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Millionaire next door

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Millionaire next door by Thomas J. Stanley Ph.D‎


Having been reading FI/RE blogs for a number of years now, I had heard this book mentioned as one of the classics of the genre. It was cheap on Amazon, so I picked it up. I don't think it was written for me. I am not sure who the target audience is, it feels like it is targeted more at people wishing to market to these low-key wealthy people, not at people who aim to become wealthy themselves. This matches the background of the authors ('experts in wealth' apparently.)

The book is essentially "make a good salary, save at least 15%, invest wisely", then lots of filler. Constant anecdotes, uninteresting (to me) details about how much wealthy people pay for their shoes, repetition.

The introduction starts with some details of their survey which the rest of the book is based on. Immediately I wonder how they chose who to survey, they describe the average respondant as

"I am a tightwad. That's one of the main reasons I completed a long questionnaire for a crispy $1 bill. Why else would I spend two or three hours being personally interviewed by these authors? They paid me $100, $200, or $250"

They seem to be pointing out the bias in their own survey here, but laughing it off? Surely there is a very particular type of person who will respond to a survey for 1$, and you are ignoring anyone who is not like that. Of course you will find that the survey results show that wealthy people are cheap and methodical!

Later the author talks about selling their car. We learn that this author has a 'high-performance Z28 Camaro'. We know the author is not wealthy (apparently they spent too long in higher education). I do not understand how you write a book where you talk about how wealthy people spend 2% of their wealth on cars, whereas non-wealthy spend 30%, then you buy a very expensive high performance car. This might be because the author does not care to be wealthy, and values his car highly, this is fine. But it makes the rest of the advice in the book seem rather unconvincing.

Also, there is a constant suggestion that it is wise to "research the market" so that you can make good investing decisions. This is despite an anecdote wherin a stock broker is not wealthy because he trades too often. Why do you think that a doctor is going to be better at picking stocks than a professional, just because he reads about the companies and only buys biomedical stocks. It is all just survivorship bias. For example this awful anecdote:

"A highly productive sales professional (we will call him Mr. Willis) had Wal-Mart as a client for more than ten years. All during this time, Wal-Mart was exploding in growth and value. How many shares of Wal-Mart did Mr. Willis, the six-figure-earning sales professional, ever purchase? Zero. Yes, zero, even though he had considerable firsthand knowledge of his client's success and an annual six-figure income."

I have to agree with Mr Willis here. He had no way of knowing that Wal-Mart would continue to grow in value. He was very wise to not invest his money in his client's company. What if Wal-Mart went bust, he would lose his investment and his large client at the same time. You can't just point at APL and say "oops, you should have invested in that, you have a Mac don't you?"

Overall if you are interested in becoming wealthy (or financially independant, because you don't need ONE MILLION DOLARS if your outgoings are low), I'd avoid this, and just go read MMM or EER or something.

Chapter Notes:


Most people have a decent salary but little wealth. Most of the people who do have wealth, are first-generation rich entrepreneurs with no inheritance, no windfall, etc. They usually live among people much poorer than themselves! Seven factors for wealth:

  • Live below their means
  • Allocate time and money in ways conducive to building wealth
  • Believe that FIRE > social signaling
  • Parents did not give them money
  • Children are economically self-sufficient
  • Good at targeting market opportunities (what does this mean concretely?)
  • Chose the right job

I had some worries about their survey here. They gave a financial prize to people who responded, but this seems like it would select for people for whom $1 followed by $100-200 would be enough to get them to fill out the survey. Surely this might exclude the super-rich? It would definitely select for 'cheap', thorough people, the type of people who would fill in a long survey..

1. Meet the millionaire next door (loc 213)

  • Most millionaires do not look like people expect. People think they will have expensive posessions. This is "big hat no cattle". Real millionaires are often "no hat, plenty of cattle". They wear saiko not rolex.
  • Description of the median millionaire.
  • How to know if you are wealthy (their rule of thumb).
  • PAW/UAW/AAW = prodigious under or average accumulator of wealth
  • Difference between PAW/UAW, different jobs can mean different levels of expense.
  • Not all millionaires are of English origin (but they are all white apparently)
  • American Scotts are often wealthy (because they are 'thrifty')

2. Frugal frugal frugal (loc 512)

  • Wealthy people are frugal. Popular culture makes people thing the opposite – that they buy expensive clothes, shoes, etc. but actually they live in cheap houses and wear good quality but low priced clothing.
  • FI takes sacrifice and hard work, this is a hard sell for most people.
  • Concept of 'offense' vs 'defense'. Offense is salary, defense is frugality. Wealthy people had: frugal parents, frugal wife.
  • Much easier to be wealthy if you have a profession/neighbourhood that does not require too much epensive signalling (nice car, clothes etc.). So lawyer = bad, but sanitation company owner = good!
  • Wealthy people spend a lot of time on budgeting, tracking expenses, managing investments. UAW do not. Those who don't budget 'pay themselves first' by auto investing a % of their income.
  • Tax kills wealth (and is the largest annual expenditure for most households!), so where possible, capital appreciation is better than income.
  • Self-employed and no debt = antifragile. Salaried and debt-bound = fragile (see Taleb)

