book."

Taking that kind of leap is only the first step to financial independence. The path to wealth is also paved with persistence and discipline. "Being a well-educated, high-income earner does not automatically translate into wealth," says Stanley. "It takes real planning and sacrifice." Stanley's advice: Learn to play defense.