The millionaire next door

Bryce: [00:00:27] Welcome back to Get Started Investing where this summer we're taking a journey to financial freedom, proudly supported by CommSec, the home of investing. Over six episodes, we'll be talking about the practical steps you can take today to set yourself up for the ultimate goal: Fire, financial independence, Retiring early. So if you're enjoying a summer break or dreading heading back to work. Join us as we take the steps today to ensure we can build the life we want in the future. My name is Bryce and as always, I am joined by my equity buddy, Ren. How are you? 

Alec: [00:00:56] Bryce I'm very good, very excited for this episode. This is episode four and we are meeting our neighbours, The Millionaire Next Door. 

Bryce: [00:01:04] Yeah, love this.

Alec: [00:01:05] It's a famous book. It's actually probably not as famous as it should be. 

Bryce: [00:01:10] To be honest. Before this episode, I didn't know about it. 

Alec: [00:01:13] Oh, really? 

Bryce: [00:01:13] Yeah, I'd never heard of it. Okay, It's definitely on my summer reading list. 

Alec: [00:01:17] Yeah. Published in 1996. A study of, I guess a survey of sort of 300 or just 292 millionaires and what their habits were, how they built their wealth, how they grow and protect their wealth, how they think about money, I think is an important one. And I think there's some really applicable lessons in there for all of us. 

Bryce: [00:01:39] Got a cracking episode coming up. Having the right support on your journey is important, which is why we're proud to partner with CommSec for this series. If you're looking for more info beyond this podcast, CommSec has a wealth of content available to get you going from stories of other young investors to sectors in the spotlight, there's free support and information to build your confidence and make the right money moves. Visit CommSec.com.au for more. 

Alec: [00:02:02] Now, while we are licensed, we're not aware of your personal financial circumstances. Any information on this show is for education and entertainment purposes only. Any advice is general. 

Bryce: [00:02:11] All right. Well, with that said, what are we going to be unpacking in this episode? 

Alec: [00:02:14] In our fourth episode, Bryce, we're going to meet the Millionaire next door. 

Bryce: [00:02:18] Yes. 

Alec: [00:02:20] But that's the enthusiasm we want. By the end of this episode, we will know what we're talking about with the Millionaire Next Door will understand the good habits that build long term wealth, and we'll start building those habits into our own life. How good? It's pretty good. God, I. 

Bryce: [00:02:36] Cannot wait for that. 

Alec: [00:02:38] But look, we're not on this journey alone. There are thousands of people listening to get started investing and taking similar steps to us. 

EM Community: [00:02:45] Hey equity mates. For me, some habits I've noticed of wealthy people or kind of what wealth looks like to me is being able to go to the supermarket and just buy whatever I want, whatever brand I want the most expensive brand and not having to think to myself, Is that the best bang for Buck? Just being able to buy the feather that I want. And I mean, I've seen wealthy people do that too. So that's the dream. [00:03:11][25.9]

EM Community: [00:03:13] Hey, Equity Mates. Wealth to me would mean just not having to worry. Like I don't have aspirations to be super wealthy. I don't have aspirations to, you know, only yourself or anything like that. But just to have enough that I don't have to worry. But I can do the things that I want to do and not have to be, you know, overly concerned about it. I think I have pretty simple tastes on the whole. So I'm not you know if I had a real passion for Versace handbags or something like that, and I think my life would require some different priorities. But yeah, that's just where I end up with. 

Alec: [00:03:48] Alright, Bryce. So when we're talking about building these good money habits and meeting the millionaire next door, we really need to start with the book that started it all, The Millionaire Next Door by Thomas J. Stanley, and I think also William Danko. I don't know if William Danko is an author or just part of the study, but anyway, these two people did a study of 292 millionaires, and they looked for common traits, common habits, and also some things that perhaps were seen as important that weren't so important for this group. 

Bryce: [00:04:21] Hmm. So published in 1996, the book discusses millionaires that aren't the flashy status symbol type of rich. They're the people that are the unassuming next door neighbour that are wealthy and somewhat self-made. But you wouldn't know it. 

