The millionaire next door- Thomas Stanley, William Danko

Some people appear wealthy but aren’t. Some people are wealthy but don’t appear to be so. There seems to be a different set of characteristics when looking at the people who do and don’t have it. The millionaire next door describes the qualities and differences between the haves and have nots.

-“Big hat no cattle” vs “no hat big cattle”

-Those that have high income not wealthy as they spend needlessly on expensive material possessions to have a perceived higher social status amongst peers. Rather it is those that are frugal (negative- cheap) who invest are wealthy

-Expected net worth (if you are less than this you are considered not wealthy):

-Age multiplied by pretax annual household income from all sources except inheritance divided by ten

-Israeli’s have the tendency to product the highest economic productivity

-Not much wealth is passed on as we want our children to have better lives than us. In the process, we overspend on them for material possessions, spoil them, make them entitled, and thus they do not have discipline, aren’t willing to live below their means, are short-sighted, don’t work hard, and don’t have focus on becoming financially independent.

-To build wealth, minimize realized income (taxable), and maximize unrealized income (capital appreciation)

-Financially independent people are happier than those in the same age/income bracket that are not

-It is important to have clearly defined daily, weekly, monthly, annual, and long-term goals?

-The foundation stone of wealth accumulation is defense and stone-cold discipline

-Something else must be present for self-made millionaires: “I can’t get my wife to spend any money”

-Traits of the earned millionaire: hard work, discipline, thrift, sacrifice, frugal, sound investment habits

-For all high-income earners (minimum of 100k), the relationship between education and wealth accumulation is negative. High income prodigious accumulators of wealth are less likely to hold very high educational levels

-The longer one stays in school, the more they postpone building wealth (delayed income) and subject to risks of inflation of appreciable investments

-Begin earning and investing early in adult life

-Living below your means and low perceived socioeconomic status (and early retirement) vs living large and perceived high social status

-Use field of expertise as a way to invest (don’t it- i.e. working in oil and gas companies would presume better knowledge about the oil and gas economic health and thus its stocks)

-Spending lots of time thinking about problems leads to less time carrying out the solution to these problems

-“I’d be rich if I would just keep my stocks, but I can’t help but make trades in my own portfolio. I’m looking at the screen everyday”

-Evaluate people when they are to be something, whether tenant, spouse, employee, financial advisor. Consider reference checks, credit check, transcripts, interviews, documentation on ability

-Choose a recommended advisor from an enlightened Accountant and/or his clients with investment portfolios that in the long run outpace the market. This way, that advisor will go out of his way to provide good value; if they do not, they will look back to the accountant and lose that referral, and thus a network option.

-CPA’s can do personal taxes, personal financial planning, or even start and run their own successful accounting firms

-Entrepreneurs account for a disproportionately large share of millionaires; higher paid employees contain disproportionately less high net worth types. However, employees who make a decent amount can also become high net worth types

-Many self-employee business owners believe strongly in reciprocity (if you use my cleaning business, I will buy a car from your dealership)

-In general, the more dollars adult children receive, the fewer they accumulate, while those given fewer dollars accumulate more

-It is much easier to spend other people’s money than dollars that are self-generated

-It has been found that giving of gifts from parents to adult children is the single most significant factor that explains lack of productivity among adult children of the affluent

The problems with economic outpatient care (EOC- giving to children well into their adult lives)

  1. Giving precipitates more consumption that saving and investing
  2. Gift receivers in general never fully distinguish between their wealth and the wealth of their gift-giving parents
  3. Gift receivers are significantly more dependent on credit than are non-receivers
  4. Receivers of gifts invest much less money than do non-receivers

-Whatever your income, always live below your means

-Having the same parents does not mean that their children will grow up to be the same or to value the same things

-“What can you give your children to enhance the probability that they will become economically productive adults? In addition to an education, create an environment that honors independent thoughts and deeds, cherishes individual achievements, and rewards responsibility and leadership. Yes the best things in life are often free. Teach your own to live on their own. It’s much less costly financially, and in the long run, it is in the best interests of both the children and their parents.”

-Spoiled and entitled children who spend money carelessly in adulthood typically lack initiative, and instead of being frugal, have a high propensity to spend

-The strong overcome most of their fears by inoculating themselves from fear by becoming completely self-sufficient

-Courage: “mental or moral strength to resist or combat opposition, danger, or hardship”

-Courage cannot be nurtured in an environment that eliminates all risks, all difficulty, and all dangers

-A great way to develop courage is in a field where you constantly are bombarded with no’s, such as sales, finding part-time jobs, summer jobs, marketing, acquiring sponsor money, winning student offices

-Appearances are much less important than the courage, discipline, and resolve of people who are economically productive

-Male adult children are twice as likely to live at home as female adult children

-Often the adult child in the unmotivated category has close emotional as well as economic ties to his parents

-if you are wealthy and want your children to become happy and independent adults, minimize discussions and behavior that center on the topic of receiving other people’s money

-Estate executor: it’s better for the children to be mad at the arbitrator than at each other

-Most PAWS’ have long-term close relationships with several key professionals, such as top attorneys and accountants

-Kids are very smart on non-verbal cues. They will not follow rules that their parents set if they themselves do not follow them; “monkey see, monkey do”

-Never start a conversation with others like “when I was your age I already had…”

Rules for affluent parents and productive children

  1. Never tell children that their parents are wealthy
  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 lifestyle and profession
  4. Minimize discussions of the items that each child and grandchild will inherit or receive as gifts
  5. Never give cash or other significant gifts to your adult children as 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 your children are individuals
  9. Emphasize your children’s achievements, no matter how small, not their or your symbols of success
  10. Tell your children that there are a lot of things more valuable than money

Professionals likely to benefit from the affluent

-Real estate attorneys, medical and dental care specialists, asset liquidators, facilitators, appraisers, educational institutionalists and those related, professional service specialists, housing specialists, dwelling products, fund-raising counsellors, travel agents

-The character of the business owner is more important in predicting his level of wealth than the classification of his business

-Running a business is the riskiest but yet they have the most proportion of millionaires. Self-employed likely to be profitable; affluent parents often encourage children to enter professions, such as dentistry, attorneys, accountants, engineers, architects, veterinarians, chiropractors, etc

-Dull normal companies that provide goods and services where the demand is relatively unwavering (such as consumer staples) in the long run tend to outperform the “exciting industries” like technology

Courage is behaving in a way that brings up or conjures fear

-When PAW’s and UAW’s are together, conflict and a hostile environment tends to arise which is not good for PAW’s

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.

 

 

 

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