During a time of rampant pessimism and economic turmoil, a record number of Americans cannot even contemplate becoming a millionaire in the next 10 years. It may appear a little untimely to write about wealth; after all, many are just trying to stay afloat. However, I submit to you that there is no time like the present to get into financial shape. That’s because although the Great Recession exposed the vulnerabilities of many families, some families have also gained a heightened awareness of opportunities and resolve to strengthen their finances. One of the best ways to achieve this is to learn from people who have successfully managed their money.

Today, we’ll delve into key lessons from the Tiger 21, a club for decamillionaires. I recently read an account from one of their meetings suggesting that the typical American family can get into better financial shape by employing three simple steps.

1. Maintaining Adequate Liquidity

Liquidity is essential in today’s challenging economic times; more importantly, during your own personal economic crisis, whether it be a job layoff or a gigantic car repair bill, having liquidity can give you a peace that too few experience. At a minimum, consider maintaining an emergency fund of at least 8 months worth of expenses AFTER you are debt-free excluding the house. Admittedly, this IS risk-adverse, but it is also a NECESSARY precaution because: a) job security is an illusion, b) most real estate values have seen significantly better days, c) it’s hard to convince yourself to sell equities in an emergency (especially if the market happens to be down at the time of said emergency), and d) it may be hard to obtain loans from banks when you need them the most (instead banks may close your credit line if they aren’t certain they will be paid back or may demand the balance of your loans if you default).

Liquidity is not trivial. In terms of emergencies, Money magazine reported that 78 percent of families WILL have a major unexpected event within the next ten years. In other words, LIFE WILL HAPPEN, but whether or not you are prepared is up to you. Moreover, liquidity is not just for emergencies. According to the Millionaire Next Door, most millionaires can survive for more than 12 years without working. I’m not suggesting that all of that is in cash or near cash-equivalents, but the point is that having liquidity mitigates some risks. That’s the very reason businesses deleveraged back in 2008. Liquidity decreases our absolute dependency on our income.

Indeed, it may be your best defense after eliminating your consumer debts WHEN life happens.

2.Are You Insured?

Typically, we hate insurance until we need it. Purchasing adequate insurance also reduces our financial risks.

a) Long-term disability insurance is important because it replaces your income in the event you become disabled. Still, it is one of the most underinsured areas. The Senate Finance Committee reported that 70% of people between the ages of 35 and 65 will become disabled for three months or longer, and 90% of these disabilities will occur “off the job”. Don’t think Social Security will necessarily pick up the slack either. Many people with legitimate claims are rejected on a daily basis. Fortunately, some employers offer long-term disability insurance, so check with your benefits coordinator to see if you are covered. Otherwise, purchase an individual policy. Although an individual policy is more expensive, the peace of mind is well worth it.

b) Adequate life insurance is also critical so that the death of a loved one does not financially ruin a family. It seems morbid to talk about death, but if one has dependents, life insurance is critical. Many who have life-insurance do not have an adequate amount of coverage. One should have between 10-12 times his annual wage in insurance. For example, if a household’s income is $50,000 annually, a $500,000 life-insurance policy should suffice. Let’s crunch the numbers. A 10% annualized return on $500,000 would generate $50,000 per year; thus, the income has just been replaced. Do not let an untimely death devastate your family financially as well as emotionally. Lastly, go with a good term-life policy. You can obtain these for pennies on the dollar, especially compared to whole life.

c) Health Care insurance is an obvious must. Medical bills consistently rank among the number one cause of bankruptcy. Even a major medical insurance plan with a high deductible would represent an adequate start, especially if your family is relatively healthy. Also, consider a Health Savings Account (HSA) or obtaining coverage through an association (sometimes you can get significant discounts) if your job doesn’t provide you insurance as a benefit or if you are self-employed.

3. The Person in The Mirror

Most of us can get wealthy if we learn how to control the person in the mirror. According to the Tiger 21 club, it’s not a matter of “what can I afford to spend” as much as “what do I need to spend?”