Alec: [00:04:41] Yeah, I think I think the central premise of the book and the point is trying to make is that people who actually become millionaires aren't the people with the following Rolex and stuff like that. Yeah, the majority of millionaires are regular people who are really good accumulators of wealth that they then I guess invest sensibly and let it compound over time. And there's a few different threads that we're going to pull on there. But I think to talk about the book. They really classify people into three four broad groups under accumulators of wealth, average accumulators of wealth and prodigious accumulators of wealth or pause.

Bryce: [00:05:27] That's me.

Alec: [00:05:28] You are. 

Bryce: [00:05:30] Type. 

Alec: [00:05:30] What's what percentage of your income is saving. 

Bryce: [00:05:34] Pre mortgage? Just over 50%. Yeah, actually, yeah. 

Alec: [00:05:40] Must be nice. Yeah. 

Bryce: [00:05:42] But post mortgage, I could, I could pull up the figures now. 

Alec: [00:05:44] Saving 50%.

Bryce: [00:05:46] Yeah. Yeah. While that includes investing and all that sort of stuff like. Yeah. Building wealth. Yeah. 

Alec: [00:05:53] Yeah. Anything that's not being spent. 

Bryce: [00:05:55] Yeah.

Alec: [00:05:56] 50%.

Bryce: [00:05:57] Yeah. Yeah. Well I think it's slightly like. Yeah. Well Harriet and I both share it. I think it's easier with a partner. I don't know, but, like. 

Alec: [00:06:06] Harriet pays for it. 

Bryce: [00:06:07] Yeah. I'll save you 100% of my income. 

Alec: [00:06:11] Well, okay, well, good on you, because I think that's a key premise of this book, is whether or not someone becomes a millionaire is less about their salary and more about how much this saving of the salaries. That makes sense. It's like the habits that they're displaying. Like there is obviously an element of it's easier to reach that millionaire level the higher your income. And I don't think they shy away from that. But I think the point that they try and make in this book over and over again is there's a heap of people who are earning a lot of money who don't become millionaires because they're under accumulators of wealth, because they've got shit money habits. And I think there's things that we can try and do to improve our salary and we'll actually talk about some of them. But I think the starting point is building good money habits. Being frugal and being disciplined is what's going to hold you in good stead and make you that millionaire next door. 

Bryce: [00:07:10] I have a story that I hold close to my 

Alec: [00:07:16] Okay, so no podcasting lesson. You don't have to announce that you have a story. You can just tell us the story. 

Bryce: [00:07:22] Yeah. So I have a story that Dad told me many years ago when he dabbled in financial planning. 

Alec: [00:07:29] Can you do it in your dad's voice?

Bryce: [00:07:31] This is my dad's voice, and it's one that I've often I often remind myself of or sort of reflect on. He had a guy, and I think I've spoken about on the show, had a guy come into the office to talk to him about retirement. He was a bus driver. Very unassuming. Hey, Tim, I need. I need some help. Just planning out where to go from here. And Dad sort of thought, okay, you know, I wonder what this guy's going to have in terms of assets. You're a bus driver, you know, relying on super those sorts of things opens up the portfolio. And this bus driver had been a prodigious accumulator of wealth over his 40 years as a bus driver every week or month, whatever it was, he was just putting money into well diversified listed investment companies at the time. And he had millions in his share portfolio because of the consistent nature of his investing. He didn't have a massive salary, he didn't have flashy cars, but he had just dedicated a life to consistently putting money into the market and I guess spending less than he earned so that he could do that. So it just goes to show that anyone can really do it. 

Alec: [00:08:48] Yeah, I don't want to one up your story but in our latest book Don't stress, Just invest wherever good books are sold. The perfect way to start off In 2024, we wrote about Ronald Read who's the he's it was based over in the States. He worked as a gas station attendant for 25 years, so like at a servo and then worked as a part time janitor at JCPenney, a big department store for 17 years. So those were his two jobs. He then retired in 1997. When he died in 2014, everyone was shocked because Ronald Read was leaving millions of dollars to, you know, he left 1.2 million to the local library who have 4.8 million to the local hospital. And everyone was like, how has this guy got all this money? And all he did, he when they looked into it, he had more than $8 million. And all he'd been doing throughout his whole life had been investing in dividend paying stocks and reinvesting that money into the stocks. And it was just big blue chip companies well known. It was companies like GE and stuff at the time, and he built a fortune of $8 million. 

Bryce: [00:10:04] Amazing. 