Time, energy and money

  • Despite similar goals, PAW spend twice as much time as UAW on financial planning.
  • Highly educated people are less likely to be PAW (at a given income). PAWs are entrepreneurs. One reason is that UAW start accumulating wealth earlier in life, schooling pushes back you wealth building period.
  • Also, laywers, doctors etc. are expected to look the part: expensive clothes, watch, car, house.
  • PAWs are frugal, likely had frugal upbringing, will have frugal children. Spend time on budgeting.
  • Hard to be wealthy if partner is spendy.
  • (using different wording) PAW are antifragile, UAW are hugely fragile to: loss of job, tax increase, regulation changes, inflation,

children wanting money, etc. Tend to worry more than PAW.

  • PAW tend to hold stocks for long periods (this book seems to have been before index funds became mainstream).
  • Authors seem to believe doctors can beat the market by reading about investment opportunities in their spare time. Unlikely.
  • Examples of people who are very good at investing, could just be blind luck. Too much of an insistence on spending time 'researching the market' and investing in single stocks. 'You' cannot beat the market! They even mention a stock broker who is a UAW because of his bad investing, this is someone whose DAY JOB is to understand this stuff, even he is not beating the market.
  • Discussion on choosing financial advisers. "Show me what investments you have made, their track record" – nobody wants to. No skin in the game.

Lots of repetition at this point. The authors seem to feel justified in giving advice based on their research, despite not being wealthy themselves. Some good advice: be frugal? The whole book could just have been:

  • PAW save at least 15% of income
  • They invest it passively

Knowing exactly how much these people spend on their shoes is not so interesting to me.

You aren't what you drive

Avoid luxury, if you move to a nice neighborhood you may feel pressured to get a nice car, or visa versa. Wealthy purchase used cars (not new, not leased, usually), so that someone else pays for the depreciation in the first 3 years. They paid on average 1% of their net worth (I like this way of looking at the purchase!)

Again, some useless data: the percentage of wealthy people who purchased cars from different manufacturers. 1. so what? 2. this is useless without knowing what the distribution is for the non-wealthy. Maybe it is identical. We also discover that the author has a 'high-performance Z28 Camaro'. We know the author is not wealthy. Why not follow your own advice! Why are you advising me if you are not doing it yourself! They also suggest in this chapter that you need an income of twice the average US. If they had set wealthy based on your expenses this would not bee the case, I would prefer this view, since it admits people with lower salaries can be 'wealthy' (FIRE)

Economic Outpatient Care

EOC = gifts from wealthy parent to their children. Givers of EOC are less wealthy, also receivers of EOC are less wealthy! They have lower income and lower wealth. Often give cash, pay for schooling of grandchildren, down payments on houses, mortgage payments Gifts become habit-forming, making children less productive. Good gifts might be education and help starting buisness, not ongoing cash payments. Teachers seem more resistant to this, they are expected by society to be frugal, so less likely to spend the gifts on luxury signalling.

One assumes this applies also to government aid, although it was not mentioned (not relevant to the topic of the book).

Affirmative Action, Family Style

Wealthy parents give more to their unemployed daughters than their high income sons. Repetition

Find your niche

Jobs where you can service the wealthy


(it looks like some of these were truncated)

loc: 69 One of the reasons that millionaires are economically successful is that they think differently. Many a millionaire has told me that true diversity has much to do with controlling one's investments; no one can control the stock market. But you can, for example, control your own business, private investments, and money you lend to private parties. Not at any time during the past thirty years have I found that the typical millionaire had more than 30 percent of his wealth invested in publicly traded stocks. More often it is in the low-to-mid-20-percent range.

page: 2 Who becomes wealthy? Usually the wealthy individual is a businessman who has lived in the same town for all of his adult life. This person owns a small factory, a chain of stores, or a service company. He has married once and remains married. He lives next door to people with a fraction of his wealth. He is a compulsive saver and investor. And he has made his money on his own. Eighty percent of America's millionaires are first-generation rich. Affluent people typically follow a lifestyle conducive to accumulating money. In the course of our investigations, we discovered seven common denominators among those who successfully build wealth.

page: 2 They live well below their means. They allocate their time, energy, and money efficiently, in ways conducive to building wealth. They believe that financial independence is more important than displaying high social status. Their parents did not provide economic outpatient care. Their adult children are economically self-sufficient. They are proficient in targeting market opportunities. They chose the right occupation.

page: 3 More than one thousand people responded to our latest survey,1 which was conducted from May 1995 through January 1996. It asked each respondent about his or her attitudes and behaviors regarding a wide variety of wealth-related issues. Each participant in our study answered 249 questions. > They say they paid the respondants with a dollar bill if they reply. Surely this selects for people who are 'cheap', excluding the type of person who would not bother to respond.

