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On this episode of the personal finance podcast 9 things you need to do to become a Millionaire next Door what's up everybody and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of MasterMoney Co and today on the Personal Finance Podcast we're gonna be diving into nine things you need to do to become a millionaire next door. If you guys have any questions, make sure you join the Master Money newsletter by going to Master Money Co slash newsletter. And don't forget to follow us on Spotify, Apple Podcasts, YouTube or whatever your favorite podcast player is. And if you want to help out the show, consider leaving a five star rating and review on Apple Podcast, Spotify or given the old thumbs up on YouTube. Thank you again so much for being here. Today we're going to be diving into nine things that you need to do to become a millionaire next Door. Now if you've never read the book the Millionaire Next Door, it is one of the most eye opening personal finance books that I ever read. In fact, the first time I read that book it ignited a fire inside of me to develop this passion for personal finance because I saw how you can actually utilize your money as a tool to change your life and it didn't matter how much money you made, it didn't matter what your career path was, you could become a millionaire. It was possible if you followed some simple steps and some simple habits. And really when you go through this book, there's a lot of different things that are going to matter when it comes to your behavior. Again, personal finance is 90% about your behavior and how you act. It's only 10% head knowledge. The rest of it is how you act, how you treat money, how, how you deal with money, how you think about spending decisions, how you think about career decisions, how you raise your children. All of these different things are gonna have a massive impact on the bottom line and how much wealth and net worth you build. Now, the millionaire Next door is the first of its kind, because what it did was it studied thousands of different millionaires to see what are some commonalities between these millionaires, what are some things that they actually do that each and every single one of them do in order to become a millionaire. And what they found was very surprising. They found a lot of different character traits and a lot of different things, things that I think you will find extremely valuable as we go through this episode. So there's going to be a ton of valuable information in this episode. So without further ado, let's get into it. All right. Principle number one is frugality. Frugality is the foundation of wealth, especially when you are just starting out. Now, millionaires prioritize financial independence over displaying wealth. That's what I want you to understand about frugality. I think a lot of people misinterpret what frugality is. What it is is deciding and choosing to pursue financial independence. Instead of spending your dollars on things that truly don't matter, things that are frivolous, things that are fleeting, things that will go away in life. Instead, if you are wise with your money, if you are wise with the money that comes into place, then you can be able to spend more on the things that you love. Now, one big thing I think people relate frugality to is cheap. Frugality is not being cheap. Cheap is someone who does not tip their way to a waitress. Someone who is frugal makes conscious spending decisions what they want their life to look like so they will forego certain things so that they can spend more on the things that they love. And a lot of people who are frugal, who do it the right way are spending more on their financial freedom. They are trying to achieve financial freedom. They want to have financial security. They want to reduce their stress and anxiety around money, and so they take their extra dollars and they put them towards those things. So what are some of the core habits that people who are frugal have? One is they live below their means. And so what this means is that you spend less than you make. A lot of people out there will go out, and every time they make more money, they'll spend more and maybe they'll go and lease a new car. Or maybe they'll make more money and they spend more on their credit card. They swipe the credit card. This is the wrong way to look at your finances. Every time you make more money, you want to ensure that you are living below your means so that you can look at the difference between your income and your expenses. And you have a gap there. There needs to always be a gap between your income and expenses. If your income and expenses are exactly the same, if that number is the same, you are likely spending too much money and or you need to make more money. If your income and expenses have a huge gap, then you're either making a really high income and or you are living really, really frugally. But there is something there to having a gap. Why? Because the gap is where wealth is built. The extra money that you have left over after you pay all of your bills, that is where wealth is built. That is the tool that you will use to change your life. You could be the person that changes your entire family tree if you learn how to develop a gap and you learn how to take that gap and put it towards your financial future. Secondly is folks who are frugal avoid luxury traps. Now, studies have shown, and this is something that has been shown over and over and over again, there are a lot of luxury traps out there that can cause you to, to fall further and further behind. The big one is cars. A lot of people overspend on cars. In fact, the average car payment in the US right now is almost $800. That is absolutely insanity. And as car prices continue to rise, people's payments towards their cars continue to rise. A car, my friends, is a depreciating asset. It goes down in value over time. And so the more money that you spend on a depreciating asset, the less likely you are to become wealthy. And if you continuously do this, if you continuously re up your car payments every time you pay off a car, then you go back out and get another car because you paid off your car and you think you can get this down payment by selling your personal vehicle, then you are making a huge mistake. Okay, we have a rule talking through this. It's called 2412 10. That means 20% down on your vehicle, four years or less on the payments. 