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September 6, 2005
Wealth is Not About the Income!
A review of The Millionaire Next Door
Long after I started getting responsible with my finances, I thought that in order to achieve real wealth, I needed to earn an extraordinary amount of money.
At a certain level, that's true. You'll never become a billionaire by pinching pennies alone. And to become a millionaire, it certainly helps if you earn a healthy salary and are disciplined about saving it.
But when I read The Millionaire Next Door, it completely changed my assumptions about what it takes to become wealthy. Nothing corny like "it opened my eyes and changed my life". It just introduced me to a new idea -- that anyone can acquire wealth -- and provided research to back it up.
The book is not as much about giving practical advice for building wealth as it is about describing self-made millionaires and identifying the characteristics that they share. The idea is that by looking for the common threads in people who have achieved financial success, we can find something to imitate that will help us reach those goals.
The most common characteristic, and a theme that repeats throughout the book, is frugality. I kept noticing that most of the people described as millionaires, who have amassed many times their yearly salary, actually earn less than I do now! And there was no secret to how they did it: they spend less money than they earn. They save the rest, and they do it consistently.
I had to change the way I was thinking about becoming wealthy. I had been assuming that, if I ever wanted to become rich, I would have to find a way to earn an extraordinary income. It wasn't until I read The Millionaire Next Door that I realized that wasn't the case. The book makes an important distinction between income and net worth. True, a high income allows you to have a certain lifestyle, but a high net worth gives you freedom from requiring an income.
After all, there's no salary so high that you can't spend it all. Then where would you be? At best, you're forced to keep working to maintain your lifestyle, always wondering what would happen if you were somehow unable to continue earning as much as you are. I don't want to live with that worry, and I have The Millionaire Next Door to thank for helping me realize that.
Posted by Frank at September 6, 2005 7:59 AM
Comments
Posted by: savvy saver
at September 6, 2005 10:04 AM
What's the point of having money, if you're not going to spend it?
The answer: Freedom.
Freedom from obligations (such as debt or monthly payments),
freedom of choice (easier to quit one's job and find another),
freedom of action (able to pursue potentially costly interests and hobbies),
and freedom from worry (money is great insurance).
Posted by: Ben
at September 6, 2005 11:52 AM
Hi, I wanted to e-mail and ask you if I could have teh theme you are using for your blog. I really like it!
Posted by: Jason
at September 6, 2005 2:30 PM
I really like these sentences:
The book makes an important distinction between income and net worth. True, a high income allows you to have a certain lifestyle, but a high net worth gives you freedom from requiring an income.
Good post!!!
Hazzard
Posted by: Hazzard
at September 6, 2005 4:30 PM
I went to the library and checked out the book when I first started reading this site. The one thing I learned is I need to make my wife more frugal than me. I think I have my work cut out for me. :)
I recommend anyone interested in accumulating wealth to read the book.
Posted by: Michael
at September 6, 2005 8:28 PM
Talking to a bunch of people at work, and listing to what they saying, I can attest to people who increase their salary dramatically also seem to increase their expenses dramatically.
There are guys here to make around 100K, yet they say that don't have any money...If I made that kind of cash at my current living level, i would have heaps of cash around my house...
Posted by: Youngmiser
at September 7, 2005 3:55 AM
The millionaire next door is an excellent book. It really opened my eyes about saving. Anyone can spend money the real question is how much do you have saved?
Posted by: Audrey
at September 8, 2005 10:18 AM
When my son was born, my wife gave up full time work. Since then, I have felt better off than when we had 2 incomes. We've paid off the mortgage and have got to the stage where we don't know how to spend the money, so it is being saved for our son.
I can directly relate to what you've written therefore - perhaps we are frugal, but we're doing okay!!
Posted by: Glyn Simpson
at September 16, 2005 5:00 AM
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amen! Not only does living below your means mean you are saving more, but you have less "things" to worry about and take care of. Expensive vehicles, McMansions, boats, ATVs, etc. all cost much more money than their purchase price.