page: 6 But ask the typical American adult this question: Who looks more like a millionaire? Would it be our friend, the trust officer, or one of the people who participated in our interview? We would wager that most people by a wide margin would pick the trust officer. But looks can be deceiving. This concept is perhaps best expressed by those wise and wealthy Texans who refer to our trust officer's type as Big Hat No Cattle

page: 7 Who is the prototypical American millionaire? What would he tell you about himself?2 ♦ I am a fifty-seven-year-old male, married with three children. About 70 percent of us earn 80 percent or more of our household's income. ♦ About one in five of us is retired. About two-thirds of us who are working are self-employed. Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires. Also, three out of four of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants.

page: 8 ♦ Many of the types of businesses we are in could be classified as dull-normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors. ♦ About half of our wives do not work outside the home. The number-one occupation for those wives who do work is teacher.

page: 8 Our household's total annual realized (taxable) income is $131,000 (median, or 50th percentile), while our average income is $247,000. Note that those of us who have incomes in the $500,000 to $999,999 category (8 percent) and the $1 million or more category (5 percent) skew the average upward. ♦ We have an average household net worth of $3.7 million. Of course, some of our cohorts have accumulated much more. Nearly 6 percent have a net worth of over $10 million. Again, these… Some highlights have been hidden or truncated due to export limits.

page: 8 We live well below our means. We wear inexpensive suits and drive American-made cars. Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles. ♦ Most of our wives are planners and meticulous budgeters. In fact, only 18 percent of us disagreed with the statement “Charity begins at home.”

page: 9 We have a “go-to-hell fund.” In other words, we have accumulated enough wealth to live without working for ten or more years. Thus, those of us with a net worth of $1.6 million could live comfortably for more than twelve years. Actually, we could live longer > "fuck you money". They assume you will continue to spend the same amount if you stop working, which is unlikely.

page: 9 We have more than six and one-half times the level of wealth of our nonmillionaire neighbors, but, in our neighborhood, these nonmillionaires outnumber us better than three to one. Could it be that they have chosen to trade wealth for acquiring high-status material possessions? ♦ As a group, we are fairly well educated. Only about one in five are not college graduates. Many of us hold advanced degrees

page: 9 Only 17 percent of us or our spouses ever attended a private elementary or private high school. But 55 percent of our children are currently… [Some highlights have been hidden or truncated due to export limits.] > Well that just seems foolish.

page: 9 We are fastidious investors. On average, we invest nearly 20 percent of our household realized income each year. Most of us invest at least 15 percent. > In FIRE land, that is rather low!

page: 10 We hold nearly 20 percent of our household's wealth in transaction securities such as publicly traded stocks and mutual funds. But we rarely sell our equity investments. We hold even more in our pension plans.

page: 10 I am a tightwad. That's one of the main reasons I completed a long questionnaire for a crispy $1 bill. Why else would I spend two or three hours being personally interviewed by these authors? They paid me $100, $200, or $250. Oh, they made me another offer—to donate in my name the money I earned for my interview to my favorite charity. But I told them, “I am my favorite charity. > They seem to recognise the bias here, but laugh it off? What.

page: 11 In this book we define the threshold level of being wealthy as having a net worth of $1 million or more. Based on this definition, only 3.5 million (3.5 percent) of the 100 million households in America are considered wealthy.

page: 12 Mr. Bobbins could sustain himself and his family for ten years without working. Within their income and age categories, the Bobbinses are wealthy. > By this he means 10yr salary ignoring savings rate

page: 12 The Bobbinses are quite different from John J. Ashton, M.D., age fifty-six, who has an annual income of approximately $560,000. How much is Dr. Ashton worth? Is he wealthy? According to one definition, he is, since his net worth is $1.1 million. But he is not wealthy according to our other definition. Given his age and income, he should be worth more than $3 million. With his high-consumption lifestyle, how long do you think Dr. Ashton could sustain himself and his family if he were no longer employed? Perhaps for two, at most three, years.

page: 12 A simple rule of thumb, however, is more than adequate in computing one's expected net worth. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

page: 13 If you are in the top quartile for wealth accumulation, you are a PAW, or prodigious accumulator of wealth. If you are in the bottom quartile, you are a UAW, or under accumulator of wealth. Are you a PAW, a UAW, or just an AAW (average accumulator of wealth)?

page: 13 PAWs are builders of wealth—that is, they are the best at building net worth compared to others in their income/age category. PAWs typically have a minimum of four times the wealth accumulated by UAWs. Contrasting the characteristics of PAWs and UAWs is one of the most revealing parts of the research we have conducted over the past twenty years.

page: 14 people of modest backgrounds who believe that only the wealthy produce millionaires are predetermined to remain non-affluent.

page: 17 most American millionaires today (about 80 percent) are first-generation rich. Typically, the fortunes built by these people will be completely dissipated by the second or third generation. The American economy is a fluid one. There are many people today who are on their way to becoming wealthy. And there are many others who are spending their way out of the affluent category.

