Published on April 10, 2024 at 6:21:50 AM
Investment habits of the secret millionaire
In June 2014, Ronald Read, a Vermont based janitor and gas station attendant, who had led a non-descript life, died at 92. It was only after his death, that it was discovered that he was a secret millionaire who had quietly amassed a fortune of $8 million, all thanks to his smart spending and investing habits.
In November last year, 82-year-old New Hampshire resident Geoffrey Holt, who lived in an unfurnished mobile home and drove a lawn mower left a $4 million fortune to the small town he called home. He, too, was a secret millionaire.
We are sure there are scores of such examples even in India where people with modest annual incomes have managed to build portfolios in excess of a crore.
It is tough to earn money, tougher to hold on to what has been earned and tougher still to compound it over time so that one can become financially free and perhaps gain millionaire status.
While Read’s and Holt’s may be tough acts to follow, you too can gain dollar millionaire status by starting out small. It is not easy, but imminently doable.
In fact, a bunch of people follow a disciplined approach to finance and investing and achieve in one generation what most others from their peer groups can often only aspire for.
Often, these people do not flaunt their wealth and keep leading their lives as unassumingly as they had been doing in the past when they were not as wealthy. Such people are the quintessential secret millionaires who have net worth far in excess of most people who live around them and may perhaps even be oblivious to the fact that they have achieved millionaire status.
Disciple, discipline and discipline
So, what did Read and Holt have in common? What differentiates such secret millionaires from their peers? And more importantly, how can you become a millionaire despite having humble beginnings?
The most important thing about these secret millionaires is that they are extremely diligent when it comes to saving and investing their money and can keep at it for long years, without a break.
Such people understand that one fundamental rule of personal finance that most ignore- the power of compounding.
They start small and then keep building on their gains, month after month, year after year.
Here are some common investing traits of that secret millionaire who may be living in your midst.
They begin investing very early in life and have a high savings rate
Most people who manage to compound their wealth in one lifetime do so by starting small but starting early. They almost always have frugal habits and are very focused investors. This is, however, not to suggest that they invest in complex instruments. Far from it. Most self-made millionaires invest using simple tools such as index funds, which are low cost and do not need active management. Or they invest in blue chip stocks or dividend paying stocks, like Ronald Read used to do. Their investments compound over time and help them build a sizable kitty for themselves.
They start saving for their kids very early- in some cases before they are even born
Indeed, as funny as it may sound, some people begin planning for their future kids- even before they are born. They work towards providing a head start to their children before they come of age and begin their lives independently. Not only does this ensure that their children learn the importance of building wealth but also help in passing on their assets intergenerationally.
They always seek financial advice
Savvy investors always seek sound financial advice before investing their money into the stock markets either via direct equity or the mutual fund route.
As an investor in India, you should ideally approach a SEBI-registered investment advisor or portfolio manager for sound financial advice.
They have multiple income streams
Secret millionaires often have multiple income streams and do not depend on just one source of income from their job or business or a service they render. Such multiple income streams could include rental income, interest income from debt instruments, income from annuities, dividends from shares in listed and unlisted companies and income from gig work other than their primary employment. These are just some of the possible examples of active and passive income streams that one can build over time for a secure future.
They maximise the investment and tax benefits
Under the Indian Income Tax Act, salaried employees as well as those making a living from their own businesses, are offered tax breaks under various sections including 80C and 80D, just to name two. These include tax breaks for investments in instruments such as the Public Provident Fund, the Employees Provident Fund, the National Pension Scheme, equity linked savings schemes, medical insurance premiums for self, spouse, family as well as parents.
Apart from these employees can also claim tax rebates on house rent allowance, interest payment on housing loans, as well as tax free reimbursement on fuel bills, car leases as well as driver’s salaries etc.
Savvy investors tend to maximise their incomes using such tax saving instruments, thereby increasing their take home pay substantially. This gives them disposable money that can go into investments and towards building a nest egg.
They always have a sizable emergency fund
Most savvy investors who go on to become everyday millionaires, almost always keep an emergency fund that can be adequate for their families, in emergency situations, at least for six months to a year.
This emergency fund helps them tide over an unforeseen situation such as a job loss, or a sudden medical expense owing to hospitalisation, a sudden repair due on one’s house or shop or office or any other premises, just to cite a few possible examples.
An emergency fund also ensures that the person does not have to liquidate his or her investments in an emergency, and the same can continue to compound unhindered.
They don’t buy expensive liabilities like cars
Most self-made millionaires who manage to hide in plain sight, do not indulge in expensive luxuries like expensive cars that are a drain on the pocket and are hard and expensive to maintain and run.
Not acquiring expensive depreciating assets ensure that such people retain complete control over their money and they can stash enough money away for investments.
They avoid debt like the plague
Unnecessary debt is avoided by wise investors. Often, if one is not able to fully service the debt, it keeps ballooning, and the burden goes on increasing. Smart investors therefore know that debt should never be allowed to get out of hand and keep paying off their credit card bills in time. They also try to pay down their home mortgages whenever they have excess money to spare and several among them pay depreciating assets like cars, by making a cash down payment rather than by availing a car loan.
They don’t try to keep up with the Joneses
Like we mentioned earlier, such people who manage to build up a big corpus out of humble incomes, typically do not buy expensive luxuries like high end cars and other such items that can drain them of their hard-earned wealth. This is because they do not have an urge to keep up with the Joneses and impress anyone. They keep a low profile and are more content seeing their net worth balloon. Rather than blowing their money up on unnecessary extravagancies that will only impress some of their friends and peers, they put their money to work and let it grow in value and compound over time.
Conclusion
As you can see, secret millionaires do not do anything fancy to grow their wealth. They follow simple investment techniques; get sound investment advice if they are not sure themselves; live within their means, and keep growing their financial net worth, slowly and steadily. They often do not have the urge to advertise their achievements and are very reticent about their finances. They only confide among a group of close family and friends and take good counsel from certified financial planners while charting their path on the journey towards financial independence.
Invest wise with Expert advice
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