12% or less of your income spent on all costs associated with cars. That means your payment, that means your gas, that means your insurance, all those things. And you must drive the car for 10 years or longer. Secondly is clothes. If you are the type of person who loves buying clothes, you love to buy designer clothes. If you're in that Gucci store, that Louis Vuitton store all the time and you are someone who loves buying designer, this is going to be something that you really need to think through. In fact, studies show that the majority of people who buy designer usually are the middle class to the lower middle class. And so what you're doing is you're trying to make it look like you're rich instead of actually being rich. You. And this is a huge important indicator. Status symbols are not what make you wealthy. And this is where a lot of society gets it wrong. If I see somebody with a bunch of logos on and a bunch of status symbols on, a lot of times I think, man, that person is probably in debt or that person way overspends. That's where my mind goes now, because I know the data, I've seen the studies on what the spending is when it comes to luxury items. Watches. Now there are a lot of people out there who love watches. And it could be a hobby for you. If watches are a hobby for you, more power to you. But you need to make more money or make enough money to make watches affordable. If you're a Rolex person, or better yet, if you make tons of money and you're buying APs or something like that, then you are really spending a huge chunk of money on watches. You're a watch person and you have allocated those dollars responsibly. More power to you. If not, then you really need to think through this. Homes. Homes are a big one. A lot of people become house poor because they spend too much money on your house. Now let me just say this right now. Just because you were pre approved for a certain value on a home does not mean you can afford that home. You need to spend 30% or less of your income on your total housing expenses so that you do not fall into the trap of becoming house poor. You need to make sure you have a functional home, not just a status symbol. You don't just want the biggest possible house that you can afford to maximize every single dollar out of that. Instead, you want to find a home that is functional. All right. Another habit of frugality is discount shopping. So a lot of frugal people seek value, not price tags. So they may buy in bulk. They may do things that just help them reduce everyday costs week in and week out. Why? Because if you add those numbers up over the long term, you are going to see the impact that it makes. And then lastly, most of them in the millionaire next door study show that that most millionaires drove used cars and Toyota and Honda were the top two brands. And most of them had modest homes. And they would drive a four to five year old car and they would live in a home bought decades ago. So they'd buy their home and they would stay in that home for decades. And this is a good indicator of someone who could be very wealthy. This is why they call it the millionaire next door. Because they bought maybe their first or second home, they stayed in that home for the long term. So here's some real examples. Most spend less than $400 on a watch and $200 on shoes. Home value rarely exceeds two times of their annual income. So their home value rarely will exceed two times their annual income. That is a huge, huge factor. And they drive cars like Toyota, Ford or Honda, often bought, used and often paid in cash. These are massive indicators to what it means to be frugal when it comes to just your spending. It is not something where you're making massive sacrifices. Instead you're shifting your decision making in order to prioritize building wealth and financial freedom. And instead of stuff. That's what I want you to understand. When you shift your priorities to financial freedom instead of stuff, your life changes dramatically. Your stress gets reduced, your anxiety gets reduced. You don't have money stress anymore because you are working on your freedom. And so for those of you who are drowning in debt, you're drowning in car payments, you're drowning in home payments right now and you don't know what to do, you're pulling your hair out. It's time to change your spending decisions. It's time to change, change the way you see money. And we are going to change our money psychology over time. And that's one powerful thing that you can do first. Secondly, folks who live the millionaire next door lifestyle, they prioritize net worth over income. Your income is not the best predictor of wealth. Your behavior is. And so this is where we are going to prioritize net worth instead of income. So they have a net worth formula that they want most people to look at. So an expected net worth would be your age times your income divided by 10. Now when you get this number, if it is above this number, you are a prodigious accumulator of wealth or what they call pa. If it's below this number, you are an under accumulator