{"id":4161,"date":"2023-06-16T12:00:06","date_gmt":"2023-06-16T16:00:06","guid":{"rendered":"https:\/\/www.mattwkane.com\/?p=4161"},"modified":"2023-06-20T16:09:36","modified_gmt":"2023-06-20T20:09:36","slug":"the-millionaire-next-door","status":"publish","type":"post","link":"http:\/\/www.mattwkane.com\/?p=4161","title":{"rendered":"Millionaire Next Door"},"content":{"rendered":"\n<p>The Millionaire Next Door: The Surprising Secrets of America&#8217;s Wealthy<br \/><strong>Stanley and Danko\u20141996.<\/strong><\/p>\n\n\n\n<p><strong>Introduction<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.<\/li>\n\n\n\n<li>Wealth is what you accumulate, not what you spend.<\/li>\n\n\n\n<li>Eighty percent of America\u2019s millionaires are first-generation rich.<\/li>\n\n\n\n<li>In the course of our investigations, we discovered seven common denominators among those who successfully build wealth.<ul><li>They live well below their means.<\/li><\/ul><ul><li>They allocate their time, energy, and money efficiently, in ways conducive to building wealth.<\/li><\/ul><ul><li>They believe that financial independence is more important than displaying high social status.<\/li><\/ul><ul><li>Their parents did not provide economic outpatient care.<\/li><\/ul><ul><li>Their adult children are economically self-sufficient.<\/li><\/ul><ul><li>They are proficient in targeting market opportunities.<\/li><\/ul>\n<ul class=\"wp-block-list\">\n<li>They chose the right occupation.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p><strong>Meet the millionaire next Door<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two thirds of millionaires.<\/li>\n\n\n\n<li>&nbsp;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%.<\/li>\n\n\n\n<li>We hold nearly 20 percent of our household\u2019s 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. On average, 21 percent of our household\u2019s wealth is in our private businesses.<\/li>\n\n\n\n<li>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.<\/li>\n\n\n\n<li>We have developed another simple rule. To be well positioned in the PAW category, you should be worth twice the level of wealth expected. In other words, Mr. Duncan\u2019s net worth\/wealth should be approximately twice the expected value or more for his income\/age cohort, or $635,500 multiplied by two equals $1,271,000. If Mr. Duncan\u2019s net worth is approximately $1.27 million or more, he is a prodigious accumulator of wealth. Conversely, what if his level of wealth is one-half or less than expected for all those in his income\/age category. Mr. Duncan would be classified as a UAW if his level of wealth were $317,750 or less s (or one-half of $635,500).<\/li>\n<\/ul>\n\n\n\n<p><strong>Frugal Frugal Frugal<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Their shopping habits certainly have something to do with the fact that they are not wealthy. Who are these people? Typically, they do not own their own business. They are more likely to be corporate middle managers (especially those who are part of a working couple). Attorneys. Sales and marketing professionals, and physicians.<\/li>\n\n\n\n<li>This last question is highly significant. Not only are the most prestigious accumulators of wealth frugal, their spouses tend to be even more frugal.<\/li>\n\n\n\n<li>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 hyper consumer.<\/li>\n\n\n\n<li>The found stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.<\/li>\n\n\n\n<li>Question 1: Does your household operate on an Annual budget?\n<ul class=\"wp-block-list\">\n<li>We anticipate your question about those millionaires who don\u2019t budget. How did they become millionaires? How do they control spending? They create an artificial economic environment of scarcity for themselves and the other members of their household. More than half of the no budgeters invest first and spend the balance of their income. Many call this the \u201cpay yourself first\u201d strategy. These people invest a minimum of 15 percent of their annual realized income before they pay the sellers of their food, close, homes, credit and the like.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Question 2: Do you know how much your family spends each year for food, clothing, and shelter?<\/li>\n\n\n\n<li>Question 3: Do you have a clearly defined set of daily, weekly, monthly, annual and lifetime goals?<\/li>\n\n\n\n<li>Question 4: Do you spend a lot of time planning your financial future?\n<ul class=\"wp-block-list\">\n<li>Millionaires spend significantly more hours per month studying and planning their future investment decisions, as well as managing their current investments, then high income non-millionaires.