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Many people believe that to be rich you need the priciest car, first-class flights and designer clothes. In short, an extravagant lifestyle.

The evidence says otherwise. In The Millionaire Next Door (1996), researchers Thomas Stanley and William Danko surveyed American millionaires and found that most of them were frugal. They didn’t live in mansions or drive the latest cars, and about 80% had built their wealth themselves rather than inheriting it. The flashy image comes from TV and films. Most wealthy people are careful with money and only spend when there’s a need to.

Millionaires become millionaires by spending less than they earn, building new sources of income and earning a good return on their investments. As a group, they’d rather own an extra 100 Tesco shares, and a bigger slice of its profits and dividends, than a case of champagne. That’s why their money keeps working while they sleep or spend time with family, while most people drag themselves to a job they don’t care about.

Adam Khoo and the economy seat

The story of Adam Khoo, a Singaporean entrepreneur and author who says he became a self-made millionaire at 26, shows this mindset well.

Khoo travels around South East Asia for business and is often recognised at airports. He has written about one flight where a stranger came up to him, looking shocked, and asked how a millionaire could be travelling in economy. Khoo’s answer: “That’s why I am a millionaire.” The stranger looked confused.

Khoo calls this one of the biggest lies about wealth. Many people think millionaires must wear Gucci and Rolex and fly first class. So the moment they earn more, they spend more, and end up back where they started.

According to Khoo, he saved about 80% of his income for seven years and, with a family to support, still saved around 60% at the time he wrote about it. Most people save 10% if they’re lucky.

He refuses to pay for a first-class ticket or a $300 shirt because he sees it as a waste. Yet he was happy to pay for his young daughter’s drama classes without a second thought. Frugality means spending on what matters to you and cutting the rest.

What the self-made rich have in common

When Khoo joined the Young Entrepreneurs’ Organization (now the Entrepreneurs’ Organization), a club for business founders with at least $1 million in annual sales, he found that the self-made members thought the same way. Many worth over $5 million flew economy and drove Toyotas and Nissans rather than Audis or BMWs.

In his account, the big spenders were mostly those who had inherited their wealth. If you didn’t build it from scratch, it’s harder to value. There’s an old saying that family fortunes rarely last beyond the third generation: “shirtsleeves to shirtsleeves in three generations”.

Why buying things doesn’t make you happy

People have asked Khoo what the point of money is if you don’t enjoy it. His reply was that branded clothes, jewellery and first-class seats don’t make him happy. Any buzz from a purchase fades, and you need the next thing to feel good again.

What does make him happy, he says, is watching his children play and learn, seeing his business reach more people and reading messages from people his books have helped. That kind of happiness lasts far longer than a new watch.

His point is that happiness comes from your life’s work, whether that’s teaching, building homes, designing or trading. The money is a by-product.

What a £300 shirt really costs

Every pound you spend is a pound that can’t grow. Put £300 into a global index fund instead of a designer shirt and, at 7% a year, it becomes about £2,280 after 30 years. Do that once a year for 30 years and you’d have around £28,000.

Success isn’t what you wear

Buying luxury goods doesn’t make you a success. Success is having plenty of money coming in, little debt and the freedom to spend your time how you want with family and friends. Gucci glasses don’t make you successful. Bought on credit, they move you further from your goal.

You’re a success when you can pay for the Gucci glasses with dividends, interest and profits from your investments.