Financial Literacy: Secrets of the Minds of Millionaires

Aug 27, 2017 News

---

Dr. Terence Smith, Deputy Governor, Bank of Guyana

Creating the mindset of a millionaire
As we continue to promote awareness of the importance of financial education and literacy

we must be reminded that, personal financial management is the roadmap to maintaining and sustaining your wealth. This fact remains consistent whether you are just starting your career with a new job or you have been managing your own finances for many years.
I have observed this idea or concept of managing personal finances during my worldwide travels as an official of the Federal Reserve Bank of New York (Central Bank of the United States).
A key element of your personal financial management roadmap must be your mindset. The good thing is that there are strategies to help you think like a wealthy person. Thinking like a millionaire will serve you well in life.
What is a more accurate statement is that, “learning to be in control of yourself, increase your knowledge and develop what it takes to earn wealth is not easily earned, and not easily kept up, unless you plan to do it.” You have to take the steps to make it happen and to maintain it.
In this article, we will discuss the mindset that leads to financial success and how the rich manage their finances.

The mindset that leads to financial success
The bottom line is that wealth actually comes from wisdom including your mindset and decision making abilities. Developing a mindset that uses strategic thinking is the only way you will maintain your wealth successfully.
According to the literature, “the most difficult part of creating the mindset of a millionaire is self-examination.” It requires deep introspection and a self-analysis that necessitates that you write things down to ponder. Take a look at your skills, the way you work and those characteristics and skills that will assist in your goals. Be honest.
Think also about comments others have made to you over the years but be careful. In general, we must be careful in assessing how others see us, negatively or positively. In addition, examine your work ethic and the way you spend money.
With respect to work, do you slide when you can, or do you satisfy all requirements expected of you? With respect to money, are you aware where yours goes and are you disciplined at saving, as well as are you honest about how much money you spend wastefully?
What about your values and do you say one thing and then act differently? Do you say that you value saving, but spend excessively?
Looking at all these aspects will help clear the mind for successful, strategic thinking. Finally, assess what you do not know that you do not know. The research literature indicates that, “of all the things there are in the world to know, we actually know very little, and we have no clue about things we have no knowledge of. We close ourselves off to improvement and learning, because we think we have enough.”

How the rich manages their finances
The mindsets of millionaires are permanently open to opportunities, knowledge, people and ideas. In the book, The Millionaire Next Door, William Danko and Thomas Stanley express the main premise that, “people who look rich may not actually be rich; they overspend – often on symbols of wealth – but actually have modest portfolios and, sometimes, big debts.”
On the other hand, actual millionaires tend to live in middle-income neighbourhoods, drive economical cars, wear simple watches, and buy suits off the rack. Please note that the research for the book was performed by surveying people in “so-called upscale neighbourhoods” across the United States. Let the key concepts be your take away from this article.
So let us discuss lessons in wealth building from the millionaires next door. The following are four of the main financial concepts that the millionaires seem to share:
1. Most of the millionaires are frugal – In addition, instead of buying expensive things that are seldom used, they rent as needed. It seems that the millionaires see things differently. Their goal is to become financially independent. The millionaires enjoy what money will buy but they do not flaunt their money. However, they spend very carefully and with an appreciation of the value of what they purchase. Amassing large sums of money is not gathered by paycheques alone. It is attained by being economical with the paycheque and with wise investing. In fact, the millionaires seem to agree that if you manage your money effectively, it can support you and your family for a lifetime.
2. Millionaires work with a budget – The majority of millionaires have a budget. They spend a lot of time budgeting and they are willing to spend it. In fact, “prodigious accumulators of wealth spend nearly twice as many hours per month planning their investments as under accumulators of wealth.” According to Danko and Stanley, “a strong positive correlation between investment planning and wealth accumulation” exists with the millionaires.
3. Millionaires own their own home – Most millionaires own their own home. According to The Millionaire Next Door, half of millionaires have lived in the same house for more than 20 years. Nothing has a greater impact on your wealth and consumption than your choice of house and neighbourhood. If you live in a high-priced home in an exclusive community, you will spend more than you should and your ability to save and build wealth will become compromised, many people living in million dollar homes are not millionaires.
4. The majority of millionaires own their cars – The majority of millionaires own their cars, rather than lease. Approximately a quarter have a current model, but another quarter drive a car that is four years old or older. More than a third tends to buy used cars. According to “Stop Acting Rich”, the most popular carmaker among millionaires is Toyota. The research indicates that non-millionaires buy eighty-six percent of “prestige/luxury” cars such as BMWs and Mercedes.
In conclusion, please remember, developing a mindset that can lead you forward to financial success is the only way you will be able to earn wealth without inheriting it. Create a mindset that will truly make strategic decisions that leads to financial success. Wealth is not the same as income. If you have a good income and spend it all, you are not getting any wealthier. Wealth is what you accumulate, not what you spend.
Next week we will discuss more of King Solomon’s money principles (Part 2). Thanks for all your comments and support. As usual, please send your comments or questions to [email protected]

---

---