page: 18 The Scottish ancestry group ranks second in terms of the percentage of its clan that are in the millionaire league. Nearly twenty-one (20.8) in 100 of its households are millionaires.

page: 19 The expectation is that the group would have an equally high concentration of high-income producers. Income is highly correlated with net worth; more than two-thirds of the millionaires in America have annual household incomes of $100,000 or more. In fact, this correlation exists for all major ancestry groups but one: the Scottish.

page: 19 More than 60 percent of Scottish-ancestry millionaires have annual household incomes of less than $100,000. No other ancestry group has such a high concentration of millionaires from such a small concentration of high-income-producing households.

page: 19 Scottish Americans tend to be frugal. Given a household's income, there is a corresponding mathematical expectation of level of consumption. Members of this group do not fit such expectations. On average, they live well below the norm for people in various income categories. They often live in self-designed environments of relative scarcity. A household of Scottish ancestry with an annual income of $100,000 will often consume at a level typical for an American household with an annual income of $85,000. Being frugal allows them to save more and invest more than others in similar income groups. Thus the same $100,000 income–producing household of Scottish descent saves and invests at a level comparable to the typical American household that annually earns nearly $150,000.

page: 20 What about the number of years that an average member of an ancestry group has been in America? The longer the time here, the less likely it will produce a disproportionately large percentage of millionaires. Why is this the case? Because we are a consumption-based society. In general, the longer the average member of an ancestry group has been in America, the more likely he or she will become fully socialized to our high-consumption lifestyle. There is another reason. First-generation Americans tend to be self-employed. Self-employment is a major positive correlate of wealth.

page: 22 This is not to suggest that self-employment and/or being first-generation American ensures membership among the ranks of millionaires. Most self-employed Americans will never accumulate even modest levels of wealth. The same is true for most first-generation Americans.

page: 22 Victor wants his children to have a better life. But what exactly does Victor mean when he says that? He means that his children should be well educated and have a much higher occupational status than he did. Also, “better” means better artifacts: fine homes, new luxury automobiles, quality clothing, club membership. But Victor has neglected to include in this definition of better many of the elements that were the foundation stones of his success. He does not realize that being well educated has certain economic drawbacks.

page: 23 Today his children are under accumulators of wealth. They are the opposite of their father, the blue-collar, successful business owner. His children have become Americanized. They are part of the high-consuming, employment-postponing generation.

page: 27 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.

page: 28 Being frugal is the cornerstone of wealth-building. Yet far too often the big spenders are promoted and sensationalized by the popular press.

page: 29 How will the TV audience respond to the description of Johnny's wealth and the images of Johnny on the screen? First, viewers will likely be confused, because Johnny does not look like the millionaire most people envision. Second, they may be uncomfortable. Johnny's traditional family values and his lifestyle of hard work, discipline, sacrifice, thrift, and sound investment habits might threaten the audience. What happens when you tell the average American adult that he needs to reduce his spending in order to build wealth for the future? He may perceive this as a threat to his way of life. It is likely that only Johnny and his cohorts would tune in to such a program. It would certainly bolster their views about life.

page: 30 Fifty percent or more of the millionaires surveyed paid $399 or less for the most expensive suit they ever purchased. Only about one in ten paid $1,000 or more; only about one in one hundred paid $2,800 or more. Conversely, about one in four millionaires paid $285 or less, and one in ten paid $195 or less for his (her) most expensive suit.

page: 31 These figures are for all millionaires in our survey. Keep in mind that almost 14 percent of those surveyed told us they inherited their wealth.

page: 31 The typical (50th percentile) self-made millionaire paid about $360 for a suit, while the typical inheritor of wealth reported paying more than $600.

page: 31 How can the Johnnys of America get away with spending such modest amounts? Johnny does not need to wear expensive suits. He is not a successful attorney who must impress his clients. Nor does he ever have to impress a large audience of stockholders at an annual meeting, the financial press, or investment bankers. Johnny does not have to dress the part of a high-powered CEO who must constantly address a high-brow board of directors. Johnny does, however, need to impress his staff of janitors. How? By never giving them the impression that he is making so much money he can afford to have a tailor fit him for a suit priced in the low- to mid-four figures.

page: 35 The affluent tend to answer “yes” to three questions we include in our surveys: Were your parents very frugal? Are you frugal? Is your spouse more frugal than you are? This last question is highly significant. Not only are the most prodigious accumulators of wealth frugal, their spouses tend to be even more frugal.

page: 36 Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth if one of its members is a hyperconsumer.

page: 39 Have you ever noticed those people whom you see jogging day after day? They are the ones who seem not to need to jog. But that's why they are fit. Those who are wealthy work at staying financially fit. But those who are not financially fit do little to change their status. Most people want to be physically fit. And the majority know what is required to achieve this. But despite that knowledge, most people never become well conditioned physically. Why not? Because they don't have the discipline to just do it. They don't budget their time to just do it. It is like becoming wealthy in America. Oh, you want to all right, but you play lousy financial defense. You don't have the discipline to control your spending. You don't take the time to budget or plan.

