What's Your Millionaire-Next-Door Quotient?

The other day, browsing through some videos on the Kiplinger's Personal Finance website, I happened across this one called "Secrets of the Millionaire Next Door." It examined the habits of the "invisible rich": people who live so simply that no one would ever suspect how much money they really have stashed away. Three particular behaviors the video identifies are:

1. They don't spend beyond their means. When shopping, they look for value rather than prestige.
2. They don't swing for the fences. They're happy to earn a safe, sure rate on a simple investment they can understand rather than reach for the highest possible returns and risk losing everything on some exotic trading strategy.
3. They keep themselves covered, having plenty of insurance to protect them against loss.

All of this sounded very familiar to me. Brian and I certainly aren't millionaires (at least not yet), but according to this video, we're already living like millionaires—at least the invisible kind. We live in a nice but modest house, drive a nice but modest car, and are satisfied with nice, modest investments, such as index funds, that meet but don't beat the market averages. And hearing that many of those who live just as we do are bona fide millionaires encourages me to believe that if we just keep up what we're doing, one day we will be too.

The end of the video, however, notes that "that's not all the invisible rich have to teach us" and encourages viewers to search the main site for the phrase "millionaire next door." So I tried that, and I found a longer article (available in slideshow or single-page format) that covers the same material in the video, but expands the list of three savings secrets to nine. I knew my lifestyle was already hitting all of the frugal talking points covered in the video, but would I fare as well against the full list?

The answer, as it turns out, is "not quite." Apparently, Brian and I share eight out of nine habits with the Millionaire Next Door, but we—or more precisely, I—fall down in a big way on the ninth. Here's what I have in common with the invisible rich, and what I don't:

1. They don't spend beyond their means. Naturally, since I have a whole blog about saving money, I had no trouble with this one. Even when I was young and earning very little, I always made a point of living within my income, even when it meant spending an extra six months living with my parents while searching for an apartment I could afford. I've learned a lot more tricks and tools for saving money since then, but the principle is the same.

2. They educate themselves. One thing the invisible rich don't hesitate to spend money on is education, which the article calls "a prime driver of income." I can't take much credit for this one, since the money spent on my college education was not mine but my parents', but I have made a point of continuing to educate myself—in particular, about money. I've learned a lot over the years about how to save it, to spend it wisely, and to invest it, and I'm learning more all the time—enough to keep a whole blog going on the subject.

3. They pick the right field. This is the one question I blew. In college, I studied literature, because it was what I cared most about, but I have to admit, it's not a field where they pay you the big bucks. Yes, I've been able to earn a modest living with my writing skills, but it's grown steadily more modest in the past few years, and I find myself wondering more and more whether I need to go back to point #2 and study something else, something more lucrative, if I want to keep earning a living at all. Admittedly, I'd rather have a low-paying job doing something I like than a high-paying job doing something that holds no interest for me, but I think I could stand to have the scale tipped just a little more toward earning.

4. They save and invest early. I'm back on solid ground here, as I started investing in my company's 401(k) plan just as soon as I qualified for it. I started out putting in just enough to earn matching dollars from the company, but as I climbed up the ladder, I put away a larger share of my increasing income with each pay raise. After becoming a freelancer, I rolled the whole thing over into an IRA that I continue to fund to the max each year, even when my income is low.

5. They don't swing for the fences, investment-wise. I handle pretty much all our investments, and I tend to stick to index funds. No, I'll never beat the market average that way, but I'll never get less than the market average either, which is what I seemed to get with every managed fund I've ever owned. Nowadays I mostly use ETFs, which are easier to trade, but they're still straightforward investments that don't follow some complex strategy even the people who created it can't understand.

6. They keep themselves covered. We actually don't pay for life insurance; Brian gets a policy as part of his workplace benefits, and I don't need one because he doesn't depend on my income. But we have all the basics—health, home, and car—all with nice, high coverage limits.

7. They're wise about windfalls, preferring to save them up rather than splurge. Personally I've always had trouble answering questions like, "What do you plan to do with your tax refund?" or "What would you do with an extra $5,000?" because, to me, it's all just money. There's nothing special about those particular dollars that seems to require me to do something different with them from what I do with all my other dollars: put them in the bank, withdraw them as needed to pay for day-to-day expenses, and transfer them to my investment account if the balance gets too high. A tax refund or a small inheritance may be "extra" money, but that's never struck me as a reason to do something "extra" with it that I wouldn't normally do.

8. They hang onto their cars (and houses). We've only ever owned one house, and it's more than big enough for the two of us (maybe even too big, in some ways), so we certainly have no plans to upgrade. As far as I'm concerned, our "starter" home can also be our finisher home—or at least our until-we're-ready-for-assisted-living home. As for cars, well, I must confess that we now have one that's less than five years old, and we even bought it new (after figuring out that we wouldn't save anything by buying a similar model used). But the car we had before this was a 16-year-old Honda that we only gave up after an accident left it completely undriveable—and that was after the insurance company had already "totaled" it in an earlier collision, and we'd patched it up and continued to drive it for another two years. So if past performance is any predictor of future results, we'll be driving this car for another 11 years at least.

9. They avoid debt. On this point, some might argue that we're actually too extreme. The only debt we've ever had was our mortgage, and during the whole 5 years we had it, we were laser-focused on paying it down as fast as possible. Many people would (and do) argue that this is a mistake: with mortgage interest rates as low as they are, it would make much more sense to keep the mortgage and put the extra money into higher-yielding investments, like stocks. But the thing about the stock market is, it's unpredictable. Paying off our mortgage, by contrast, offered us a guaranteed return: 6 percent for the first two years, and then 4.5 percent after refinancing. So while we might have been able to get a higher return by investing in stocks, it would have been a lot less certain, and as cautious investors (see point 5), we chose the bird in the hand over the, what, maybe 1.6 birds in the bush.

So, with our lifestyle matching that of the invisible rich on 8 points out of 9, it looks like our Millionaire-Next-Door Quotient (MNDQ?) is 89 percent. How's yours?