Alec: [00:10:05] And like, that is the quintessential prodigious accumulator. 

Bryce: [00:10:09] Absolutely. Absolutely. Well, I hope it's giving everyone listening encouragement that as we spoke about in the last episode, Baby Steps. This is the living example of how baby steps can lead to you literally investing your way to $1,000,000. 

Alec: [00:10:26] I think the one thing to just really be clear about here, because you can like it can feel a bit disheartening, especially, you know, we spoke about the cost of living crisis and trying to take those baby steps at a time like this is the the secret ingredient here is time. And many of the millionaires profiled in this book were in their fifties and sixties. The average age was 57. So if you think about who these people are. These are people that started, you know, doing the prodigious accumulations of wealth. They started displaying those good money habits in their twenties when they started working and they reached millionaire status in their late fifties. So that's, you know, 30 plus years already. And so just when you're thinking about your financial journey, like that's the time frame that we're thinking in and that you should be thinking in as well. As much as we would love to be millionaires in our thirties, it's less realistic. And so I think that's just what we're talking about here. That's why baby steps are all you need to start with, because you do have time on your side. But you got to get started. 

Bryce: [00:11:33] Get started. So the book then goes on to actually illustrate some of the common habits that the authors saw time and time again from the prodigious accumulators of wealth. And I think this is the important part because a lot of them we can actually put into our own lives. So let's start with what some of those common habits were. Firstly, living below their means. Yeah, spend less, save more. Very simple. Yeah. Number two, preferring financial independence over social status. Yeah. I.e. not using flashy things as a show of wealth.

Alec: [00:12:11] As they titled chapter four of their book. You aren't what you drive. 

Bryce: [00:12:17] Nice. Yes. 

Alec: [00:12:17] Yeah. Like don't or don't buy the flashy car. Drive the second hand reliable car that won't break down. That will but won't cost you an arm and a leg and invest that money. 

Bryce: [00:12:31] So number three, investing a high portion of their income and avoiding debt. 

Alec: [00:12:36] Nice. 

Bryce: [00:12:37] You can't grow wealth without investing. Number five, they were all educating themselves or doing some form of consistent self-improvement, which we've also spoken about. 

Alec: [00:12:47] Yeah I think it correlates like having a growth mindset when it comes to building wealth and having a growth mindset when it comes to other aspects of your life. Like I can learn this, I do want to, you know, improve day skills. Like I think those two things would correlate pretty closely. And the fact that, you know, if you're listening to this, you have that growth mindset of building the skill of investing.

Bryce: [00:13:11] We're all on this journey on our way to financial independence together, to close out the some of the habits. And this one I thought was interesting, but I can understand why they were not receiving economic care from their parents, i.e. they weren't reliant on other people to sustain themselves. They built a solid financial foundation that was they didn't need to rely on anyone. 

Alec: [00:13:35] Yeah, which is counterintuitive in a way, because if I was to ask you, do you think more millionaires would have help from their parents or not have help from their parents? The obvious answer is those that have help from their parents because they get a head start and there is obviously a subset of millionaires that are that. But the vast majority of millionaires, at least that I spoke to in the book, were people that had built wealth over time and got there themselves self-made. And though having the right habits will hold you in good stead and keep you growing your wealth, whereas if you have shitty habits and you don't understand what's going on with your money, you know planning, you might have a head start, but you can very quickly lose that or you can very quickly just plateau and just stay where you are. So I think the lesson that sort of comes out over and over again in this book is the right habits and the right mindset can, over time overcome other people's head starts. 

Bryce: [00:14:36] 100%. You could be given all the money in the world, but if you have bad financial habits, it would.

Alec: [00:14:41] It's just all the money in the world. You'd probably do, you. 

Bryce: [00:14:44] Know what I mean? Anyway, and finally, Ren, many of the millionaires interviewed in the book spend a lot of time planning their financial future. And we speak about the importance of having a goal and something to work towards so that you're putting the right strategies and habits in place to get there and you're not floundering around. And that goal could just be to consistently put money in the market over time. That's all. 

Alec: [00:15:05] So 192 of the 292 millionaires profiled spent time planning their financial future. 

Bryce: [00:15:12] And so those some of the common money habits. Do any of those resonate with you? 

