Millionaire Next Door

I exploit coupons and deal websites (used a $15 for $30 Groupon on Friday)…

I plant my own vegetables (seedlings are up and sunning on the porch)…

And you should, too.

Saving money is just as important as making it.

It’s just not as sexy. It’s not mainstream. It isn’t what the cool kids do. But it’s what gets you ahead.

Millionaires Next Door?

The Millionaire Next Door was a 1996 book by Thomas J. Stanley and William D. Danko meant to expose the secrets of America’s wealthy families. (Buy it here.)

It divided people into two groups:

1. UAW (Under Accumulators of Wealth)

2. PAW (Prodigious Accumulators of Wealth)

Basically, UAWs squander a high percentage of their wealth relative to their income. PAWs save and invest a high percentage of their income. Most PAWs are millionaires, but not all.

Much of what Stanley and Danko found was counterintuitive. That is, the actual description and habits of millionaires are drastically different than the common perception of them.

Here are some of the most surprising things millionaires revealed about themselves, as noted in chapter one’s “Portrait of a Millionaire”:

• 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.

• 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?

• 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. Seventy-nine percent of us have at least one account with a brokerage company. But we make our own investment decisions.

• 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.”

As it turns out, getting rich isn’t rocket science.

You just have to be prudent, frugal, and dedicated.

Basically, if you want to be a millionaire, all you have to do is spend less than you earn and invest the difference in things that appreciate.

“Ask the average American to define the term wealthy,” the authors instruct. They continue:

Most would give the same definition found in Webster’s. Wealthy to them refers to people who have an abundance of material possessions.

We define wealthy differently. We do not define wealthy, affluent, or rich in terms of material possessions. Many people who display a high-consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights, or timber land. Conversely, those people whom we define as being wealthy get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.

That means if you want to be wealthy, you should buy and brag about a high dividend-yielding play, not a Lexus.

You may not be viewed as cool, but you’ll be rich — and that trade-off is fine with me.

What’s more, 95% of millionaires have a net worth less than $10 million. That isn’t unattainable Bill Gates money; it’s the amount of wealth that can be accrued in one generation.

Getting your net worth to between $1 million and $10 million is actually doable in your lifetime — but you have to formulate a plan and stick to it and not let it be altered by noise from The Street or from D.C.

Advice du Jour

Some of the financial advice I see touted these days is just plain crazy.

There are actually professionals out there advising people not to send their kids to college, because many kids are graduating with high loan balances and having a tough time finding jobs.

That is nonsense.

Four out of five millionaires have a college education. In the authors’ extended surveys and studies, millionaires reported that “education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the educations of our offspring.”

And what about owning a home?

It seems to be financially hip today to say that renting is financially advantageous to owning. Yet over 97% of millionaires own their homes… and half of them have lived in the same home for more than 20 years.

I’d never tell you not to send your kids to college or to rent instead of buying a home.

That’s hopeful advice for wishful-thinking Under Accumulators of Wealth (UAWs).

But you can’t convince them they’re wrong, because they always live in the here and now.

So instead of trying to convince them, stop spending, start saving and investing, and write them a letter in 20 years when you’re a millionaire, your house is paid off, and your kids are in college.

Call it like you see it,

Nick Hodge

@nickchodge on Twitter

Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street’s Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor’s page.

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