Did you know decamillionaire households are more likely to accurately an answer to the following: my grocery expenses are “X” and my clothing expenses are “Y” than the typical American family. Consider the implications of the following statements:

1. More than two-thirds of grocery store shoppers in America today are impulse buyers.
2. Two-thirds of millionaires surveyed (62.4 percent) know how much their family spends each year for food, clothing, and shelter.
3. For every 100 millionaires who don’t budget, there are about 120 who do.
4. Moreover, greater than half of the nonbudgeting millionaires invest first and then spend the balance of their income. In other words, before they purchase clothes, housing, food, etc., they pay themselves first a minimum of 15% of their annual income. Even without a budget, they are clearly controlling their income.

In short, those with more means are more likely to control their expenses(i.e., groceries, clothes, etc.) through budgeting than those with lesser means. If this is counterintuitive, remember that IT TAKES WORK TO BUILD WEALTH! Forget the media images of celebrities and Wall Street whiz-kids, most people who build considerable wealth may never get a substantially large pay check.

Frugality is the cornerstone of wealth-building. A good defense is critical to your wealth equation. Who better than decamillionaires to have internalized this lesson? If you consistently practice fiscal restraint and invest wisely, your money will eventually work harder than you.  Contemplate living off of just a small fraction of your wealth. The typical millionaire household lives on just 7% of its wealth.  That’s the kind of restraint I’m referring to.

The Income Myth and Parting Thoughts

Let me reiterate that it’s not about income as much as the media seems to represent. That’s because regardless of whether you make $50,000 or $500,000, you can still be broke! It is infinitely easier to earn a high income than it is to build substantial wealth.

• Fewer than five thousand of the nearly 100 million US household will earn $5 million in a single year.
• The majority of millionaires earn a small fraction of $5 million in a year.
• Few could even become millionaires and support a high-consumption lifestyle simultaneously

Consequently, regardless of your income, I believe there is something to be gained from running an economically-productive household. By maintaining adequate liquidity, protecting your household with the appropriate levels of  insurance, and exercising fiscal restraint, you can build a financial house that is not easily destroyed by unexpected tragedy and lay the foundation to build extraordinary wealth. That’s financial peace that no flat screen, Gucci bag, or Lexus can even touch.

About the Author

Roshawn writes at Watson Inc. on eliminating debt,investing money, and building wealth. Get his free eBook Your Foundation to Wealth by signing up for his email updates (no spam I promise). Get his RSS feed and connect with him on Twitter @roshawnwatson too.

Here’s a question: Why do you want more money?

Maybe you don’t want to luxuriate in a gold-plated bath filled with lilies imported from a meadow in the Swiss Alps. Maybe you just want to get out of debt. Maybe you just want to get a handle on your day-to-day expenses. And more power to you.

But many people want to move beyond that, into the rarefied air of the 35% tax bracket — and beyond.

So here’s my question: Why?

I ask this question with no judgment. I’m not Noam Chomsky. I’m not going to go on some anti-materialism diatribe here. When I was young and foolish, I thought anyone who pursued money was greedy and shallow. Now, I’m older (alas) and wiser (perhaps), and I don’t have as much of a problem with wealth.

Actually, if I’m honest here, I sure do wish I little more jingle in my jangle. I drive to work in a 2001 Volkswagen with an odometer that’s well north of 100K. I try to make dinner in a microwave oven that inexplicably shuts itself off after exactly 2:48. I watch TV on a ratty old couch that Mickey Rourke would probably avoid.

And I find myself thinking: “Man, it would be nice not to have to worry about this stuff.”

Maybe that’s about the extent of my wishes: As Dorothy Parker said, “I want only enough to keep body and soul apart.” But I also have an adorable two-and-a-half-year-old daughter, and I would love to be able to move into a house with a big yard for her to play in.