Alec: [00:15:17] And I think a lot of them are somewhat self-evident, like spending less. Saving more. Not just saving it, but investing it. I think the idea of spending a lot of time planning your financial future is probably not something I'd do a lot of. I sort of have a plan about how I'm going to invest today, and I think if I make the right decisions today, the future will take care of itself. So I don't know if that counts as planning, but maybe I should do more planning, do more visualisation of where I want to be and what I want to have. But yeah, for me it's just like I just want the flexibility. So how do you visualise flexibility? 

Bryce: [00:15:57] Just an eternity ring. 

Alec: [00:16:05] What about you?

Bryce: [00:16:06] Yeah, I think I agree. There's nothing really surprising there. For me though, the biggest takeaway I think about is people that are really good on the saving side, but then you don't get to this financial independence wealth part. If you're not actually investing. You've got to be putting that money to work in assets. And I think you can't, you can't shy away for that. I know it feels safe to save and put money in your bank account and leave it there, but that is not going to get you to the millionaire next door. So it's really getting into the habit of actually putting money into work. 

Alec: [00:16:45] Yeah. So that I think is a good segue into how we put the money to work. And if we again go back to the book and ask what were the majority of millionaires in the book that were profiled, why would they putting their money to work? There were sort of three key buckets. The first bucket was themselves and their own businesses. So of the non retired millionaires interviewed in the book, two thirds of them were small business owners. And I think it's important to stress that these aren't like the CEOs of Fortune 500 companies or, you know, the owners of like big American scale or multinational businesses. They're small business owners. And so I think there's a couple of things to learn from that. One, one point that I've read is that oftentimes small business owners will, well, number one, be forced into having good money habits because money is just tight like there are lane periods. Often it's always lean. And so you're just forced into being disciplined to make frugal and all of that. But the other thing is small business owners are often earning more early and then compared to like highly qualified professionals who often have really lean early years and because they're studying and then they have higher earning potential later. But again, it's that power of starting early. The business owners can start investing and putting money away early when the professionals can't. And then it's really hard to catch up even if you're earning more later. Mm hmm. Yeah. 

Bryce: [00:18:24] To put a caveat to that, though, what if people are sitting there going, Great. Well, if two thirds of business I'm not I'm never a business owner. This dream is. This dream is over. 

Alec: [00:18:35] Well, I mean, there's plenty of non-business owners. 

Bryce: [00:18:39] Millionaires next door. 

Alec: [00:18:41] Yeah, Yeah. There's plenty of non-business owners that have achieved financial independence. Yeah. And I think the fact that you're not a business owner doesn't stop you from building the right money habits, saving more than your earning and investing that money. Yeah. Yeah. 

Bryce: [00:18:56] All right. So two thirds with business owners investing in themselves, no surprises that the other two common assets that they're looking at and investing in real estate and stocks and the sort of quotes that they focus on long term growth and avoid chasing short term trends. I think that is crucial. And everything that we've discussed in this series so far and on this show is about the power of well-diversified low cost anti trend investments. And proof is in the pudding that by following that strategy over a long period of time, you can invest your way to a million bucks. Now, before we chat about how we can build these habits into our lives, a big thank you goes to CommSec, the home of investing where they give you knowledge at your fingertips. Their educational content helps break down the things that can impact your money and investments. Get $0 brokerage on your first ten trades for Australian markets when you sign up. Visit CommSec.com.au, CommSec T&Cs and other fees and charges apply. 

EM Community: [00:20:05] Okay, well, when I get paid, when my pay goes through, I put aside a certain amount straight away and I don't touch that amount. So I guess it's kind of like out of sight, out of mind. 

EM Community: [00:20:14] Hey Equity Mate. I think for me, being wealthy is about having the money to meet all your needs at the end of the day, but also having enough money to do actualising things that are really meaningful. 

EM Community: [00:20:29] Wealthy would give me financial freedom of choice, but being able to obviously afford what you need to afford in your needs. And then beyond that, some that's on top of that.

EM Community: [00:20:41] How Equity Mates. So what is something I've noticed from wealthy people and one being that idea that actually taking calculated risks, making investments is not only necessary, but much more achievable. And that to really get ahead, you have to take some level of initiative and risk. 

