"Then I heard the voice of the Lord saying, "Whom shall I send? And who will go for us?" And I said, "Here am I. Send me!"
~Isaiah 6:8 NIV
"He has told you, O man, what is good; and what does the LORD require of you but to do justice, and to love kindness, and to walk humbly with your God?"
~Micah 6:8 NASB

Friday, August 21, 2009

Book 6: The Millionaire Next Door

I loved this book. I love statistics and numbers and this book is just full of them.
The Millionaire Next Door was written by Thomas Stanley and William Danko in 1996. They began studying how people became wealthy. They started by surveying upscale neighborhoods and soon realized something odd. Many people who live in expensive houses do not actually have much wealth. Then they discovered many people that do have a great deal of wealth did not live in the upscale neighborhoods. When most people try to picture people of great wealth, they often picture expensive large house, new luxury vehicles, large flashy jewelry, and such. What they discovered in their 20 year long survey is people with great wealth most often do not fit that picture. Also, they discovered that most of the people that were wealthy did not inherit wealth or have flashy high degrees. Wealth is rarely gained through Lottery, in sports, or from a TV show. Wealth was more often the result of hard work, perseverance, planning, and self-discipline.

Usually the wealthy person is a business owner who has lived in the same town his whole life. He is married once and remained married. There kids are educated. He lives in upper middle class or middle class neighborhood next to people with a fraction of his wealth. Most of the time the neighbors have no idea their neighbors are wealthy.

  • 80% of American Millionaires are first generation rich.
  • About half the wives do not work. Of the wives that work, the number 1 occupation is teacher.
  • 97% are homeowners living in houses with the average value of $320,000.
  • They wear inexpensive suits and American made cars. Only a minority drive the current-model-year car. Only a minority ever lease a vehicle.
  • As a group, they believe education is very important.
  • About 2/3 work between 45-55 hours per week.

During the investigation, they discovered seven things that were common among those successful millionaires.

  1. They live below their means.
  2. They allocate their time, energy, and money efficiently, in ways conductive to building wealth.
  3. They believe that financial independence in more important than displaying high social status.
  4. Their parents did not provide them with economic outpatient care.

    They are generally frugal when it comes to their own consumption, but not nearly as frugal when it comes to gifts for their children and grandchildren. Children of the wealthy are not guaranteed to be as success as their parents. They often conclude that children could not maintain a middle class lifestyle without help from them. Giving those gifts often creates more spending, not saving because the recipients start to depend on it and budget their lifestyle accordingly. Not all economic help is harmful, but it must be done after the children are already responsible and do not NEED the money. It is only then that they will use the money to prosper.
    According to the survey, Millionaire parents all too often weaken the weak. All too often parents are more willing to give large sums to money to their underachieving children. For example, lets suppose a couple has two children. One is a college graduate; very successful with handling money, with a full time job and the other child is a High school graduate, living at home, with no income. The parents desire to give a gift of 20,000 to their children. Do they divide is down the middle and give both 10,000? No. According to the survey, most parents in this situation would give the underachiever 15,000 because they feel this child needs the money more and give the successful child only 5,000. These well-meaning parents feel like they are helping the underachieving child, but in reality, according to the survey, the actually cripple the child further by making them more reliant on outside assistance. This can also cause conflict and jealousy because the high achievers will start to resent the gifts.
  5. Their adult children are economically self-sufficient.
  6. They are proficient in targeting market opportunities.
  7. They chose the right occupation.

Being frugal is corner stone to wealth building. Often when you see people spending big money on television (like celebrities and sports players), those people may have a large income but most have little investments and little wealth. They spend all they have. They may technically me Millionaires but when compared to other people in their income range, they are actually very poor.
Rules for Affluent Parents and Productive Children
The affluent who have successful adult children gave them these guidelines on how they raised their children.
1. Never tell your children that parent’s are wealthy.

Children that grow up in wealthy families that have high consumption tend to want to maintain that level of spending even after the move out. All too often though they do not have the income to support their lifestyle, so they have to rely on parent’s assistance and credit.

2. No matter how wealthy you are, teach your children discipline and frugality.
3. Assure that your children won’t realize you’re affluent until after they have established a mature, disciplined, and adult lifestyles and profession.
4. Minimize discussions of the items that each child and grandchild will inherit or receive as gifts.
a. Because you may forget what you said…and they probably will not.
5. Never give cash or other significant gifts to your adult children as a part of a negotiation strategy.
6. Stay out of your adult children’s family matters
7. Don’t try to compete with your children
8. Always remember that you children are individuals.
9. Emphasize achievements no matter how small.

Teach children to achieve not just consume. Earning money just so you can spend
it should not be your ultimate goal. People are not impressed by what you own,
but by what you’ve accomplished.

10. Tell your children that there are a lot things more valuable them money.

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