of wealth, meaning you are not doing as well as you should be. And so this is a great calculation that we've talked about on this podcast a couple of different times that can really help you when it comes to seeing if you are overspending or if based on your income, this is going to help you understand, oh, well, my net worth should be higher based on my income. And I need to figure all of this out. And so there's a lot of different income myths. And so in the book, they looked at high earners like doctors and lawyers and found that they often failed to build wealth due to a couple of different things. One was overspending. There were very high income individuals out there who overspend dramatically when it comes to learning where they need to spend their dollars. Now, this can happen because of a number of different reasons. So for example, doctors and lawyers are very well known to overspend. And a lot of studies show this is because of money psychology. A lot of folks within their circle are going to have the nicer car and so they feel as though they need to go out and buy the nicer car, they're going to have the nicer house, and so they feel like they need to go out and buy the nicer house. So they have the country club membership and they feel like they need to go out and get the country club membership. You got to make sure that you do not fall into these social pressures because social pressures, depending on where your circle is, can have a massive, massive impact on your outcome. When it comes to building wealth, you've got to make sure that you are still taking dollars in a large amount of dollars depending on what your income is and putting it towards your future. This is why we talk about percentages of income instead of talking about specific dollars. When it comes to saving, you need to save a percentage of your income, which is usually 20% to 25% or more is really what we always want you to do. And we'll talk more about that because the millionaire next door also talks about that. In addition is there are a lot of high earners out there that have poor saving habits. I have talked to people where we've had like a couple of coaching like that where they will spend $900,000 per year and make $900,000 per year and they cannot figure out why they are living paycheck to paycheck. And it's a pretty easy solution because you look at their spending habits and you can reduce some of those spending habits very easily. I've also talked to people who make $100,000 a year and save Way more than anybody who makes five times the amount that they make. This is a huge thing and why your net worth matters more than your income over time. So if you want to be an overachiever, you need to save at least 20% or more of your income. This is what the millionaire next door says, at least 20% or more of your income. Really for most of you who are wealth builders, we want you in the 25 to 30% range. You want to invest early and you want to invest often. If you can invest a specific amount of money weekly, automate it and do it. If you can invest a specific amount of money monthly, automate it and do it. But you want to start as early as possible, you want to do it as often as possible. You want to avoid lifestyle inflation. So when it comes to lifestyle inflation, this is going to be something where we like the 5050 rule. If you're going to make more money, then we want you to spend 50 and save 50. That way you're continuously increasing your savings rate based on your income increasing over time. So if you get a $10,000 raise every single year, spend five and put it towards your lifestyle and then take the other five and put it towards your retirement, put it towards your financial freedom, put it towards your real estate fund, your freedom fund, whatever it is, take those extra dollars and put it towards that. Now if you're an under accumulator of wealth, you have a couple of different traits. You probably try to spend to impress other people. You buy the nicer car to impress your friends, you buy the designer clothes to impress your friends, which really a lot of times they're not that impressed. You got to realize this all about psychology. Secondly, you have minimal savings, you're not saving a lot of money over time. And third is you depend on future raises to increase your lifestyle over time. It's a dangerous position to be in if you do all three of those things. And so making sure you change your habits can change your life if you do it the right way. Now number three is they found that a lot of millionaires that they studied were self employed or owned ownership in some sort of business. And so most millionaires were entrepreneurs or small business owners. Now we have seen a lot more studies come out as of late, especially with the Ramsey solution study that shows that a lot of those millionaires were able to become millionaires even with a 9 to 5 job. Ramsey Solutions surveyed another 10,000 people. So this is not making it impossible. If you have a 9 to 5 job, it's it is very possible. And if you've been listening to this podcast for a long time, you know it's very possible to become a millionaire and a multimillionaire and it's really through your 401k, your retirement accounts, making sure you take advantage of company compensation and all these different high impact things. But with the Millionaire Next Door, they found that 2/3 of millionaires were self employed that they studied and many owned dull, boring, normal businesses. We just chatted with Nick Huber about this, we've chatted with Cody Sanchez about this, but they own companies like janitorial services, pest control companies, mobile home parks, welding supply companies. These are the types of folks that you see as the millionaire next door. Boring