PART II. Reflective Writing-
Reading the millionaire next door helped me both think critically and acquire substantive knowledge. As detailed in my assignment below, reading this course material was eye opening because I have never looked at money as more than an a vehicle to immediate gratification, and/or paying bills. After being exposed to the idea that I can make money work for me, I have already started reading material on investing in stocks. This book was one of the few recquired readings that I can say has truly affected me.
Reading the millionaire next door helped me both think critically and acquire substantive knowledge. As detailed in my assignment below, reading this course material was eye opening because I have never looked at money as more than an a vehicle to immediate gratification, and/or paying bills. After being exposed to the idea that I can make money work for me, I have already started reading material on investing in stocks. This book was one of the few recquired readings that I can say has truly affected me.
PART I- The Signature Assignment
During the fall semester of 2012 I read the bestselling book, “The Millionaire Next Door,” by Thomas J. Stanley, Ph.D and William D. Danko, Ph.D. It was a requirement to read this text for my personal finance class, and although these kinds of things can be boring and quickly briefed, (only to be forgotten once the class is done) I found myself looking at my own personal finances in a completely different way because of it. On the back cover of TMND, Forbes magazine prefaces the book by saying, “The implication of The Millionaire Next Door….is that nearly anybody with a steady job can amass a tidy fortune.” My purpose in this paper is to navigate and review material found in the chapters of TMND, detailing concepts presented in the book through personal examples, observations and insights.
When I envision a millionaire, I get a clear mental picture of someone driving an expensive BMW, (a model I’ve never even heard of) into the driveway of a 4-car, 7-bedroom home. They are dressed impeccably, and the bigger the watch they sport, the bigger their annual salary. The first chapter in TMND is entitled; “Meet the millionaire next door,” and some of the findings presented were hard to believe at first. The authors bring to light that on average, millionaires have a total annual realized income that is less than 7 percent of their wealth. Basically what this means is that they are able to live on less than 7 percent of their wealth. Wealth, in TMND, is defined by an individual’s net worth, or the current value of one’s assets less liabilities, not how I had envisioned it before reading this book. To myself, and many others, wealthy refers to people who have an abundance of material possessions. That’s the point of being wealthy isn’t it? Or so I thought. Wealthy people, (as defined by an individual’s net worth) do not spend significant amounts of income looking to maintain a preconceived image of how wealthy people should look. They do not feel that “if you don’t show it, you don’t have it,” and choose to live below their means.
Reading this at first was mind blowing, and I immediately realized that, I had no idea if I was living within my means, never mind below them. The textbook used in our personal finance class talks about maintaining an expenditure spreadsheet and sticking to a budget to help prioritize the difference between ‘wants’ and ‘needs’ when it comes to purchasing decisions. Looking at my own examples of these finance tools, I’ve found that I have definitely blurred the line between priorities. Using the book as a guide, I decided to see how far off I was, and how they determine if an individual is wealthy.
“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 wealth should be.” This quote is taken from TMND, and is their solution to realizing net worth aside from all the other ‘multivariate-based wealth equations.’ My net worth comes out to be $57,465.50, and unfortunately, I am an UAW. UAW stands for under accumulator of wealth and this is due to my over-consuming and under investing lifestyle. PAW is an acronym for prodigious accumulator of wealth and typifies someone who is twice the level of wealth expected. TMND helps make concrete the habits of PAW’s, and how they look at money.
Someone who is a PAW does not have to be a millionaire, but TMND focuses primarily on that demographic and how they have become, and maintain their wealth. Surprisingly, less than 20% of millionaires in the U.S. receive their worth from trust funds, most are first generation Americans, most work ‘dull, normal jobs,’(welding contractors, paving contractors, etc.), and typically about 20% of their household’s wealth is held in publicly traded stocks and mutual funds. The question I ask myself after reading this is, “how can does this relate to me, and what are the first steps I should take in becoming wealthy?” I am a first generation American, have no access to a trust fund, work a dull normal job, and participate in my work’s mutual fund program, (401K) so why am I not a millionaire yet? The answer is simple and wholly dividing between my current self and them. They are frugal.
