A researcher who studied over 600 millionaires found they do 3 things to forge a clear path to financial independence
- To achieve financial independence — or to no longer work to live — most millionaires follow a similar path, according to a researcher who has studied more than 600 millionaires.
- They share three traits: spending below their means, finding a side hustle, and moving to self-employment.
- These ultimately allow them to build wealth more quickly and reach financial independence sooner than most.
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Building enough wealth to achieve financial independence requires a lot of resilience and perseverance, but there's more to escaping the rat race than that.
Sarah Stanley Fallaw, an author of the book "The Next Millionaire Next Door: Enduring Strategies for Building Wealth" and the director of research for the Affluent Market Institute, surveyed more than 600 millionaires in America and found that those who dusted off the 9-to-5 — whether they wanted to no longer work or to start working for themselves — followed a similar path to financial independence.
"Millionaires have shared three themes related to removing yourself from the trap of working to live: creating margin in their lifestyle to allow for career moves, particularly significant ones (e.g., living off of savings while starting a business); exploring career opportunities while generating revenue from a traditional job (i.e., moonlighting); and making a move to self-employment," she wrote in her book.
Here's a closer look at each of those themes:
1. Spend below your means.
Many of the millionaires Stanley Fallaw interviewed stressed the freedom that comes with spending below their means.
"The freedom translates into opportunities to make career changes that provide either (a) more time and flexibility to pursue efforts outside of work, and/or (b) the potential for increase in revenue," she wrote.
She added: "Spending above your means, spending instead of saving for retirement, spending in anticipation of becoming wealthy makes you a slave to the paycheck, even with a stellar level of income."
Chris Reining, who retired at 37 as a self-made millionaire, previously told Business Insider that being rich and becoming financially independent isn't about a paycheck or how much money you have — it's about how much you spend and living below your means.
"Getting rich, and staying rich, is overwhelmingly a game of living below your means," he said. "If you can do that you'll enjoy a freedom that people living rich will never experience."
Read more: A researcher who studied over 600 millionaires found 2 qualities helped them get rich, and anyone can develop them
2. Find a side hustle.
Moonlighting, or taking on a side hustle, has been favored by many millionaires — it's a good way to explore options while remaining employed full time, according to Stanley Fallaw. But making a side hustle successful "requires resources, both time and money, to develop and maintain," she wrote.
"Those who are able to create multiple opportunities to generate revenue, who can translate hobbies into income-producing activities, will be successful at becoming millionaires next door in the future," she added.
Read more: The author of 'The Millionaire Next Door' explains 3 ways anyone can build more wealth
It's possible to transform a side job into a full-time career if you have the hunger, execution, decisiveness, and perseverance for it, Susie Moore, a high-performance coach, consultant, and author, previously wrote in an article for Business Insider.
One investor who plans to retire early found that earning an income with a side job is the path of least resistance for reaching financial independence.
It can certainly help you get there faster — Business Insider recently spoke to a handful of people who have taken on side hustles, and they said they earned anywhere from an extra $1,000 to $30,000 a year. Invest that money, and the power of compound interest can lead to wealth.
3. Become self-employed.
Those who are financially independent can grow their wealth even more by working for themselves.
The self-employed "millionaire next door" of tomorrow is likely to take risks to transform their resources into something of value, according to Stanley Fallaw, who said 42% of the millionaires she spoke with were self-employed.
"The potential payoff for those career risks, specifically for the risk associated with starting one's own business, is the ability to generate revenue, more revenue often than would be possible working for someone else," she wrote.
Stanley Fallaw found in her latest survey that self-employed millionaires had more than 1.5 times the median income of those who work for others. Their actual net worth minus their expected net worth is on average double that of those who work for others, she wrote.
Stanley Fallaw said that investing in one's own business is a hallmark of the economically successful, as long as they have the right strengths — like perseverance and resilience — to survive the journey.
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