page: 39 Do you plan your consumption spending according to a variety of food, clothing, and shelter categories each year? Mrs. Rule does, and so do most millionaires. In fact, in our latest national survey of millionaires, we found that for every 100 millionaires who don't budget, there are about 120 who do.

page: 40 More than half of the nonbudgeters invest first and spend the balance of their income. Many call this the “pay yourself first” strategy.

page: 44 We asked him to account for the fact that although he was a high school dropout, he had accumulated over $10 million. His response was as follows: I have always been goal-oriented. I have a clearly defined set of daily goals, weekly goals, monthly goals, annual goals, and lifetime goals. I even have goals to go to the bathroom. I always tell our young executives that they must have goals.

page: 47 A highly productive sales professional (we will call him Mr. Willis) had Wal-Mart as a client for more than ten years. All during this time, Wal-Mart was exploding in growth and value. How many shares of Wal-Mart did Mr. Willis, the six-figure-earning sales professional, ever purchase? Zero. Yes, zero, even though he had considerable firsthand knowledge of his client's success and an annual six-figure income. > This just seems sensible. You don't want all your eggs in one basket. > Lots of anecdotes in this chapter, not much useful content

page: 54 millionaires and those who will likely become affluent in the future adhere to an important rule: To build wealth, minimize your realized (taxable) income and maximize your unrealized income (wealth/capital appreciation without a cash flow). Income tax is the single largest annual expenditure for most households. It is tax on income, not on wealth and not on the appreciation of wealth if this appreciation is not realized; that is, if it does not generate a cash flow.

page: 57 Sharon's economic situation is quite risky. She is the main breadwinner in her household, which has little investment income. If her employer eliminates her job, what then? There are not too many positions available today that pay $200,000 or more a year. Barbara, again in contrast to Sharon, has a business with more than sixteen hundred customers—that's sixteen hundred sources of income. This is much less risky than Sharon's position. Sharon could not survive for six months if she lost her source of income. But Barbara could easily survive for twenty or more years. Actually, she could retire at this point on the income from her financial assets alone. > Antifragile

page: 67 Here is another one of our rules. If you're not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household's total annual realized income. > Sorry Britain!

page: 70 Although both prodigious accumulators and under accumulators of wealth state similar goals about achieving wealth, these groups have completely different orientations when it comes to how much time they actually spend on wealth-building activities.

page: 70 PAWs allocate nearly twice the number of hours per month to planning their financial investments as UAWs do.

page: 71 Yet UAWs spend more time worrying about these issues than taking proactive steps to change their tendencies to overconsume and underinvest.

page: 73 Why are doctors lagging behind on the wealth scale? There are several reasons. Foremost among them is the correlation between wealth and education. This relationship may surprise some people. For all high-income earners (those earning at least $100,000 annually), the relationship between education and wealth accumulation is negative. High-income PAWs are significantly less likely than UAWs to hold graduate degrees, law degrees, or medical degrees. Millionaires typically indicate on our survey “business owner” with “some college,” “four-year college graduate,” or “no college.” > Taleb would approve

page: 74 Begin earning and investing early in your adult life. That will enable you to outpace the wealth accumulation levels of even the so-called gifted kids from your high school class. Remember, wealth is blind. It cares not if its patrons are well educated. So the authors have an excuse. How else does one explain why two experts on wealth are not wealthy? In part, because they spent a combined total of nearly twenty years pursuing higher education! > oops. Are you experts though, if you are not wealthy?

page: 74 Another reason very well-educated people tend to lag behind on the wealth scale has to do with the status ascribed to them by society. Doctors, as well as others with advanced degrees, are expected to play their parts. Mr. Denzi is a small business owner. In spite of being wealthy, he is not expected by society to live in an exclusive neighborhood. He would not be out of place living in a modest home or driving a nondescript sedan. His domestic overhead is significantly lower than Dr. Dokes's.

page: 75 Many professionals have told us that they must look successful to convince their customers/clients that they are.

page: 76 Doctors often allocate large amounts of their time to serving patients. They rarely work fewer than ten hours a day, thus expending most of their time, energy, and intellect on patients. In so doing, they tend to neglect their economic well-being. Some doctors figure that working hard translates into a large income and that, therefore, there is no need to design a household budget. Some ask why they should waste time planning a domestic budget and investments when there is so much income to be made. Many high-income-producing UAWs feel this way.

page: 79 What if your household generates even a moderately high income and both you and your spouse are frugal? You have the foundation for becoming and maintaining PAW status. On the other hand, it is very difficult for a married couple to accumulate wealth if one is a spendthrift. A household divided in its financial orientation is unlikely to accumulate significant wealth. Even worse are cases in which both the wife and her husband are spendthrifts.

page: 80 Mrs. South is responsible for purchasing a wide variety of products and services for her household. She did not consult with anyone before spending $30,000 for clothing last year. She does her thing, and her husband does his. She has her set of credit cards, and he has his.