And to be able to buy her all of the Olivia books, without worrying if we’re going over our amazon allotment for the month.

And to be able to go to restaurants more often.

And to buy a bottle of wine without making sure it’s in this book.

And the occasional trip to, say, France.

And to sleep like Rainer Wolfcastle in The Simpsons: “On top of a pile of money with many beautiful ladies.” (To my wife Jeanne: Just kidding.)

But the point is, it becomes a slippery slope. You want just a little bit more, and soon it becomes like a drug. You want that next thing. Sure your cellphone is nice, but does it have augmented reality? No? Oh man, you have to have augmented reality!

The thing is, I know I’ve got it pretty good. As seen recently on Financial Samurai, we here in the U.S. enjoy a standard of living that most of the world wouldn’t dare dream of. My debt is pretty minimal, I’ve got a great job with amazing benefits, and so on. So I don’t mean to be a malcontent.

But I’ve been able to dip my foot into the waters of the wealthy. Years ago, my ex and I went on a bicycling trip with a high-end travel company through Tuscany. (We were only able to afford it because she was doing some travel writing, one of the sweetest gigs you can have.)

Our group rode some of the Tour de France’s route, and we saw some of the race. I even have a picture of Lance Armstrong raising a glass of champagne right at me. (Well, my ex has it now, but let’s not split hairs.)

And at one point, we stayed at the same Tuscan inn as Robin Williams, who’s apparently a huge cycling fan. And I have to say… living the way the uber-wealthy live was really, really nice. Imagine a football-field­–sized bed with the softest sheets imaginable. Elegant linen curtains. A view of the Alps. Delicious dinners with endlessly flowing hand-crafted Italian wine. And so on.

So we got to pretend that we were rich for a little while. And then, like Charlie in Flowers for Algernon, we were sent back to our middling lot in life. (And no, we never saw Robin Williams, either.)

So is it just me who wishes I had a little more? Or are you one of those people who is happy as a pig in mud with what you’ve got? And if so, what’s your secret? I’d love to know it.

$996 a Week for 10 Years

That is roughly the amount you would have to invest to save one million dollars in ten years, assuming an average 12% earnings rate.  Historically, 12% is a realistic figure, albeit optimistically on the high side.  Here is a look at how your $996 weekly contributions to your favorite investment account (I’ve used Scottrade, Sharebuilder and TD Ameritrade with good results) would add up each year:

source:  DinkyTown.net

Carving Out $996 a Week

I nearly laughed out loud when I typed that heading.  I often read topics like “carving out $50 a month” or “shaving $20 off weekly expenses,” but rarely do we hear someone suggest “carving out $996 a week!”  That is nearly $4,000 a month!  If you are like me, that is more than I have to carve!  So how does the average person go about contributing nearly $1,000 a week to savings?  Using the principles discussed in books like I Will Teach You To Be Rich, you can discover ways to cut your expenses significantly while boosting your income.

Get a Side Hustle

A reader once wrote in that a friend told him “everyone needs a side hustle,” something to supplement their full time job. That’s great advice! It could be a small, home-based business opportunity that generates a few hundred dollars a month, an investment opportunity with a great passive income, such as peer-to-peer lending, or a substantial part-time career that you can cultivate in your off hours.

Either way, this “side hustle” could represent the majority of that $996 you have to come up with to make a million dollars in ten years.  Obviously, some of the profits from this side gig will have to be reinvested to help it grow, but for the most part, your goal should be to try to save as much of those profits as possible.

Pay Off the Mortgage Early

If you have a $1,000 mortgage payment, paying it off early buys you one week’s worth of savings each month towards your millionaire dream.  Eliminating a $2,000 mortgage provides two weeks.  Pay off the mortgage early, and instead of sending a payment to the bank each month, send a deposit in that same amount.  This step alone will put you on the fast track to building significant wealth.

