“Can you recommend a book for…?”
“What are you reading right now?”
“What are your favorite books?”
I get asked those types of questions a lot and, as an avid reader and all-around bibliophile, I’m always happy to oblige.
I also like to encourage people to read as much as possible because knowledge benefits you much like compound interest. The more you learn, the more you know; the more you know, the more you can do; the more you can do, the more opportunities you have to succeed.
On the flip side, I also believe there’s little hope for people who aren’t perpetual learners. Life is overwhelmingly complex and chaotic, and it slowly suffocates and devours the lazy and ignorant.
So, if you’re a bookworm on the lookout for good reads, or if you’d like to get into the habit of reading, this book club for you.
The idea here is simple: Every month, I’ll share a book that I’ve particularly liked, why I liked it, and several of my key takeaways from it.
I’ll also keep things short and sweet so you can quickly decide whether the book is likely to be up your alley or not.
If you’ve already read a book that I recommend or have a recommendation of your own to share, don’t be shy! Drop a comment down below and let me–and the rest of us “book clubbers”–know!
Lastly, if you want to be notified when new recommendations go live, hop on my email list and you’ll get each new installment delivered directly to your inbox.
Okay, let’s get to the featured book: The Millionaire Next Door by Thomas J. Stanley.
In many ways, finances are like fitness.
- Many people are in a bad way and doing nothing about it
- Many people who are trying to improve are doing the wrong things
- Many of the social norms are completely dysfunctional
- Many of the mainstream “experts” and “gurus” are professional liars
There are some positive correlations as well:
- Most people only need to understand and apply the fundamentals to achieve their goals
- Those fundamentals are simple, straightforward, and surefire
- You don’t have to be perfect—mostly right most of the time gets the job done
- Can positively impact every other aspect of your life
- It’s never too late to get on the right path
- A bit of discipline and diligence now pay huge dividends in the future
In fact, I’d go as far as saying that after your health and relationships, getting your finances in order is the highest leverage action you can take to improve yourself because with it comes more self-esteem, self-efficacy, and self-reliance, not to mention your sense of freedom, stability, and overall sense of well-being.
Money may not be able to ultimately buy you happiness, but it can sure buy peace of mind and the opportunity to find and pursue what makes you happy.
Furthermore, like eating well and exercising, following a sensible financial regimen is downright countercultural—a personal revolution against “the System.”
Our modern Clown World has been engineered by
pyschotic pedophiles people who have worked hard to produce hordes of docile, diseased, distracted, and dysfunctional wage slaves saddled with crushing debts with just enough wits to push the buttons and pull the levers but too little to question why, let alone blaze their own trails.
And the kingmakers have done a damn good job.
For instance, ponder the following statistics taken from surveys and studies conducted by various financial institutions . . .
- Two-thirds of Americans would struggle to scrounge up $1,000 in an emergency.
- Just 46% of Americans have a rainy day fund.
- 56% of Americans have less than $10,000 saved for retirement, and that includes 33% who have nothing saved as well as 23% who have little.
- Only 24% of millennials demonstrate basic financial literacy.
- Americans are collectively carrying over $1 trillion in credit card debt.
- About 77 million Americans, or 35% of adults with a credit file, have debt in collections.
- 47% of Americans who have credit cards don’t pay off their balance in full each month, and nearly one-third make minimum payments each month.
- 26% of Americans have made a delinquent payment and 56% of payment delinquencies were due to overspending on nonessential items.
. . . and then ponder this question:
Did all this just happen through coincidence and circumstance? Or was it made to happen?
And not “made” in the sense of the Dread Lord Rothschild forcing people to sign their lives over to the banks, advertisers, and retailers, but in the sense of people in positions of power creating a complex and interconnected social system explicitly designed to encourage the behaviors that have produced the disastrous results we see around us.
Anyway, regardless of how we got here, we can now can do as our masters command—earn and spend and then borrow so we can spend even more—and suffer the consequences of mounting distress and despair or we can defy the “now-you’re-supposed-to’s” and follow the advice in The Millionaire Next Door and reap the considerable material, psychological, and emotional rewards of financial independence.
Contrary to common belief, we don’t have to come from money or earn hundreds of thousands per year to get there, either.
In fact, the author discovered that while many children of wealthy parents and high earners have more shiny objects than those less well-off, they’re also just a paycheck or three away from financial ruin.
And while your ability to increase your net worth certainly increases with your income, you can absolutely retire rich on a lifetime of modest earnings.
Let’s get to the takeaways.
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My 5 Key Takeaways from The Millionaire Next Door
Affluent people typically follow a lifestyle conducive to accumulating money. In the course of our investigations, we discovered seven common denominators among those who successfully build wealth. They live well below their means. They allocate their time, energy, and money efficiently, in ways conducive to building wealth. They believe that financial independence is more important than displaying high social status. Their parents did not provide economic outpatient care. Their adult children are economically self-sufficient. They are proficient in targeting market opportunities. They chose the right occupation.
This summarizes the author’s main findings and recommendations, and as with fitness, it’s mostly the fundamentals that matter the most—the things most people don’t want to do consistently. With diet and exercise, that’s energy balance and resistance training, with money, that’s budgeting and investing.