stuff, recession proof stuff. You're always going to need it, AI can't disrupt it. And so it's one of those things that you got to really think through, how can we make a big difference here? So some key traits here is value autonomy. People who want to become entrepreneurs, they value being able to control their time, they value being able to control their schedule and, and they are willing to take calculated risks. Risks are a big part of business, but you gotta make sure you understand how to calculate those risks and they have a long term focus over short term gains. So some key lessons here and I want you to kind of listen to some of our episodes that we have come out where we chat through and we have one coming next week, but we chat through, you know, some of the side hustles that could turn into full time businesses. We talk through different things like this where you can think of how to do this but choose scalable business models and then focus on cash flow and reinvestment. Build equity, not just income. And so that is the three things that they looked at in the Millionaire Next Door is to build equity, not just income. Over time, that's going to have a big impact on your net worth. We're going to get into number four next. This episode is sponsored by plod, an AI wearable gadget that takes notes of meetings and calls. 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All right, so number four is a big one, especially if you have kids, is that financial help from parents can ruin adult children's financial discipline. And the millionaire next door is very clear on how this works now. I have seen this in my own life. I have seen people in my life who get help from their parents. And when they get help from their parents, they typically will not work as hard to make it all work out. Meaning that they live with their parents maybe into their 30s. And when they live with their parents into their 30s. A lot of times they didn't have to go out and make more money to make rent or they didn't have to go out to make more money to buy groceries or all these other things. And so they're really not as motivated as people who I see have to do it on their own. Maybe they get housing, their parents had an extra house and so they live in that house. Or maybe they get free rent or someone supplements their rent. All of this can cause a problem when it comes to adult children's financial discipline. Now, the millionaire next door calls this economic outpatient care or eoc. And so there's side effects of eoc, which is decreased savings because they don't have to save as much because they don't have to protect themselves, increased consumption because they have this extra cash on hand dependency and less motivation to achieve. Now, these are all things that I have seen in people specifically a lot of times when they get free housing. I have friends who have gotten free housing for a longer period of time. And so when that happens, they typically are not as motivated to make more money or are not as motivated to save more money because they have this extra care. Now, some common EOC scenarios, paying adult kids bills is one. Gifting down payments for homes is two. Now, I'm not saying there's anything wrong with this kind of stuff. I'm just saying making sure you understand some of the impact of this and or making sure that you teach your kids about money ahead of time so when you want to do this stuff, it doesn't impact their behavior. That is a huge and very important thing to think through. Buying luxury items as gifts is a third one that the millionaire next door found. Now, a better parenting approach, according to the millionaire next door, I'm no parenting expert. Here is to a Teach budgeting that is a huge one that they say managing money and making sure that you, they understand how to teach budgeting is very important. Now I have started to teach budgeting when my kids turn three. So what we do is we take three different jars and in those jars, I've thought about actually creating a system on this and selling the jars on Amazon. But what we do is we take three jars. You can go get them anywhere you want. Just find three jars that are clear, get a little label and put on each one of the jars. One for saving, one for spending, and one for giving. Those are our three jars that we have set up. And what they're going to do is every time they make Money, they're going to take a portion of that money and they're going to put it into saving at least 20% of that money. So they make $10, they're going to put $2 into saving, then they're going to put a portion, that money into spending because you want them to learn that money is a tool to also be enjoyed. And then they're going to put a portion of that into giving. For my kids, we tell them at least 10% of their income goes into giving, because that's what we do. And so with these three jars, then what you can do is you can teach them budgeting from a very early age. As they get older, you teach them how to use more sophisticated budgets. Beyond that, they can do cool things. Secondly is to encourage self sufficiency. So I was the type of kid who I wanted to be out of my parents house as fast as I possibly could. The reason was I value autonomy, I value freedom, I love my parents to death. We talk every single day still to this day. But I just wanted to be out because I wanted to be free, I wanted to be on my own, I wanted to do my own thing. There's a lot of people in my life that I have seen in the past who do not want that. They do not want that autonomy. And so you got to look at your kid's personality and say, you got to encourage that self sufficiency. You got to make sure that you encourage that. They also teach their kids how to delay gratification. So your kid