Alec: [00:21:03] Welcome back to our Get Started Investing Summer Series. We are on the journey to financial independence and they often say don't you don't want to keep up with the Joneses. Um, you know, you don't want to you don't want to buy a new car because your neighbour bought a new car or fix the fence because your neighbour fixed the fence up. I don't know if that's what you should be, if you have a broken fence, fix it. But in this episode we are trying to keep up with the Joneses because we are meeting the millionaire next door and we are trying to emulate their money habits. 

Bryce: [00:21:34] Yes, well, we've spoken about what those habits are. So it's important now that we talk about how we can build those habits into our own lives and give us the best chance of becoming the Joneses next door. So he spoke about the habit of living below your means. Now, for me, this just comes down to discipline. Well.

Alec: [00:21:56] After your revelation at the start of this episode that you're saving 50% of your income. I think let's just give yourself a tick. 

Bryce: [00:22:03] Let's roll back to the discussions we had when we were talking about from debt ridden to debt free and my experiences at uni where I wasn't living below mine. 

Alec: [00:22:12] Yeah, yeah.

Bryce: [00:22:13] Like I think there are going to be times in your life where it's definitely more challenging than it's not. But I think discipline in a budget and a realistic budget, I think to start things off is where you can really get going with this because it's easy for people to make budgets. I believe that a very high level of, I think this I think that this feels right. Do some due diligence on your spending habits for the last month or so even more and actually realise what you're spending. 

Alec: [00:22:41] Let me flick it around because I agree with you. I also think it's very easy to do a false level of specificity where you're like, I'm going to budget $38 for groceries this way, and it's just like, you're never going to stick to that. So you're looking like you're probably the kind of person that would stick to that. 

Bryce: [00:23:00] Well, I mean, it's got a it's got enough. 

Alec: [00:23:04] Let me ask you, this is a question. Do you make Harriet put stuff back from the box over your budget? 

Bryce: [00:23:10] No, no, no, no, no. What I mean is. 

Alec: [00:23:13] Have you ever done that or do you make her get a cheaper version of an item? 

Bryce: [00:23:19] No, no, we don't go in and, like, count and add up about shopping as we go, because we know that we've budgeted for what we want to buy. We know that over an X period of time, we're generally like we're spending X amount of money and so we've budgeted for that. Does that make sense? Yeah. 

Alec: [00:23:46] Anyway, I just feel sorry for her. 

Bryce: [00:23:48] She loves it. 

Alec: [00:23:49] I approach it another way that, you know, for me sticking to a certain line item for each thing is probably not how I think in how I approach money. For me, the best way to approach it is to set up a system where it's really easy to make the right decisions. And you don't have to think a lot because the system is set up to guide you in the right direction. And so for me, the way that that works is when I get paid the money, there's automatic transfers from my bank account that I get paid to all the relevant bank accounts, my brokerage account, my savings account, and then a spending account and that spending account, all the the only thing I have to think about to make sure that I'm sticking to my like achieving my financial goals is spending less than is in my savings in my spending account that fortnight before I get paid again. And so for some people who may not want to do what Bryce is doing, I think building the habits is like for me is building the system. And for me that system is just like, what's the one thing I need to think about to know that I'm achieving? And that's all I have to think about. And so, yeah, that's. That's what I do. 

Bryce: [00:25:02] Nice. So the second habit they had was just not being showy about your wealth. And I think that kind of falls into the first. Like this, if you want to be showy with your wealth, you're probably going to end up spending. 

Alec: [00:25:15] So it's such a personality trait and I consider myself quite lucky. I am certainly not in that camp. Like, don't really buy clothes. 

Bryce: [00:25:28] I remember there was a time at university where you barely bought a pair of shoes. Yeah, you had a hole in the bottom and couldn't go outside when it rained.

Alec: [00:25:35] Shout out to Yeah, I'm the millionaire next door. Shout out to Kip's housemate who gave me an old pair of shoes. Yeah. Ah. Honestly, one of the things that I cringe most at in my life is when I started at Kohl's, I still had that mindset and I was walking around with some very ripped shoes. Really does. Yeah. Yeah, I, I don't know. I think my work is this. Anyway, but like, the opposite of this. I was scrolling boss hunting recently because I was wondering, like, whatever happened to Boss Hunting. 

Bryce: [00:26:14] Still going.