In fact, if you get into those two habits alone—budgeting and investing, and in the most basic of ways—you’re all but guaranteed to achieve significant financial fitness in your lifetime. If you can routinely spend 10 to 20% less than you earn and invest the surplus in safe, appreciating assets like mutual funds or real estate, you can be rich. End of story.
The rub, of course, is how long it takes and what you have to sacrifice to get to the finish line. In fitness, you can build an outstanding body in just a few years, but it takes most people a couple decades to achieve financial independence.
To that I say “who cares,” however, because of how terrible the alternative is. The negative ramifications of financial failure and ruination are so many and pervasive that it’s worth avoiding at any cost, like drug addiction or alcoholism.
PAWs allocate nearly twice the number of hours per month to planning their financial investments as UAWs do.
In the book, Stanley refers often to “prodigious accumulators of wealth” (PAWs) and “under accumulators of wealth” (UAWs).
To determine which you are, Stanley gives the following formula for first determining what your net worth should be:
- Multiply your age by your realized pre-tax annual household income from all sources except inheritances.
- Divide by 10.
That’s average financial fitness by Stanley’s standards, and to qualify as a PAW, your net worth should be at least twice that amount, he says, and if it’s below your calculated number, you’re a UAW to one degree or another.
So for instance, if Bill is 45 years old and makes $150,000 per year before taxes, an average net worth would be $675,000, a prodigious one would start at $1,350,000, and an underachieving net worth would be anything less than $675,000.
The purpose of the book is to help more people become PAWs and save them from the trials and tribulations associated with being a UAW.
Now, to this takeaway regarding time allocated to financial planning, while PAWs spend nearly double the amount of time than UAWs, it’s still only 8.4 hours per month on average, which anyone can do.
Yes, just 2 hours per week of your time and energy is all that’s needed to make you rich.
Ready to start? Well, read The Millionaire Next Door and then . . .
1. The Little Book of Common Sense Investing
2. The Bogleheads’ Guide to the Three-Fund Portfolio
And apply what you learn in those books in the same way you apply what you know about how to eat and exercise and you’ll quickly leapfrog ahead of most people in the game of money.
What can you give your children to enhance the probability that they will become economically productive adults? In addition to an education, create an environment that honors independent thoughts and deeds, cherishes individual achievements, and rewards responsibility and leadership. Yes, the best things in life are often free. Teach your own to live on their own. It’s much less costly financially, and, in the long run, it is in the best interests of both the children and their parents.
Stanley dedicates two entire chapters to the many perils of providing “economic outpatient care,” as he calls it, to children in the form of cash, gifts, securities, real estate, and other private assets.
In short, the data shows this is one of the easiest ways to encourage kids to become weak, lazy, entitled brats who lack ambition, drive, and discipline and depend wholly on familial subsidies to fuel their ever-increasing need for more and more conspicuous consumption.
Having grown up around a number of kids who came from money, I’ve seen this firsthand. One for one, the most broken people I’ve ever gotten to know had wealthy or high-earning parents who taught them early on they could have anything they wanted not through production and prudence but parental patronage.
Now, many of these guys and gals are in their 30s and 40s and in all cases but one that I can think of, are in varying degrees of failure in more or less every aspect of their lives. But they sure do drive fancy cars!
As someone with kids and a substantial and rising income and net worth, I plan on avoiding this gigantic pitfall by doing everything I can to help my children become independent, resilient, and conscientious adults, and while they’ll certainly enjoy a privileged upbringing to some degree, they’re not going to ride my financial coattails into the lap of luxury.
They’re going to learn how to provide for themselves, and if they’re going to become rich, it’s going to be on their own merits.
Those parents who provide certain forms of EOC have significantly less wealth than those parents within the same age, income, and occupational cohorts whose adult children are economically independent.
A Family Welfare Department not only harms the receivers but the givers as well, and while many parents may happily dilute and dissolve their net worth for their kids, what happens if the well finally runs dry? Both parties are destroyed.
I’ve seen this happen, too. Several times.
I’ve seen people earning seven figures per year doling out substantial sums so their kids can have it all without having to work jobs they “don’t like” suddenly find themselves financially overstretched and overwhelmed. The aftermath was always ugly for everyone involved.
So, I consider it a point of personal responsibility as a parent to ensure my kids don’t need my financial support as adults, just as I see it as a point of personal pride to not accept any financial assistance from my parents beyond a couple business loans along the way that a) I could’ve gotten from banks but wanted to offer the interest to my dad instead and b) I promptly repaid with interest.
PAWs need to achieve, to create wealth, to become financially independent, to build something from scratch. UAWs more often need to display a high-status lifestyle.
Most wealthy people get much more pleasure from owning substantial amounts of appreciable assets than from showing off how many knick-knacks they can buy.
Some wealthy guys and gals do indeed have some nice things like cars, watches, handbags and the like, but they’re generally still frugal relative to their incomes and believe this is the key to achieving financial independence. They also typically ignore the Joneses and eschew the display of high-status trappings and trinkets including clothing, jewelry, accessories, cars, and the like.
The data in the book also shows the people who peacock the most tend to do so at the expense of their net worth. Keep that in mind when you’re sizing up the beautiful people of Instagram or considering saving and investing less to buy more bric-a-brac.