Where You Live Predicts If You Will Be a Millionaire
By Floyd Saunders, Founder of Really Simple Investing and Author of Five Paths to Wealth
Where you choose to live can predict your ability to save and build your wealth over spending beyond your means, according to research on the habits of millionaires. If you really want to be a millionaire, live in a modest home, in a location where you aren't try to impress the people next door with your excessive spending to keep up with them.
If you live in an expensive home in an upscale neighborhood, you're more likely to mirror your neighbor's habits around spending on high ticket items. This excessive spending can reduce your ability to build your wealth while you are busy keeping up with your neighbors.
A number of factors go into if you are building your wealth or spending a bit more than you earn. One of the biggest factors is where you choose to live.
Sarah Stanley Fallaw, surveyed more than 600 American millionaires to coauthor the book "The Next Millionaire Nest Door."
Most of the millionaires in the study live in a home they can easily afford, which allows them to save more money. If you want to make progress on building wealth, keep your housing costs low. Most of the millionaires she studied had never purchased a home that cost more than triple the amount of their annual income.
If you really want to make progress on growing your wealth, look for a home that costs 25% your after-tax income so you you save more toward your retirement accounts. Keeping your housing costs low is always a smart move, no matter how much money you have. One of the best financial move you can make is to move to a less expensive home.
This is of course very difficult to do in some of America’s housing markets, where we have seen prices increase as much as 20 percent a year.
If you can, move to an area of the country where housIng price remain relatively stable. If you can move, try to keep housing cost around 30 percent of your income.
Some interesting data from various studies of self-made millionaires revel:
• 64% of the millionaires described the homes they own as “modest.”
• All of millionaires studied reported they owned a home
• 56% owned their homes for at least 20 years.
• most millionaires spend less than 25 percent of their income on housing costs
• 96% of millionaires spend less than $6,000 a year on vacations, and 41% spent less than $3,000 a year.
• 84% shared that they never gamble.
• Over half, 55%, buy used cars.
Warren Buffett, you might know him as the stock market guy who has an estimated net worth of more than $84 billion. His house? He lives in a simple Omaha, Nebraska neighborhood, in home that he bought in 1958 for $31,500 . He has never moved from that home. Today that home is worth $850,000.
This may mean you have a more modest home to live in but remember what the author of The Millionaire Next Door found in his research. Most self-made millionaires live in modest homes, are frugal with their spending, often preferring to drive used cars, for several years and avoid taking expensive vacations allowing them to save as much as 20 percent of their annual income. The path to wealth is not excessive spending on a live style to impress your neighbors, it’s really about living in manner that allows to save and invest so you can take advantage of compounding returns.
And most millionaires do a few things consistently with their investing. They fully fund their retirement accounts, typically a 401k offered by their employer or Roth IRA. And make sure you take advantage of any employer matching. That is like getting a tax free raise. When they invest on their own, they start with passive index funds, that cover the entire stock market or at least an S&P 500 fund. Self-made millionaires are typically conservative investors.
The other thing the most millionaires do is, they learn to invest in income producing real estate properties. That could include single family homes, apartments, Airbnbs or even Real Estate Investment Trusts (REITs). Two REITs I like are Dividend King Federal Realty Investment Trust (NYSE:FRT) and Dividend Aristocrat Realty Income (O). Federal Realty has paid out an increasing dividend for 55 years and Realty Income for 27 years.
To sum up, keep more of what you earn, so you can invest more. Find a less expensive city or town to live in. Only spend 25 percent of your income on housing, go ahead and drive a used car, avoid those expensive vacations and invest more of what you make. At least 15% of income to your retirement plan and core investments.
Five Paths to Wealth by Floyd Saunders, Founder of Really Simple Investing, presents five really simple strategies to help anyone get start building wealth and securing their financial future. The five paths starts with building a secure financial foundation from which to start investing and then presents some really simple approaches for investing for generational wealth over time.
Today anyone can get started using these strategies for buying passive index funds, dividend growth funds, dividend reinvestment plans, using robo advisors and starting real estate investments. You can get on a path toward financial security and wealth, it all starts with the first step. Stay consistent, invest for the long-term and you will be wealthier at retirement, able to afford that dream home and send you kids to college.
Book Cover Design By Ashley Dameron