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The Millionaire Next Door is a good book for anyone to read who is interested in obtaining financial tips for becoming financially independent in their life. While most of the topics that the authors Thomas J. Stanley and William D. Danko cover seem to be common sense its always good to be reminded of the the little things that over time can add up to be a huge difference. The book focuses on seven main characteristics of the millionaire next door:They live well below their meansThey allocate their time, energy and money efficiently, in ways conducive to building wealthThey believe that financial independence is more important than displaying high social statusTheir parents did not provide economic outpatient careTheir adult children are economically self-sufficientThey are proficient in target market opportunitiesThey chose the right occupationThe frugality of the millionaires is something that most people don’t expect. We are inundated through television and movies that millionaires have a lifestyle to uphold of sailing around the world on their yachts, playing golf at the country club every day of the week and having lavish dinner parties at their mansions while raising hundreds of thousands of dollars for a “save the white owls of who knows where” campaign. The findings of the Millionaire Next Door surveys paint quite a different picture of the typical millionaire. The portrait of the millionaire from these surveys show that typically they are in their mid fifties, married with three children. About 1 in 5 are retired. Two thirds of the millionaires that are working are self-employed. Many of the types of businesses that millionaires are in could be classified as normal. Examples would be welding contractors, auctioneers, coin and stamp dealers or paving contractors. About Eighty percent of the millionaires are first generation affluent. This book is not a get rich quick manual, which you might typically expect when you see the word millionaire. This is about discipline, setting goals, and time.What these stats tell us is that the majority of these millionaires are normal people. Working hard to earn and keep their money to get where they want to be in life. For every 100 millionaires who don’t budget there are 120 that do. Which means that they have a plan for their spending on food, clothing, and shelter and they know what they spent in these categories for the past year. Throughout the book the wealthy are careful in their use of credit cards or loans and tend to save up the cash for purchases they plan on making. The average millionaire does not drive the year’s new model in car, but typically has a used American made vehicle. For most of these millionaires keeping up with the Jones’s is not as important as paying themselves first by investing rather than spending. The houses they live in our not the nicest ones on the block and typically are in a suburban neighborhood. The point of this chapter is that the millionaires live with in their means, plan and budget where their money is going, and they don’t waste money on flashy purchases that are not necessary in their lives.The prodigious accumulator of wealth (PAWs) and the under accumulator of wealth (UAWs) have a very different focus when it comes to Time, Energy, and Money. As far as time allocation most PAWs agree with the following statements:I spend a lot of time planning my financial futureUsually, I have sufficient time to handle my investments properlyWhen it comes to the allocation of my time, I place the management of my own assets before my other activities.UAWs tend to agree with the following statements:I cant devote enough time to my investment decisionsI’m just too busy to spend much time with my own financial affairs.Now of the survey conducted the PAWs on average spent only 8.4 hours a month planning their investments. This translates to 1.2% of their time for the year relating to financial planning. The UAW’s are on average 4.6 hours a month, which equates to 55.2 hours a year. Almost half of what the PAWs spend on their decisions. Those PAWs giving the time and attention to their financial planning reduce their taxable income, increase their investment holdings, and therefore increase their net worth. While the UAWs tend to end up as spenders, the money comes in and the money goes out. The tax liability is high because they are not researching tax deferred investments or shelters for their money and their net worth becomes lower even though they may be on the same income level as the PAW. The example of this in the book would be the North’s vs. the South’s. They have a close relative income yet the North’s have a 4% tax of their net worth compared to the South’s at a 75% tax percentage of their net worth.Millionaires realize that they aren’t what they drive. That is most millionaires tend not to rush out and buy the current years model car with all the bells and whistles, driving the depreciation right off the lot with them. Only 23.5% of millionaires own new cars and most have not purchased a motor vehicle in four or more years. The typical millionaire paid on average $24,800 for their most recent car. The most common type of car purchased by millionaires is American made, with Ford taking the most popular make. These millionaires believe that financial independence is more important than displaying high social status.Economic outpatient care is referred to as the funding of the lifestyles of the adult children. Most millionaires in the book have not been on EOC from their family and were taught by their parents about the value of working for their money. The research showed that most adults who sit around waiting for the next dose of cash are not very productive. These receivers tend to live above their means and count on their parent’s wealth as their own. What happens when adult children receive these gifts? They become weak. These weakened children typically lack initiative and therefore produce less income on their own but still have a higher propensity to spend. They use the analogy of teaching your child to fish for life rather then just giving them the food everyday. Show them how to work, how to earn, and how to produce and again LIVE WITHIN THEIR MEANS!!Another characteristic is that millionaire’s adult children are economically self-sufficient. Some things that millionaires do when raising their children are toNever tell the kids their parents are wealthyNo matter how wealthy you are always teach your children discipline and frugalityAssure your children don’t realize your affluent until after they have established a mature lifestyleMinimize inheritance discussionsNever give cash as a negotiation strategyThese aspects build the character of the children and keep them from becoming receivers or underachieving UAWs.Finally this book boils becoming a millionaire down to choosing the right professions. The self-employed people are four times more likely to be millionaires than those who work for others. They state there is no magic list of businesses from which wealth can be guaranteed from, however these professions rank highly from the survey group. This list is also a good source of information when looking to start a business or services to which can be marketed to the professions as well. Becoming affluent by serving the affluent. All in all this was a good read. I learned some things and it was refreshing to read a book that wasn’t about getting rich quickly and becoming wealthy overnight. I have wanted to read this book for awhile now since its on Dave Ramsey’s recommended reading list. I do think that the Total Money Makeover covers some of these same aspects of financial planning and is a lot more entertaining. ................
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