Quick Hits - The Millionaire Next Door

Alright, so I've been reading "The Millionaire Next Door" by Dr. Stanley and Dr. Danko and I thought I'd share a few of the highlights.  I'll try to keep it quick.

The premise behind the book is to take a look at the lives and every-day practices of wealthy individuals.  The title is misleading.  They focus more on being "wealthy" and "financially stable/secure" than being a "millionaire".  The truth is, many people are millionaires but they are no where near wealthy.  The inflow is greater than the outflow (for now), but its not because they're frugal with their finances, its because they've been blessed with a good source of income.  Wealthy is defined by standards such as living on less than you make, investing in your retirement at a young age, driving paid-for vehicles, living in a modest home, and being able to live for a year or more if you lose your job (without touching your retirement).

OK.  Some quick hits:

- "It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles, and such.  To them, superior people have excellent tastes in consumer goods.  But it is easier to purchase products that denote superiority than to be actually superior in economic achievement.  Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement."

- "Webster's defines frugal as 'behavior characterized by or reflecting economy in the use of resources.'  The opposite of frugal is wasteful.  Being frugal is the cornerstone of wealth-building"

- "Financially independent people are happier than those in their same income/age cohort who are not financially secure.  Financially independent people seem to be better able to visualize the future benefits of defining their goals."

- "Perhaps you aren't as wealthy as you should be because you traded much of your current and future income just for the privilege of living in a home in a high-status neighborhood.  What you probably don't know is that your neighbor in the house next to yours bought his house only after he became wealthy. You bought yours in anticipation of being wealthy.  That day may never come.  Each year you are forced to maximize realized income just to make ends meet.  You can't afford to invest any money.  Essentially you're at a stalemate.  Your high domesic overhead requires full commitment of all your income.  You will never become financially independent... So what's it going to be?"

- "What is expected of children who are exposed to a household environment predicated upon very high consumption, few-if any-economic constraints, little planning or budgeting, no discipline, and pandering to every product-related desire?  Like their [underachieving] parents, as adults, these childrens are often addicted to undisciplined, high-consumption lifestyle.  Further, these children typically will never earn the incomes necesssary to support the lifestyle to which they have grown accustomed."

- "My family in Nebraska understood the value of a dollar.  Dad used to say seeds are a lot like dollars.  You can eat the seeds or sow them.  But when you would see what seeds turned into ... ten-foot-high corn ... you don't want to waste them.  Consume them or plant them.  I always get a kick out of watching things grow."

- "If you cannot increase your compensation significantly, become wealthy some other way.  Do it defensively.  Most  high-income, low-net worth individuals assume that by focusing their energy on generating high incomes, they will automatically become affluent.  They play excellent offense in this regard.  Most look the part of millionaires.  Yet they are not wealthy.  They play lousy defense."

- "Gift receivers (children receiving money from their parents to purchase a nice house) frequently are underachievers in generating wealth.  All to often the income of the gift receiver does not increase at the same rates as his consumption.  Expensive homes are typically located in high-consumption neighborhoods.  Living in such neighborhoods requires more than just being able to pay the mortgage.  To fit in, one needs to "look the part".  Thus, the gift of a down payment can place a recipient on a treadmill of consumption and continued dependence on the gift giver (parent)."

- "Parents are eager to learn how to enhance the economic productivity of their children.  We remind them that teaching their children to be frugal is critical.  Often those who are trained to be otherwise as children become adult hyperspenders, needing cash subsidies during their young and middle adult years."

Alright, if you've made it through all of that then you probably don't really care what I have to say.  However, if you want me to comment further or talk more about this type of information in the future, let me know.  I just really felt I needed to share this.  It is not a direct message to anyone.