page: 87 I went to a dealer…. He wanted to sell me a new one. But it was $20,000 more than the used one on the lot. Then I just asked myself a simple question: Is the “pride of new car ownership”—and that's all it is, pride—worth $20,000? The cars are the same. The answer is no. The “pride of new car ownership” is not worth $20,000.

page: 95 Planning is typically found to be a strong habit among people who have a demonstrated propensity to accumulate wealth. Planning and wealth accumulation are significant correlates even among investors with modest incomes.

page: 99 Overall, only about 9 percent of the millionaires we have interviewed hold their investments for less than one year. In other words, fewer than one in ten millionaires are “active investors.” One in five (20 percent) hold, on average, for a year or two; one in four (25 percent) hold for between two and four years. About 13 percent are in the four-to-six-year category. More than three in ten (32 percent) hold their investments for more than six years. In fact, 42 percent of the millionaires we interviewed for our latest survey had made no trades whatsoever in their stock portfolios in the year prior to the interview.

page: 102 Too often Dr. South is late entering the up market and exits it too early. In sharp contrast, most of the PAWs we have interviewed make their own investment decisions. They take the time and energy to study investment opportunities. They consult with financial advisors, but ultimately their investment decisions are their own. > No, don't do that. You cannot beat the market. Just leave it alone.

page: 103 Operate your household like a productive business. The best businesses hire the best people. They also patronize the best suppliers. Utilizing the best human resources and top suppliers are two major reasons the most productive organizations succeed while others fail. You should view all financial advisors who solicit you as a client merely as applicants. View them as prospective employees or suppliers for your household. Then ask yourself some simple questions: What criteria would a productive personnel manager use in evaluating each of these applicants? Would a skilled purchasing agent and/or a chief financial officer of an organization buy investment information and products from this potential supplier? What criteria, what key pieces of background information, would be used to evaluate potential suppliers?

page: 104 To be included in the group, respondents had to have a net worth of $5 million or more. Building a net worth of $5 million or more in one generation is quite an accomplishment. But Mr. Martin is rare even within this category, since he never had an earned annual income (from employment) of more than $75,000! How did Mr. Martin become so wealthy? He is one of the best investors we have ever interviewed. Mr. Martin made his fortune via the stock market. We found him to be extremely bright and well informed about various investments. He is also an excellent judge of investment advisors. > Or lucky

page: 105 Then I tell him, “So you're really good. Well, I'll tell you what. Send me a copy of your personal income tax returns from the last few years and a list of what you have had in your own portfolio for the past three years. If you made more money than I did from investments, I'll invest with you. Here's my address.” When they say, “We can't show that to you,” I tell them, “You are likely to be full of baloney.” This is my strategy for checking people out. It works. I check them all out this way. I mean it very honestly. Note:Money where mouth is. Akin in game. Dont twll me wht to do. Tell me whhat you do > Put your money where your mouth is. Don't tell me what you think I should do, tell me what you do. Taleb would approve.

page: 106 they went out of their way to provide him with good advice and timely forecasts. Why? To do otherwise would jeopardize their relationships with their referral network. What would Mr. Martin do if his advisors provided him with poor service and low-quality advice? He would complain to the CPA who endorsed these people. The CPA would not enjoy losing Mr. Martin as a client and would likely cast these advisors out of his referral network. No financial advisor would enjoy being fired in this way. Even better-grade advisors seem to turn up their level of service for members of important referral networks.

page: 110 But status gifts, whether from friends or rich parents, are not always congruent with the recipient's values and lifestyle. And often such gifts place tremendous pressure on the recipients to spend more and more of their income to “fill in the picture.” Some wealthy parents buy their adult children homes in affluent neighborhoods. Great idea? Perhaps they should realize that “affluent neighborhoods” are high-consumption neighborhoods. From property taxes to the pressure to decorate, from the perceived need to send their children to expensive private schools to the $40,000 four-wheel-drive luxury Suburban, the children are now on the earn-to-spend treadmill.

