22 years later..…are the lessons still relevant?
Much to the chagrin of children, we are at that time of year when students go back to school. In the spirit of this occasion I thought I would write my own version of a book report on an industry classic The Millionaire Next Door. I remember hearing about this book over the years, but I had never sat down and read it. Many of you have heard of this book or perhaps read it, so I decided to write a quick summary of the lessons from the book and ponder whether these ideas still resonate today in 2018.
Imagine a millionaire. What do they look like, what kind of car do they drive or house do they live in? What kind of profession do they work in and what do you imagine their lifestyle to be? For many when they think about this question they may imagine that they all have large oversized houses, exotic cars, expensive clothing, and live lavish lifestyles. Well if you answered this way you would be wrong. So much of what we see and think of the wealthy is some of the extreme cases like the famous actor or athlete, the tech mogul, or the infamous granddaughter of a hotel empire; but these examples are a minority and not common amongst the wealthy. Through decades of research and case studies, this book examines a large sample size of millionaires to see what commonalities they share, and it finds that contrary to most people’s beliefs of what millionaires should be and act like, they are wildly different than most of us perceive. Here are a couple of my favorite takeaways from the book.
There is a huge difference from those who earn a lot and those who are wealthy. The book examines how in fact many who make significantly more than the average American are not wealthy, not even close. Most millionaires are not necessarily high-income earners, but excellent savers and investors. They save large percentages of their income, and consistently invest in the long term. The idea that if you don’t make a lot you can never be wealthy is incorrect, and on the flip side just because you make a ton of money does not ensure you will ever be wealthy.
Most millionaires buy used cars. This is a great insight into how many wealthy people think. Many in the sample size bought a car 1-2 years old so that someone else could absorb the immediate depreciation and tended to not let their ego get in the way of buying something “used”. The lesson is don’t judge someone’s financial success on the car they drive.
Most millionaires are excellent at budgeting. Regardless of their level of wealth, the vast majority of the ultra-wealthy have a budget and live within it. Most people don’t know exactly what is coming in and going out of their household on a monthly budget which can lead to overspending, especially with the ease of putting it on your AMEX or Mastercard.
In order to accumulate vast wealth, the number one rule is to live below your means. So many people try to “keep up with the Joneses” that they overspend and under save. You can never hit your financial goals if you fall prey to this. Also, if a person spends the majority of what they make, do you think their behavior changes when they retire?
Most millionaires and ultra-wealthy are self-made and are not “from money”. Many own their own businesses, some are professionals, and some are blue-collar people who knew how to accumulate and grow assets. Some do inherit their wealth, but this is far rarer than many may assume, and even rarer still are those who inherit and maintain wealth through their lifetime.
After reading this book I discovered they will be revising it later this year, but I felt that the original version published in 1996 still held water. Frankly, I think a lot of the lessons learned are time tested and permeate beyond just a couple decades. I am looking forward to reading the new edition, but in the meantime if you are curious, I highly recommend checking it out. The audiobook is available on Audible or check it out on OverDrive which is a free service offered by your library or school that lets you borrow digital content (like ebooks and audiobooks). Let us know your thoughts on the book.
About Cameron Dunford
Cameron works with clients to help them customize a plan that will help them pursue their goals regardless of which life stage they are in. Whether through risk management, investment strategies, or comprehensive planning, he strives to provide the best solutions for a goals based approach. You can reach Cameron at firstname.lastname@example.org
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.