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>To build wealth, minimize your realized (taxable) income and maximize your unrealized income (wealth\/capital appreciation without a cash flow).<\/li>\n\n\n\n<li>That people accumulate significant wealth by minimizing their realized\/taxable income and maximizing their unrealized\/nontaxable income.<\/li>\n\n\n\n<li>It\u2019s easier to accumulate wealth if you don\u2019t live in a high status neighborhood.<\/li>\n\n\n\n<li>If you\u2019re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household\u2019s total annual realized income.<\/li>\n<\/ul>\n\n\n\n<p><strong>Time. Energy, and Money<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Efficiency is one of the most important components of wealth accumulation.<\/li>\n\n\n\n<li>PAWs allocate nearly twice the number of hours per month to planning their financial investments as UAWs do.<\/li>\n\n\n\n<li>Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction. The Norths have a budget that calls for them to invest at least one-third of their pretax household income each year. In fact, during the year that we interviewed Dr. North, he and his wife invested nearly 40% of their annual pretax income.<\/li>\n\n\n\n<li>UAWs tend to produce children who eventually become UAWs themselves.<\/li>\n\n\n\n<li>When it comes to the allocation of my time, I place the management of my own assets before any other activities.<\/li>\n\n\n\n<li>Conversely, UAWs tend to agree with the following statements:<ul><li>I can\u2019t devote enough time to my investment decisions.<\/li><\/ul>\n<ul class=\"wp-block-list\">\n<li>I\u2019m just too busy to spend much time with my own financial affairs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>UAWs consider cash\/near cash and equivalents, such as savings accounts, money market funds, and short-term treasury bills, to be investments. UAW\u2019s are nearly twice as likely as PAW\u2019s to hold at least 20% of their total wealth in cash\/near cash. Most of these cash categories are federally insured. Most are easily accessed when consumption needs arise. And, of course it takes less time to plan cash related investments than it does to allocate wealth the way PAW\u2019s tend to do. PAW\u2019s are more likely to invest in categories that usually appreciate in value that do not produce realized income.<\/li>\n\n\n\n<li>In sharp contrast, most of the PAWs we have interviewed make their own investment decisions.<\/li>\n\n\n\n<li>How did you hire your household\u2019s financial advisor? Did you list the position in the help-wanted section of your local newspaper? Did you evaluate the stacks of resumes your advertisement generated? Or did you ask your accountant, attorney, or minister to help you find a quality advisor? Many people tell us that such methods are just too much work.<\/li>\n\n\n\n<li>\u201cI am a businessman who goes out and tests people. Brokers call me a lot. They say, \u201cI have a great deal of experience in Wall Street\u2019s best offerings. . . I have a fantastic track record of making money for my clients. I always say: \u201cDo you have some good investment ideas for me\u2014really good\u201d He says, \u201cAbsolutely, especially if you\u2019re willing to make trades in your portfolio. I only handle accounts with a minimum of $200,000. Then I tell him, \u201cSo you\u2019re really good. Well, I\u2019ll 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\u2019ll invest with you. Here\u2019s my address.\u201d When they say, \u201cWe can\u2019t show that to you,\u201d I tell them. \u2018You are likely to be full of baloney.\u201d This is my strategy for checking people out. It works. I check them all out this way. I mean it very honestly.<\/li>\n<\/ul>\n\n\n\n<p><strong>You Aren\u2019t What You Drive<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>If your goal is to become financially secure, you\u2019ll likely attain it. . . . But if your motive is to make money to spend money on the good life . . . you\u2019re never gonna make it.<\/li>\n<\/ul>\n\n\n\n<p><strong>Economic Outpatient Care<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>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 \u201ctemporary\u201d gifts affect the recipient psyche. Cash gifts earmarked for consumption dampen one\u2019s initiative and productivity. They become habit forming. These gifts then must be extended throughout most of the recipient\u2019s life.<\/li>\n\n\n\n<li>Whatever your income, always live below your means.<\/li>\n<\/ul>\n\n\n\n<p><strong>Affirmative Action, Family Style.