page: 113 The typical millionaire in our survey (one in the 50th percentile) spent about $29,000 for his most expensive motor vehicle. This equates to less than 1 percent of his net worth. The average buyer of a motor vehicle in America has a net worth that is less than 2 percent of that of these millionaires. Do they buy motor vehicles that cost 2 percent of what millionaires pay? If they did, they would spend, on average, about $580 (2 percent of \(29,000). Instead, typical motor vehicle buyers spend the equivalent of at least 30 percent of their net worth for such purchases. page: 114 U.S. car manufacturers may be pleased to note that their makes account for 57.7 percent of the vehicles millionaires are driving; Japanese makes account for 23.5 percent, while European manufacturers hold 18.8 percent. What makes of cars are most popular with millionaires? The following are listed in rank order according to their respective market shares: > Useless without knowing overall US sale distribution. Are the wealthy unusual? Who knows? The authors don't seem to. page: 115 As you can see, most millionaires are driving so-called Detroit metal. Most Americans who own motor vehicles also drive Detroit metal. How then can you tell if your neighbor who is driving a Ford, a Cadillac, or a Jeep is a millionaire or not? You can’t. It’s not easy to judge the wealth characteristics of people by the motor vehicles they drive. > Useless chapter page: 121 If you are interested in earning my business, please reply to me by fax at (404)XXX-XXXX. This is a cash purchase (no trade), subject to sales tax in ________ County. If you do not have this vehicle in stock or on order, I am in no rush and can wait for delivery. Specifications are as follows: Current Model Year Ford Explorer Limited 4X4 Ivory Pearlescent, Saddle Leather Options: Sun roof CD player Front license plate bracket Your quotation should detail the price by line item, including tax, tag, title and any other fees. I look forward to receiving your reply by fax. Please do not call me. If you have any questions, please include them in your fax reply. I will call you if I have any questions. Thanks. > "Please don't call". These days we just email! page: 122 Overall, these millionaires get more satisfaction from acquiring used instead of new. In purchasing cars that are two or three years old, they feel that the original owner has paid while the vehicle was depreciating in value. They often plan to resell their used acquisition in two or three years and recoup much of their initial payout. Many also feel that aggressive bargain shopping for new vehicles is a waste of time and energy. They believe that new cars are overpriced at the manufacturer’s or wholesale level; in their minds, one can’t even hope to buy a new vehicle for much less than the dealer paid for it. For many, the real discounts on motor vehicles can be found in the used-vehicle market. page: 124 It seems that on his long commute to work, he routinely passed by three dealers. If he noticed a vehicle that caught his eye, he would contact the dealer by phone. At the same time he would telephone sellers who had their vehicles listed in the classifieds. He eventually made a purchase from a private party at a price substantially lower than at any dealer he had contacted. He told the seller: I am not in a hurry. Give me a call in a month or so and I’ll make you an offer. But right now you’re asking nearly as much as all the dealers I have been in contact with in the past few weeks. He tells the same thing to all the people he contacts. page: 125 He claims he is most successful in cutting deals from the last two weeks of December into February. During the winter season, he says, sellers don’t find a lot of shoppers out and about. Christmas-related expenses and activities and the cold weather distract and discourage most potential buyers from shopping during this period. They do not discourage many used vehicle–prone shoppers. It is not at all unusual for buyers in this group to have four or more sellers competing simultaneously for their business during these months! page: 130 Most of these millionaires’ high-income, low–net worth neighbors make the wrong assumption. They assume that by focusing their energy on generating high incomes, they will automatically become affluent. They play excellent offense in this regard. Most are positioned in the top 3 or 4 percent or higher of the income distribution for all U.S. households. Most look the part of millionaires. Yet they are not wealthy. They play lousy defense. We have stated many times the belief of countless millionaires who have told us: It’s much easier in America to earn a lot than it is to accumulate wealth. Why is this the case? Because we are a consumption-oriented society. And the high-income-producing nonmillionaire neighbors of used vehicle–prone shoppers are among the most consumption-oriented people in America. page: 133 “What’s the lowest you are willing to take for the car?” I responded by telling her, “If I don’t sell it in thirty days, I will consider lowering the price.” > Good answer page: 134 He did seem impressed with the way I maintained automobiles, so just before he left, he asked if I intended to sell any of my other cars. He pointed to my high-performance Z28 Camaro. I had to turn him down on that offer, too. > That is a 2-seater, extremely powerful, gas guzzling car that starts at 30k\)! Did you read your own book author? What are you doing?!

page: 136 Dr. Bill was never cut out to be anything but a professor. He is not alone. Most people in this country are not the entrepreneurial type. But this does not mean that they can't become millionaires. People often confuse our message about the relationship between being wealthy and being an entrepreneur. We're not telling people to give up doing their own thing in medicine, law, accounting, and other occupations and join the ranks of the entrepreneurs in this country. Don't even consider such a change unless you really want to and are fully capable of succeeding. If you can generate a reasonably good income—say, twice the norm for households in America, or $65,000 to $70,000—then you may become wealthy one day if you follow the defensive strategy developed by millionaires who are used vehicle–prone shoppers. Note:meh. Can do it on less if you define wealth relaticve to outgoings. Ie Fire > You can do it on less, simply define 'wealthy' based our your outgoings, like in FIRE. "Wealth consists not in having great possessions, but in having few wants" as Epictetus tells us.

page: 137 If Gary is like most UAWs, he firmly believes that the buyer of his old 5 series BMW is not as financially well off as he. This is one of the tell-tale symptoms of being a UAW. UAWs usually think they have more wealth than their neighbors. Many UAWs also believe that people drive the best they can afford.

page: 137 Think of this situation in another way. Gary, the under accumulator of wealth, is subsidizing Dr. Bill's motor vehicle purchases. Gary takes the brunt of the three-year depreciation and then transfers title of a fine automobile to Dr. Bill, the frugal millionaire. > Yes, thanks guys!

page: 141 Economic outpatient care refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren.

page: 141 Those parents who provide certain forms of EOC have significantly less wealth than those parents within the same age, income, and occupational cohorts whose adult children are economically independent. And, in general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.

