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"If you want something you've never had, you must be willing to do something you've never done"

You aren't what you drive: The Millionaire Next Door Book Review #1

Welcome back to another blog post whanau!


Today's Book Review is on Thomas Stanley and William Danko's book, The Millionaire next Door.




The Millionaire Next Door is one of those books that every finance guru recommends you read.


This is not an AD, but if you would like to purchase this book a link to purchase it can be found here: The Millionaire Next Door by Thomas J. Stanley, Ph.D William D. Danko | Paper Plus


The Introduction of The Millionaire Next Door opens the book with ease but also apprehension...


"By surveying people in so-called upscale neighborhoods across the country {we} in time discovered something odd. 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". - Pg.1


This idea that rich people live in modest homes is one that I consider to be so suprising for someone growing up poor; the reason being is this: I would see the flash houses and assume wealth, I would see flash cars and assume wealth. The truth is though is that someone's financial situation cannot be seen by what they wear or where they live. The other thing to consider is that most of the people in upscale neighborhoods are working 60 hour weeks in a stressful workplace just to make ends meet and satisfy their lifestyle.


"Most people have it all wrong about wealth. Wealth is not the same as income. If you make a good income but you spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate and not what you spend".


This idea that living pay check to pay check despite having a high income such as that of a Doctor or Lawyer is mind blowing for many people. However, it can be understood more easily by the concept of lifestyle inflation.



Lifestyle Inflation:


Requiring more and more as time passes and income increases, in order to achieve the same level of satisfaction.


Example:


Growing up we were broke. We would get a roast chicken on Christmas day as a treat. Now, we have a Roast every Sunday.


The problem with lifestyle inflation:


The Problem with Lifestyle inflation is that no matter how much money you bring in a year, as it increases so too will your costs therefore making wealth growth near impossible. If your rate of spending increases at the rate your income increases, there will be no room for wealth to grow.


So, what can we do about this?


Living within your means is always the best start.


What is this? - Living within your means, means only buying what is less than your income each week. You are not going in to debt to support your lifestyle.


How can this instigate growth of wealth?


By living within your means you are practicing mental power to only buy what you can afford.


Growing wealth will come when the gab between your expenses and income becomes greater and greater as your income grows. This difference will become your investment portfolio.


If however, you become accustomed to what everyone else is doing, keeping up with the Joneses, this will not be possible.


According to The Millionaire Next Door, there are seven factors that contribute to someone becoming wealthy:


  1. Living below their means

  2. Allocating time, energy and money efficiently in ways conducive to building wealth

  3. They believe that financial independence is more important than displaying high social status.

  4. Heir parents did not provide economic outpatient care.

  5. Their adult children are economically self-sufficient

  6. They are proficient in targeting market opportunities

  7. They chose the right occupation

The Millionaire next door describes and explains these 7 characteristics. I'll be sharing an update of 1. Living below their means in Part 2 of this book review.


For now,


Hei Kona Ra,


Te Kahukura








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