Two Income Households-Save One, Spend One

In households with two working spouses, make an effort to live on one income and invest the other.  Open a high-interest online savings account at one of the best online banks, and point one spouse’s direct deposit there.  All further investments, such as transfers to a top online brokerage can be automatically deducted from that account.

If one spouse brings home $4,000 a month you just found the source for your $996 a week contributions.  Living on one income may require downsizing homes and cars, and living way below your means, but the payoff is well worth it in the long run.  Invest some of this money in equities, either in single stocks or in broader mutual funds.

I don’t mean to trivialize the amount of sacrifice (and luck) required to make this plan work.  $996 is a significant amount of money, and at this phase in my life I could barely afford to contribute half that amount on a weekly basis.  But it is a goal–something to strive for.

It is also important to point out that there is nothing magical about the one million dollar mark.  You may find that you could live quite comfortably on the interest generated from $750,000, or even $600,000. Your “number” is a personal choice, but figuring out how to make a million dollars provides most of us a stretch goal.

There are no Cinderellas. Some teams take offense to being called a Cinderella, because they felt they had just as much shot at the title as the other guys. The label is frequently used to slight their accomplishments by insinuating “they got lucky.” Sometimes luck plays a part in it, but most Cinderellas pull off the upset because they out-worked, out-hustled, out-coached, and out-played their opponent. The pinnacle moment in their sports careers comes as a result of hours of preparation, workouts, shoot-arounds, two-a-days, and film study.

How does this apply to finances? Many of the wealthiest people in our country are also some of the most envied. Sure, we all would like to be Bill Gates for a day, but why do so many people speak ill of successful people like Gates? Is it jealousy? Or is it the realization that they don’t have the fortitude, the work ethic, the determination to be as successful as those in the wealthy class.

“I guess it is easy if you receive an inheritance.” Believe it or not, most millionaires are self-made, first-generation rich. They do not stand to inherit a large sum of money ala Paris Hilton. They did not strike it rich in the lottery, or win a giant lawsuit. They worked every single day for many, many years at their craft. They built multi-million dollar businesses from card tables in their living rooms and heads full of ideas. They led large corporations of hundreds of employees. They spent hundreds of hours writing, editing and marketing their book ideas to anyone who would listen. These millionaires did not become overnight successes.

How can you become a financial “Cinderella?”

• Get out of debt, for starters. Carrying around debt is like trying to climb Mt. Everest with a fifty pound anvil tied to your back.

• Turn off the television and read to learn something. Knowing the last five winners of Survivor won’t make you a success, but studying these five winners will: Warren Buffett, Donald Trump, Zig Ziglar, Dave Ramsey, and Dale Carnegie.

• Stop trying to impress people at red lights you will never meet again. The average new car payment in America is $475 a month. Sell that sporty new car, buy an old, reliable, used car with cash and drive it until the wheels fall off. Keep driving used cars the remainder of your life and deposit $475 into a mutual fund every single month. In thirty years you will have over $1 million dollars. Don’t believe me? See for yourself.

• Don’t mortgage away your future. Stay well under the 28/36 suggested debt-to-income and payments-to-income ratios (suggested by the lending industry, primarily). I personally wouldn’t tie up more than 20% of my take-home pay in housing. Doing so would mean less to save and invest, and that’s a trade off I’m not willing to make to score extra square footage.

• Practice frugality in all areas of your life. Buy clothes on sale; and only when you need them. Avoid paying for name brands when quality alternatives, or homemade solutions, exist. Be a frugal grocery shopper. Eat at home; it is healthier and less expensive. Invest in yourself; you will live longer and pay less for it in medical bills and insurance premiums.

Finally, after a couple decades of sacrifice, determination, and dedication you could become an overnight success, and be called a financial “Cinderella” yourself. Do not take offense, because you can proudly reflect on the effort you invested to reach your financial goals.

Watch the commercial that inspired this post: There Are No Cinderellas