wants something if you give it to it instantly. This starts at a young age. If you give it to them right then and there, when they ask for something that is not teaching delayed gratification. But if they work hard, they work all summer to save up money for something big, maybe. Well, that teaches them delayed gratification, that teaches them hard work, that teaches them how to save money. And so being able to do that is really powerful. Now teaching delayed gratification for me is very difficult because my parents taught me delayed gratification. I didn't love it when I was a kid. I wanted to get all the things that I wanted. Like my friends would get what they wanted all the time. And so for me, money psychology comes into play. I gotta make sure I don't just buy my kids something because I didn't get stuff when I was younger. Instead, I realized that about myself. This is why you, your upbringing is so important. I realize that about myself. And I got to make sure that I suppress wanting to just Buy them something when they ask for it. And then also here's the biggest one, folks. With your kids, be the model who is disciplined behavior. Show them what discipline looks like, because that's the most important thing at all. Your kids are going to do what you do. If you try to tell them to be disciplined with your money and you are not disciplined with your money, they're going to notice. And so you need to make sure that you are the model behavior. All right, number five on becoming a millionaire next door is millionaires are intentional and disciplined with their money. And they plan, they budget, and they goal set. These are three big things we talk about all the time. Now we have an entire course talking about this called Master your money goals where we chat through. If you go to mastermoney.co courses, you can see master your money goals there. We talk about how important the goal setting is with your money. We have a very specific system on exactly how we do it. And it is very important to make sure that you are setting goals, you are planning, and you are budgeting each and every single year. I don't spend a lot of time to doing this because we have a system in place to that helps do it for us. So here's some key things you need to be doing. Obviously, looking through your annual budgets or how much you're spending every single year. This is something that in 2025, you could automate this process pretty easily. Regular review of investments is another big one. Making sure that you're investing in the right places, that everything is getting automated. Setting monthly, annual and lifetime goals. What are your big financial goals? Those are going to be huge when it comes to knowing what your North Star is. To ensure that you're taking steps toward what you actually want to do in life and making sure that you discuss finances openly with your spouse. If you do not have continuous conversations with your spouse, then it is going to be something where one of you is going to get blindsided. And that is never a good situation. Always talk about money. Always be open. So here's some control systems that you can utilize. You can use financial planners as educators, but not decision makers. You can track your spending and you can monitor net worth annually. These are going to be all some of the big things that you can do right away. Control systems that you can figure out how to do that. We have episodes talking about how much you should spend on each category. We talk about all these different systems in place. So if you want access to those, shoot me an email and I'll send some of those over to you now, another one that they found, number six, they found that most millionaires actually had strong family values and relationships. And so what they found was wealth is built and preserved by shared values and strong family mechanisms. This is a really interesting one because this comes into play that there's a lot of shared traits. 92% of millionaire households are two parent households and they stay married. Their goal is to raise kids with a strong work ethic and responsibility and they avoid enabling. So they teach kids to earn and not expect. Now, one big focus for each of the families that the millionaire next door surveyed is that they focus on financial literacy, not financial inheritance. So they focus on teaching their kids about how to handle money, how to earn money, how to do more with their dollars, instead of teaching them they're going to inherit some money. Secondly is they encourage career choices based on values, not prestige. So making sure you choose the right career path is powerful. Which we get to number seven here, which is education and career choice. So education matters, but discipline matters more. And so when it comes to figuring out, you know, where do millionaires go to school? What did they do before they started? Most millionaires didn't attend elite universities. This is a very interesting one. Many paid their own way through school and they focused on the ROI of education, not the prestige of the degree. So what is the actual ROI of the education? What do we actually get out of the education? This is a very important calculation that a lot of people need to run before they go to college is, if I go get an art degree, what is the ROI on that? If I go get a history degree, what is the ROI on that? If I go get a philosophy degree, what is the ROI on that? You need to make sure you note that also they chose careers with low social pressure, high income potential, and autonomy and growth. Those three things will make you so much happier in your career than just choosing the prestigious career that everybody else is doing. Making sure that you do those three things is really important. Number