<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Most affluent parents who have adult children want to reduce the size of their estate before they pass away. Certainly this decision makes sense, given that the alternative is to leave their children with a significant estate tax liability.<\/li>\n\n\n\n<li>Parents with nonworking adult daughters and \u201ctemporarily\u201d unemployed adult sons have a high propensity to provide these children with heavy doses of economic outpatient care (EOC). These children are also likely to receive a disproportionately large portion of their parents\u2019 estates.<\/li>\n\n\n\n<li>Daughters who are not housewives but are employed in full-time positions are less likely to receive cash gifts and inheritance than their nonworking sisters.<\/li>\n\n\n\n<li>I have two children. They are close to each other. They can settle my estate between them\u2026 But they will have to do it along with my attorney\u2026 The children and my attorney are executors of my estate. I put the attorney in just to keep the balance. . . . You know when money\u2019s involved what can happen. I want to keep good relations . . . But good relationships may deteriorate at the last moment without an experienced professional.<\/li>\n\n\n\n<li>I never knew my dad was wealthy until I became executor of his estate. He never looked it.<\/li>\n\n\n\n<li>No matter how wealthy you are, teach your children discipline and frugality.<\/li>\n\n\n\n<li>Kids are very smart. They will not follow rules that their parents themselves do not follow.<\/li>\n\n\n\n<li>Give because of love, even obligation and kindness. Adult children often lose their respect and love for parents who submit to high pressure and negotiation tactics.<\/li>\n\n\n\n<li>Tell your children that there are a lot of things more valuable than money.<\/li>\n<\/ul>\n\n\n\n<p><strong>Find Your Niche<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Very often those who supply the affluent become wealthy themselves.<\/li>\n\n\n\n<li>The affluent are not at all frugal when it comes to buying products and services for their children and their grandchildren.<\/li>\n<\/ul>\n\n\n\n<p><strong>Jobs: Millionaires versus Heirs<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>By now you probably can predict the answer. Most of the affluent in America are business owners, including self-employed professionals. Twenty percent of the affluent households in America are headed by retirees. Of the remaining 80 percent, more than two-thirds are headed by. Self-employed owners of businesses. In America, fewer than one in five households, or about 18 percent, is headed by a self-employed business owner or professional. But these self-employed people are four times more likely to be millionaires than those who work for others.<\/li>\n\n\n\n<li>You can\u2019t predict if someone is a millionaire by the type of business he\u2019s in.<\/li>\n\n\n\n<li>The character of the business owner is more important in predicting his level of wealth than the classification of his business.<\/li>\n\n\n\n<li>Fewer than one in five millionaire business owners turn his business over to his children who own and operate.<\/li>\n\n\n\n<li>Dull companies with steady earnings growth may not make for stimulating cocktail party chatter, but over the long term they will make the best investments.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The Millionaire Next Door: The Surprising Secrets of America&#8217;s WealthyStanley and Danko\u20141996. Introduction Meet the millionaire next Door Frugal Frugal Frugal Time. Energy, and Money You Aren\u2019t What You Drive Economic Outpatient Care Affirmative Action, Family Style. Find Your Niche Jobs: Millionaires versus Heirs<\/p>\n","protected":false},"author":1,"featured_media":4162,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[238,140,243],"tags":[],"class_list":["post-4161","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-booknotes","category-culture","category-finance"],"_links":{"self":[{"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=\/wp\/v2\/posts\/4161","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4161"}],"version-history":[{"count":2,"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=\/wp\/v2\/posts\/4161\/revisions"}],"predecessor-version":[{"id":4463,"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=\/wp\/v2\/posts\/4161\/revisions\/4463"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=\/wp\/v2\/media\/4162"}],"wp:attachment":[{"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4161"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.mattwkane.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}