Alec: [00:26:14] Like they were massive.

Bryce: [00:26:16] If you're unaware it's a men's lifestyle. Instagram and media companies. 

Alec: [00:26:21] Yeah, massive. When we were at uni. Oh, like the coolest thing on Facebook, I was like, What's going on with them these days anyway? They're still doing that thing. Yeah, a lot of luxury stuff. TIME And there was this video on the, the luxury watches coming out by like T well one of the watchmakers and they were talking about the different motifs on the watch face and stuff like that. And I was just like, I do not care. But some people love it. Yeah, yeah. And I was just thinking like, thank God I don't love it because like, if you cared about this stuff. Oh, like, cause it's another one. Like, I just don't care as much about cars as some people. And it's like, some of those things can just become money sinks. And so I think for me, temperamentally and interest wise, I consider myself lucky that I don't have a lot of high cost hobbies. I'm not as into golf as you. 

Bryce: [00:27:15] Well, that's not true. 

Alec: [00:27:16] Well, I haven't spent as much money on golf clubs this year. 

Bryce: [00:27:20] I haven't spent a lot either. I think we should preface, though, that, like there's a difference between liking a watch and buying it for like, I love a watch and having a flashy lifestyle to try and show people that you're rich. 

Alec: [00:27:35] I'm just saying that I'm lucky that I don't have either. 

Bryce: [00:27:37] Yeah, yeah, yeah.

Alec: [00:27:38] So, okay, so if the first one is living below your means and then the second one is prioritising financial independence over I guess like external displays of wealth, they call it social status. But I think, you know, being showy is probably the way to phrase it. Then the third thing is taking that money that you're saving from not being showy and from spending less than you're earning and not just saving it, but investing. 

Bryce: [00:28:04] Yes, putting it to work. It's probably the most important habit. Once you've got the other two sorted out, you've got to sweat your money and get it growing as early as possible. We're going to sound like a broken record. We've spoken about it in the last three episodes and the entire year. 

Alec: [00:28:19] I guarantee you we'll speak about it in the next two episodes. 

Bryce: [00:28:22] It's about getting your budget sorted, then finding the platform that allows you to build wealth consistently in small amounts over a long period of time, diversifying low cost. 

Alec: [00:28:33] And then waiting.

Bryce: [00:28:34] And then waiting. I think that's the key here. 

Alec: [00:28:36] And keeping in mind that the millionaire next door, the average age of the millionaire next door was 57.

Bryce: [00:28:42] Yeah. Wait, let compounding do its thing.

Alec: [00:28:45] But don't wait to start. Yeah And then finally, while you're waiting, while you've got all that time on your hands because you're not going to watch your cost shopping and you're not chasing. Investment fads focus on education and self-improvement. Have a growth mindset in all aspects of your life because the best thing that you can do to maximise your chances of being a millionaire isn't finding the hot new investment opportunity and getting in early. It's number one, earning more. And the best way you can earn more is by getting promoted at your job, learning new skills, starting a side hustle. So number one is earning more. And then number two is increasing your savings rate. Morgan Housel, the author of The Psychology of Money, wrote about the biggest thing you can do to improve your financial situation is save more and what he means there. And what I mean there is save more and then invest it, save more and put it to work. It's just like.

Bryce: [00:29:43] Get into the market.

Alec: [00:29:44] Yeah, and it's kind of boring. It's kind of obvious, but that's what we're trying to stress here, that the journey to financial independence doesn't have surprising twists and turns and. Difficult, you know, overpasses that you have to pass or I'm really trying to torch this journey analogy, the journey metaphor. But the point is it's pretty boring, it's pretty straightforward, but it requires a level of consistency and discipline that a lot of people don't want to commit to. As we close this episode out, we want to say a huge thank you to CommSec for supporting the series. Hopefully together we can show you a path to how you can tap into the world of investing to build wealth over the long term. CommSec provides all the support, information and resources you need to build your confidence and make the right money moves. Sign up today to get $0 brokerage on your first ten trades for Australian markets and invest with as little as $50 through the CommBank app. Visit CommBank.com.au for more CommSec T&Cs and other fees and charges apply. 

Bryce: [00:30:52] Now stick with us because next episode we unpack the fifth step in our journey, which is all about boosting your income with side hustles that have paid off big time.