“Frugal, frugal, frugal,” “You aren’t what you drive”, and “Economic outpatient care” serve as the meat of TMND and describe how spending habits ultimately dictate where you end up by the time it’s time to retire. The money you spend today, tomorrow, or tie up in lines of credit for the future all add up. Money spent today means less money that will be there tomorrow. The key to all of this is being frugal and resisting the urge to spend money on things that are simply not needed, or not really wanted. Take for example, my own 2009 Hyundai Sonata. I purchased this car with a decent amount down, and am almost done financing it through a commercial finance service. I have maintained all of the good PAW habits like, choosing an affordable car, and maintaining payments. But, I have found that my UAW self has been ogling some 2013 Audi’s, which are retailing at beyond double what I paid for my car. The PAW side clearly know this is not realistic- I am living beyond my means, would have to finance, could be using the time and energy used to purchase a new car for something more profitable, am eliminating options for investments, and simply do not need a fancy new car. Reading TMND has helped me develop a new way at looking beyond the price tag and realizing wanting to own material and brand names can sometimes be a negative cycle in which I am working to pay off continual debt, instead of making my money work for me.
Speaking of working, this brings me to the latter half of the book, chapters entitled “Find your niche” and “Jobs: Millionaires versus heirs.” TMND details the benefits of becoming an entrepreneur while recognizing that many feel a huge sense of risk when considering business ventures.
“What is risk? Having one source of income. Employees are at risk. They have a single source of income. What about the entrepreneur who sells janitorial services to your employers? He has hundreds and hundreds of sources of income.”
This quote is from a professor speaking to a group of sixty MBA students, which makes obvious the fact that if you look past fear you can sometimes find great opportunity, in this case in the form of an exciting career path.
Overall, I found The Millionaire Next Door by Thomas J. Stanley, Ph.D, and William D. Danko, Ph.D, to be eye opening, adjunctive, material to supplement my Personal Finance class. Sometimes it is too easy to become complacent in life, and I think reading this book helped me realize that although I make $24,958 a year currently, I can invest and make better spending decisions so that my net worth is much more than what it is now. TMND pushes the idea of the ‘ordinary man’ becoming a millionaire, and this idea really stuck with me. While many think that being a successful millionaire means fancy cars, big houses, designer name brands, and vacations 4 times a year, TMND has left me with a different idea. I’d like to associate wealth with wisdom. The more you know, the better decisions you make, the better financial decisions you make, the stronger your financial security becomes.
During the fall semester of 2012 I read the bestselling book, “The Millionaire Next Door,” by Thomas J. Stanley, Ph.D and William D. Danko, Ph.D. It was a requirement to read this text for my personal finance class, and although these kinds of things can be boring and quickly briefed, (only to be forgotten once the class is done) I found myself looking at my own personal finances in a completely different way because of it. On the back cover of TMND, Forbes magazine prefaces the book by saying, “The implication of The Millionaire Next Door….is that nearly anybody with a steady job can amass a tidy fortune.” My purpose in this paper is to navigate and review material found in the chapters of TMND, detailing concepts presented in the book through personal examples, observations and insights.
When I envision a millionaire, I get a clear mental picture of someone driving an expensive BMW, (a model I’ve never even heard of) into the driveway of a 4-car, 7-bedroom home. They are dressed impeccably, and the bigger the watch they sport, the bigger their annual salary. The first chapter in TMND is entitled; “Meet the millionaire next door,” and some of the findings presented were hard to believe at first. The authors bring to light that on average, millionaires have a total annual realized income that is less than 7 percent of their wealth. Basically what this means is that they are able to live on less than 7 percent of their wealth. Wealth, in TMND, is defined by an individual’s net worth, or the current value of one’s assets less liabilities, not how I had envisioned it before reading this book. To myself, and many others, wealthy refers to people who have an abundance of material possessions. That’s the point of being wealthy isn’t it? Or so I thought. Wealthy people, (as defined by an individual’s net worth) do not spend significant amounts of income looking to maintain a preconceived image of how wealthy people should look. They do not feel that “if you don’t show it, you don’t have it,” and choose to live below their means.
