Stuart Zadel on The Millionaire Next Door Series. Meet the epitome of frugal living: the wealthy who are living within their means & what you might be doing wrong.
FRUGAL, FRUGAL, FRUGAL: LIVING WITHIN YOUR MEANS
Hello friends, and welcome to the 2nd installment of The Millionaire Next Door Series. In this 8-part series, I’ll be discussing the key denominators that set apart the wealthy (Prodigious Accumulators of Wealth or PAWs) and the non-wealthy (Under Accumulators of Wealth or UAWs).
Much of my discussion in this series is inspired by the book, The Millionaire Next Door by Thomas Stanley and William Danko, with a focus on discovering what the wealthy are doing to get even wealthier.
In Review: How To Determine How Wealthy You Are
In the first installment of this series, I posed 3 questions that prompted you to have a fresh look at your present economic circumstance and reflect on your desired financial direction in the future:
Would you rather look rich or be rich?
If your income dried up tomorrow, how long can you afford to live?
Do you know how wealthy you are?
I, then, gave you the formula on how to calculate your net worth. What did you find out? I’ve also left you a handful of questions to ponder upon before reading this second installment. What did you find out?
Now, remember what I said that most of society wants to ‘look rich’ rather than ‘be rich’. It’s easy to buy beautiful cars, clothes and other material possessions on finance. But you do know that these things are mostly done on expensive finance, don’t you? So here’s the thing: it’s not how much you earn. It’s what you do with it.
I know I’ve been mentioning ‘wealthy’ a lot, and I remembered one gentleman asking me, “Stuart, what do you mean wealthy?”
Well, in the book The Millionaire Next Door, they concentrated on people who have between 1 and 10 million dollars. 80% of those people were first-time, self-generated millionaires in their own lifetimes, hence the authors concentrated on this group. We’re not talking about the super-wealthy. We’re talking about a means of wealth that most people could reasonably attain in their lifetime if they have the right information.
So let’s move on to the first of the 7 denominators that identify the Prodigious Accumulators of Wealth or PAWs.
THE EPITOME OF FRUGAL LIVING: MEET YOUR MILLIONAIRE NEXT DOOR
One noteworthy observation made by the authors of the book lies on the misguided perception that we commonly have about millionaires. In one particular situation, in their interviews and group sessions, the authors decided to bring in three sorts of caviar and vintage champagne. Little did they know that what’s about to happen next will blow the lid off of their long-held expectations.
One gentleman walked in and said, “Listen, none of this fancy stuff! I drink Scotch, and beer; two types of beer: Budweiser and free.” Since then, they called him Mr. Bud.
That experience led the authors to realise that their perception about those who are wealthy is a stark contrast to what they’ve seen in reality. Most were down-to-earth business owners who’d been in the same business for a long time, married to the same partner – it’s quite what you’d call a “boring” story. But what they certainly found out was that appearances mean very little. Now, I have similar stories I want to share to you.
Story 1: The Extraordinary Gentleman
Recently, at an event in Brisbane, a gentleman turned up in thongs and stubbies. Now, you have to understand that he’s attending an event related to property. But after two days, this guy turned out to be larger than life. He walked up to me at the end in the course of our discussion mentioned that he owned a lot of land in a place called Gladstone, and was worth over a $180,000,000. Remember what we’ve mentioned: appearances and reality can be two different things.
Story 2: The Top Salesman
Many of you know that I used to own a gym for 12 years. There I met a gentleman who was a top car salesman in his dealership. He used to earn $120,000 but he didn’t have a single cent to show for it. He’d gone to work for 52 weeks a year, as a top salesman, and didn’t have a cent left from a $120,000! In fact, his money now goes to his mother. She banks it – he does not have access to his own bank accounts – and she gives him two hundred dollars a week in which to live on.
Story 3: The Receptionist
Now contrast that with his receptionist. She was earning $35,000 a year at that time, and she saved 15% of her income week in, week out. At the end of the year, she had over $5,000 saved. After 12 months, she was closer towards wealth than he was. Remember, it’s not how much you earn; it’s what you do with it.
If you’re going to be one of the wealthy, there’s an extra kicker that I’d like to impart with you. The first one is actually a question: do you want to get rich fast or slow? The answer should be both. That way, if you don’t make it fast, you’re still going to get rich anyway albeit slowly. Second, if you’re going to do it the slow way, you need to understand the first law of the millionaires next door: they live within their means. That means that they’re frugal and that they spend less than they earn.
That wraps up our discussion for the 2nd installment. Now, don’t forget that while this is an 8-part series, you’re welcome to ask me your questions or give out your comments at any time. Also, if you have suggestions about wealth creation topics that you want me to cover in the future, please let me know, too! You can email me at Stuart@StuartZadel.com.