It’s a long-held dream for many: $1 million (or more) in the bank and financial freedom from the stress of living pay cheque to pay cheque. But reaching the magic $1m mark is easier said than done. In fact, it takes hard work, discipline, patience and a “millionaire mindset” to change bad spending habits to reach your wealth potential, according to financial experts.
That's not to say it can't be done – the more than 50 million millionaires in the world today are proof of that, according to Credit Suisse's Global Wealth Report 2020.
Just ask Warren Buffett, the centibillionaire chairman of Berkshire Hathaway and one of the world’s most successful investors.
Mr Buffett, 90, made his first $1m at the relatively tender age of 30. It took him another 20 years to hit his first $1 billion thanks to his renowned long-term investment strategy.
Now the world’s seventh-richest person with a fortune of $100.7bn, according to the Bloomberg Billionaires Index, Mr Buffett’s financial success also comes down to his hard work and spendthrift “millionaire mindset”. He still lives in the same house in Omaha that he bought in 1958 for $31,500, pays himself just $100,000 a year, buys breakfast from McDonalds and prefers a cherry Coke to more expensive beverages.
“The millionaire mindset really comes down to having a plan, relentless focus, resilience and discipline,” Stuart Ritchie, director of wealth advice at AES, says.
“These people are growth-oriented and ambitious – they know what they want, how to get it and how to adjust their lifestyles to make it happen.”
We speak to financial experts about their top tips on how to change your mindset and manage your money like a millionaire.
Start with the basics
Financial success hinges on getting the basics right, including calculating what you need to live on for a decent lifestyle and working out what you have left over to invest, Stuart McCulloch, senior executive officer at The Fry Group, says.
“It’s worth engaging with a properly qualified financial adviser whose agenda isn’t based on commission; whose agenda is based on putting together a strategy to work for you,” Mr McCulloch says.
“[This] strategy … gives you flexibility and efficiency to see that money grow. It can become quite addictive, quite a joy, seeing that pot grow bigger and bigger.”
Tip: Record all incomings and outgoings to calculate your needs versus wants and work out how much you can afford to save and invest every month.
Set a goal and stay motivated
There’s a difference between wishing you were a millionaire and actively working towards becoming one, says Soniyaa Punjabi, a life coach and founder of Dubai-based well-being centre Illuminations.
It’s also important to know why you want to become a millionaire, Ms Punjabi says.
“That ‘why’ will help motivate you when you must put in the extra hours at work or make yet another cold call to sell your product. It will keep you focused on your goal and help you take inspired action to achieve it,” she says.
Tip: Set your $1m target and stay motivated to achieve your wealth goal.
Understand what millionaires do differently
People who accumulate wealth tend to be more aware of their money and actively manage it, says Carol Glynn, the founder of Conscious Finance Coaching. This compares with the average saver, who might struggle to find the discipline to budget, save and plan for the future.
“A person who is more ‘millionaire-minded’ will be more conscious of their money, where it is coming from and where it is going – that makes a big difference,” Ms Glynn says.
“Millionaires generally have multiple sources of income and they buy assets with the view to having passive income or other income-generating assets rather than [something] for show.”
Tip: It's important to remain engaged with your money – and knowing exactly how and where it is being invested.
Learn the millionaire mindset
A millionaire mindset is a combination of factors, according to Ms Punjabi. These include having the right beliefs about wealth and leading a disciplined lifestyle of spending, saving and investing wisely. It is also important to remember that self-worth is not tied to your net worth, she says.
“If you are always looking at others with envy because of the money they have and if you constantly pinch pennies from others, you are definitely not thinking with a millionaire mindset,” she says.
“I rarely value anyone based on their wealth. Money can be your greatest asset or your greatest liability.”
People born with a millionaire mindset are in the minority, but it is a discipline that can be learned, Ms Glynn says.
"Mindset is everything, but I think it's definitely something you can learn," she says. "There's a great book called The Millionaire Mindset [by Gerry Robert], which is all about changing your mindset and your feelings towards money."
Tip: Educate yourself on how to change your beliefs about money and start practising a more disciplined lifestyle to achieve your wealth goals.
Try to avoid financial mistakes
Millionaires are more conscious of how expensive a financial mistake can be because they have more money at stake, Mr Ritchie of AES says.
“As a result, they do their due diligence before making a financial decision and scrutinise every detail,” he says.
“This could be when it comes to hiring a financial planner or where to invest their money. They often stick to a strict financial plan, which is built around their own personal goals."
Tip: Research every investment you make to decide if it is right for you and your wealth goals – and don't be afraid to ask a certified financial adviser for help.
Should I be an extravagant or spendthrift millionaire?
That depends – do you want long-term wealth or to flash the cash until you’ve got nothing left? Millionaires who are more frugal tend to be the ones who retain their wealth longer, Ms Glynn says.
“There is this concept of being rich versus being wealthy,” she says.
“We can be cash-rich for a period of time and have a high income. But if you spend it on things like fast cars, holidays and have no income-earning assets to back that up, then you're rich for a period of time, but you're not wealthy.
“People who tend to have long-term wealth and maintain that millionaire status for the rest of their life [and future generations] are the people who tend to be a bit more frugal and more sensible with their money, who buy income-generating assets rather than fast cars.”
Tip: Focus on building long-term wealth with income-generating assets, but also find the right balance to enjoy a fulfilling and happy life.
Invest like a millionaire
Millionaires typically have different investment vehicles and spread their wealth across a variety of platforms and asset classes, Mr Ritchie says.
“They have investments for their retirement, properties they enjoy living in and some may invest in things they enjoy such as art, classic cars or antiques,” he says.
Flexibility and liquidity are also key factors to consider when investing if you find yourself having to rebalance your portfolio, Mr McCulloch of The Fry Group says.
A mixture of asset classes including government debt, such as gilts and bonds, property elements and fixed-income products should be included in a diversified portfolio.
“You're [also] going to have things like corporate bonds … property-related funds or ETFs, diversified equity exposure across different geographies, different sectors, so that you're not just overly concentrated into one area or one country or one sector,” he says.
Tip: Diversification, spreading your risk and understanding your risk level are key elements to consider when creating a long-term investment strategy.
What are the do’s and don’ts of investing like a millionaire?
It’s important not to chase fads or the promise of a “get-rich-quick” investment, Mr Ritchie says.
“I know there are a lot of new and exciting ways to invest, but that doesn’t mean they are the best solutions to grow and preserve your wealth,” he says.
“Stick to an evidence-based, systematic investment approach and leave it alone to work for you. I guarantee this will be far less stressful than chasing market fads, star funds or market performance – and will free up more of your time to do things you actually enjoy.”
Tip: Stick to your long-term strategy rather than fads to preserve your wealth.
8 ways to manage your money like a millionaire
- Start with the basics and figure out your budget and how much you can save and invest each month
- Set your wealth goal and stay motivated
- Understand what millionaires do differently and follow their lead – stay actively engaged with your money and investments
- Learn how to adopt a "millionaire mindset" and change your beliefs about money
- Research every investment you make to decide if it is right for you and your wealth goals – and don't be afraid to ask a certified financial adviser for help
- Find the right balance between building long-term wealth and enjoying a fulfilling and happy life
- Understand your risk profile as you build a diversified investment portfolio
- Adopt a long-term strategy and stay away from fad investments