page: 142 EOC is widespread in America. More than 46 percent of the affluent in America give at least $15,000 worth of EOC annually to their adult children and/or grandchildren. Nearly half the adult children of the affluent who are under thirty-five years of age receive annual cash gifts from their parents. > Woah

page: 143 The number of estates in the $1 million or more range will increase by 246 percent during the next decade;

page: 143 The costs to provide outpatient care will also increase substantially in the future. Private school tuition, foreign luxury automobiles, homes in fashionable suburbs, cosmetic medical and dental services, law school tuition, and many other EOC items are increasing at rates that greatly exceed the general cost-of-living index. > they are positional goods

page: 143 Our survey research indicates that 43 percent of the millionaires in this country who have grandchildren pay for all or part of their private school tuition

page: 147 Adults who sit around waiting for the next dose of economic outpatient care typically are not very productive. Cash gifts are too often earmarked for consumption and the support of an unrealistically high lifestyle. > Same effect from government welfare? We become dependants, less responsible for ourselves.

page: 147 There are many forms of economic outpatient care. Some have a strong positive influence on the productivity of the recipients. These include subsidizing your children's education and, more important, earmarking gifts so they can start or enhance a business.

page: 148 Conversely, what is the effect of cash gifts that are knowingly earmarked for consumption and the propping up of a certain lifestyle? We find that the giving of such gifts is the single most significant factor that explains lack of productivity among the adult children of the affluent. All too often such “temporary” gifts affect the recipient's psyche. Cash gifts earmarked for consumption dampen one's initiative and productivity. They become habit forming. These gifts then must be extended throughout most of the recipient's life.

page: 150 Let's look at a survey of gift receivers and nonreceivers from all economic backgrounds, in their early forties to mid-fifties. Note that in eight of the ten occupational categories, gift receivers have smaller levels of net worth (wealth) than those who do not receive gifts. For example, on average, accountants who are approximately fifty years of age and receive cash gifts from their parents have only 57 percent of the net worth of accountants in the same age group who do not receive gifts. Further, accountants who receive gifts generate only 78 percent of the annual income of accountants who don't receive gifts.

page: 151 Note that cash gifts were not included in computing the annual incomes of accountants who receive gifts. When these tax-free dollar gifts are added to the incomes of gift receivers, then, on average, gift receivers have approximately 98 percent of the average annual income of nonreceivers. In spite of this, they still only have 57 percent of the net worth of accountants who do not receive gifts.

page: 156 When surveyed, gift receivers reported that they invested less than 65 percent of what nonreceivers invested each year. Even this is a very conservative estimate, since like most heavy credit users, gift receivers overestimate the amount of money they invest. For example, they often forget to take into account major credit purchases when computing actual consumption and investing habits.

page: 164 millionaires spend a large amount of their resources on their children's educations. What was the most frequently mentioned gift that millionaires received from their parents? Tuition! All other economic gifts are mentioned by a significantly smaller proportion of millionaires.

page: 167 The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more. This is a statistically proven relationship. Yet many parents still think that their wealth can automatically transform their children into economically productive adults. They are wrong. Discipline and initiative can't be purchased like automobiles or clothing off a rack.

page: 169 People often attempt to shelter their children from the economic realities of life. But such shelters often produce adults who are in constant fear of tomorrow.

page: 170 Webster's defines courage as “mental or moral strength to resist opposition, danger, or hardship. > Seriously? You're just filling pages now

page: 171 Parents often ask us how to instill courage in their children. We suggest that children be exposed to the sales profession. Encourage your children to run for class office in their elementary or high school. They will have to sell themselves to the student body. Even selling Girl Scout cookies can have a positive impact. Retail sales jobs provide another way for children to be evaluated by very objective third parties.

page: 172 It's amazing what you can do when you set your mind to it. You'll be surprised how many sales calls you can make when you have no alternative except to succeed. > Yes

page: 202 As you may recall, in Chapter 3 > Fill those pages

page: 230 Many successful business owners have told us that they enjoy “short periods of rough times” in their chosen industries because they weed out much of the competition. This seems to be the case in the coal mining industry. The 34.2 percent of the businesses in the industry that were profitable had a net income of approximately $600,000. > Antifragile

page: 230 Many people ask us, “Should I go into business for myself?” Most people have no business ever working for themselves. The average net income for the more than fifteen million sole proprietorships in America is only $6,200! About 25 percent of sole proprietorships do not make one cent of profit during a typical year.

page: 233 They can take your business, but they can't take your intellect! What does this mean? A government and/or a creditor can confiscate a business composed of land, machinery, coal pits, buildings, and so on. It can't confiscate your intellect. What do professionals sell? Not coal, not paint, not even pizza. What they sell most of all is their intellect. Physicians, for example, can take their intellect anywhere in America. Their resources are quite portable. The same is true for dentists, attorneys, accountants, engineers, architects, veterinarians, and chiropractors. These are the occupations held by a disproportionate number of the sons and daughters of affluent couples throughout America.

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