As a certified public accountant (CPA) and certified financial planner (CFP), I've spent much of my career devoted to helping businesses and everyday individuals achieve financial success.
But back in 2004, one of my firm's business clients ran into some serious money problems. During a very emotional meeting, I found myself wondering what steps the client could have taken to bolster his finances, so I started to do some research about what habits help people build sustained wealth.
I devoted five years to my Rich Habits study, studying the lives of members of two groups: 233 people who were millionaires — including 177 who were self-made — and 128 people who were not millionaires. I accumulated over 340 data points from a series of 144 questions posed to each individual.
In my latest book, "Effort-Less Wealth: Smart Money Habits At Every Stage of Your Life," I share details about the four paths to becoming a self-made millionaire, based on what I learned, as well as the smart money habits of the saver-investor millionaires in my study.
These people forged three important habits that can be implemented by just about anyone.
Being frugal does not mean being cheap. Maintaining a frugal budget means spending your money on the lowest-priced but highest-quality product or service available.
A simple step that anyone can do before pulling out their credit card is price compare online. Open up a few tabs and search for the lowest price for the exact same product or service from a number of different retailers. The key to this process is patience, and an understanding of when and where you can find the best deals. Wholesalers, for example, can actually help you save on groceries.
If you rush your purchase, you may miss out on future price drops. Depending on the item or service, there might be lower prices on a seasonal basis, thanks to holiday or clearance sales.
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Implementing this habit means maintaining a standard of living that allows you to live off of 80% or less of your net pay. You can work up to this goal. If you are able to begin saving immediately after graduating high school or college, for example, this savings percentage can be as low as 10%. Time and the power of compounding give saver-investors a significant advantage.
It's never too late to start saving and investing, either. You just may need to make some adjustments depending on where you are in life. As a rule of thumb, every 10 years you delay forging this habit will require an additional 10% savings. For example, if you start saving in your 40s, you'll need to boost your savings rate to 30%. If you're in your 50s, you'll need to save 40%.
For aspiring saver-investor millionaires, accumulating wealth requires that you make a habit of paying yourself first, putting yourself ahead of all of your other monthly bills. This "savings first" or "paying yourself first" strategy creates the funds that you will then invest.
If you don't save, you can't invest. It's a process. But once you make saving a habit, you can then put your savings to work by prudently and consistently investing, so your wealth can grow — even while you sleep.
Identify specific savings priorities and devote a percentage of your savings to each bucket: wedding, first home, emergency fund, college savings, investments, retirement, and so on. And remember that the system is subject to change as your needs and goals evolve.
As I did my research, I was ultimately able to identify four different kinds of millionaires based on the different paths that allow people to make money over time.
The big company climber: The millionaires in my Rich Habits study who worked for publicly held companies accumulated a significant amount of wealth. This path took an average of 21 years to accumulate an average of $3,375,000.
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The virtuoso: These millionaires became experts in their field. This path took an average of 20 years of daily study for knowledge-based or skill-based virtuosos. After that 20-year period, those who followed the virtuoso path in my study had accumulated an average of $3,980,000.
The dreamer-entrepreneur: This is the hardest and most stressful path. You must be able to overcome many obstacles and much rejection to succeed as an entrepreneur. It took an average of 12 years for this group of millionaires in my study to accumulate an average of $7,450,000.
The saver-investor: The millionaires in this group saved 20% or more of their income and prudently invested those savings. This path took an average of 32 years to accumulate an average of $3,260,000.
I've found that this is the route with the fewest barriers to entry — no big investing risks, advanced degrees, or logging long hours at work climbing the ladder required.
A common tool used by the saver-investor millionaires in my Rich Habits study was utilizing the services of financial professionals to develop a plan for their money. Many of them also chose to automate their savings and investments, allowing their investments to appreciate and the interest on those investments to compound over time.
The saver-investor millionaires also predominantly invested in equities or mutual funds for most of their working lives, and as they got closer to retirement, their investments became more conservative in order to protect the wealth they worked so hard to build.
Ultimately, one of my best pieces of advice is to surround yourself with friends who share your smart money habits. Sharing your goals with a community of financially savvy peers will help reinforce your savings and spending habits, and keep you on track.
Tom Corley is a CPA, a certified financial planner and and holds a master's degree in taxation. He is the bestselling and award-winning author of "Rich Kids: How to Raise Our Children to Be Happy and Successful in Life" and "Rich Habits: The Daily Success Habits of Wealthy Individuals."