Reading this at first was mind blowing, and I immediately realized that, I had no idea if I was living within my means, never mind below them. The textbook used in our personal finance class talks about maintaining an expenditure spreadsheet and sticking to a budget to help prioritize the difference between ‘wants’ and ‘needs’ when it comes to purchasing decisions. Looking at my own examples of these finance tools, I’ve found that I have definitely blurred the line between priorities. Using the book as a guide, I decided to see how far off I was, and how they determine if an individual is wealthy.
“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 wealth should be.” This quote is taken from TMND, and is their solution to realizing net worth aside from all the other ‘multivariate-based wealth equations.’ My net worth comes out to be $57,465.50, and unfortunately, I am an UAW. UAW stands for under accumulator of wealth and this is due to my over-consuming and under investing lifestyle. PAW is an acronym for prodigious accumulator of wealth and typifies someone who is twice the level of wealth expected. TMND helps make concrete the habits of PAW’s, and how they look at money.
Someone who is a PAW does not have to be a millionaire, but TMND focuses primarily on that demographic and how they have become, and maintain their wealth. Surprisingly, less than 20% of millionaires in the U.S. receive their worth from trust funds, most are first generation Americans, most work ‘dull, normal jobs,’(welding contractors, paving contractors, etc.), and typically about 20% of their household’s wealth is held in publicly traded stocks and mutual funds. The question I ask myself after reading this is, “how can does this relate to me, and what are the first steps I should take in becoming wealthy?” I am a first generation American, have no access to a trust fund, work a dull normal job, and participate in my work’s mutual fund program, (401K) so why am I not a millionaire yet? The answer is simple and wholly dividing between my current self and them. They are frugal.
“Frugal, frugal, frugal,” “You aren’t what you drive”, and “Economic outpatient care” serve as the meat of TMND and describe how spending habits ultimately dictate where you end up by the time it’s time to retire. The money you spend today, tomorrow, or tie up in lines of credit for the future all add up. Money spent today means less money that will be there tomorrow. The key to all of this is being frugal and resisting the urge to spend money on things that are simply not needed, or not really wanted. Take for example, my own 2009 Hyundai Sonata. I purchased this car with a decent amount down, and am almost done financing it through a commercial finance service. I have maintained all of the good PAW habits like, choosing an affordable car, and maintaining payments. But, I have found that my UAW self has been ogling some 2013 Audi’s, which are retailing at beyond double what I paid for my car. The PAW side clearly know this is not realistic- I am living beyond my means, would have to finance, could be using the time and energy used to purchase a new car for something more profitable, am eliminating options for investments, and simply do not need a fancy new car. Reading TMND has helped me develop a new way at looking beyond the price tag and realizing wanting to own material and brand names can sometimes be a negative cycle in which I am working to pay off continual debt, instead of making my money work for me.
Speaking of working, this brings me to the latter half of the book, chapters entitled “Find your niche” and “Jobs: Millionaires versus heirs.” TMND details the benefits of becoming an entrepreneur while recognizing that many feel a huge sense of risk when considering business ventures.
“What is risk? Having one source of income. Employees are at risk. They have a single source of income. What about the entrepreneur who sells janitorial services to your employers? He has hundreds and hundreds of sources of income.”
This quote is from a professor speaking to a group of sixty MBA students, which makes obvious the fact that if you look past fear you can sometimes find great opportunity, in this case in the form of an exciting career path.
Overall, I found The Millionaire Next Door by Thomas J. Stanley, Ph.D, and William D. Danko, Ph.D, to be eye opening, adjunctive, material to supplement my Personal Finance class. Sometimes it is too easy to become complacent in life, and I think reading this book helped me realize that although I make $24,958 a year currently, I can invest and make better spending decisions so that my net worth is much more than what it is now. TMND pushes the idea of the ‘ordinary man’ becoming a millionaire, and this idea really stuck with me. While many think that being a successful millionaire means fancy cars, big houses, designer name brands, and vacations 4 times a year, TMND has left me with a different idea. I’d like to associate wealth with wisdom. The more you know, the better decisions you make, the better financial decisions you make, the stronger your financial security becomes.