eight is mindset and daily habits. So discipline, modesty and long term thinking separate the wealthy from the rest is what the book found. And so you can look at this mental framework. But they see money as a tool, not a status marker. We talk about that all the time. That money is utilized as a tool. You use it to buy your freedom back. They prioritize freedom over fame and, and they avoid comparing to others. Comparison is a trap. It is the thief of joy. It is the thing that will rob you of joy when it comes to your finances. You'll never have enough. If you compare yourself to other people, someone's always going to have more money than you. Someone is always going to have a lot more money than you, no matter how rich you get. If you have a billion dollars, guess who has a hundred billion dollars? Warren Buffett. If you're Warren Buffett and you have $100 billion, guess who has a couple hundred billion dollars. Elon Musk. The list goes on and on and on. No matter how rich you are, somebody else is going to have a lot more money than you. And so you need to make sure that you avoid comparison at all costs. Comparison is going to rob you of your joy. So here's some daily habits from four people to master this delay gratification. Number one, avoid credit card debt. Number two, that is a big one. Three is to track your cash flow to make sure you're not going into debt. And four, is read financial materials regularly. So what I found with financial materials and reading them regularly and listening to podcasts like this and watching videos on finances is that the more I do it, the more motivated I stay to continue on my financial journey. Especially very early on when I was trying to get my finances together. Early on I would listen to a lot of financial podcasts and I would listen to them in order to learn as much as I possibly could. But it also kept me motivated. It kept me motivated to continue on this journey that is difficult at the beginning so that I could get to that first 100k, so that I could build that wealth over time and, and finally just make a huge impact on my life. And so that is something that definitely you want to make sure that you're doing. So some of the anti habits here are no impulse buying, no leasing cars and no keeping up with the Joneses. Those are some big ones that I want you to think through as time goes on. And number nine, what is the millionaire profile? Who are they really and what does society think? They are their age. So you see all these people who are young, who are getting rich, who are building wealth, who are multimillionaires. The average age of a millionaire was in their 50s and 60s. They were married with children, they were self made, 80 to 85% did not inherit their wealth. So most people out there who think you need to inherit wealth become a millionaire. That is absolutely not true. They invested in the stock market, real estate and their own businesses. Those are the big three. Their home's median value now this is a little Farther back was $300,000. Now it's probably five to six hundred thousand dollars. Their car was four plus years old and usually paid off and their watches were under $100. Their clothing was under $200 per outfit. Their travel was domestic and modest and dining. They cook at home or mid range restaurants. So here are some things I want you to learn so that's the key profile of a Millionaire. I highly encourage each and every single one of you to read the Millionaire Next Door. It is a book that changed my life for sure. But I'm going to give you some key takeaways and action steps before we wrap this episode up. 1. If you want to live like a millionaire, don't act rich. Acting rich but not being rich is the dumbest thing that you can do. Making sure instead that you put your extra dollars towards your financial freedom is going to bring you more joy, it's going to bring you more peace and it's going to give you a happier life. So do this. Track your spending in your net worth. Okay? 1. Save and invest 20% or more of your income. 2. Avoid debt like the plague. Especially high interest at anything above a 6% interest rate. You want to avoid as much as you possibly can, build a career or business or with a high autonomy and scalability by appreciating assets, not status symbols meaning things that go up in value, not down in value. And lastly, teach your kids discipline and self reliance. Those are some of the things that you definitely need to do. Avoiding things like car leases or big houses before wealth is built, or fancy schools for the sake of the brand or financial help that creates dependence. These are all things you do not want to be doing. Instead, learning how to manage your money when it comes in is the most important thing. It all comes down to behavior. And the millionaires in the millionaire Next door all mastered behavior. So I know you can too. And our goal is for each and every single one of you who is listening to Become a Millionaire. If you stay with me. If you've been here a long time and you see that you're on that path to do that, amazing. But if you stay with me and learn some of these principles, you're going to be so much better off financially in the long run. Listen, we have an episode coming up too. We're doing an interview with Tom Corley, the author of Rich Habits. He's going to be coming on soon. So if you like this episode, we're going to dive into more millionaire habits and rich habits for the really ult wealthy. And so we have a really cool episode coming out in the future on that. Thank you so much for being here. Make sure you're subscribed to the podcast to get some of those future episodes. And I hope you really got value out of this episode. That's it for this one. We'll see you on the next episode.