The Millionaire Next Door : The Surprising Secrets Of American's Wealthy - Thomas J. Stanley, Dr. Willam D.Danko

The Millionaire Next Door : The Surprising Secrets Of American's Wealthy

There are two categories of wealthy Americans: PAWs and UAWs

Prodigious accumulators of wealth (PAWs) are millionaires whose net worth is directly proportional to their income. Under accumulators of wealth (UAWs) are millionaires whose net worth is far below their income level. Millionaires fall into one of these two categories.

UAWs typically earn more than PAWs but the difference between them is their attitude to savings and investment. It is unlikely that a PAW will work in retirement because they will have enough money than they can spend. UAWs live in the moment and they are worried about what they will do when the money disappears.

The Biblical story of the prodigal son vividly spells out the difference between the PAWs and the UAWs. The younger son is a classic UAW while the older son who stuck with the father and labored with him is a PAW.

A UAW is more concerned with showing off their wealth and spending what they earn without thinking about the future. They choose flamboyance over a comfortable but less ostentatious lifestyle.

PAWs spend far less than they earn

PAWs are dedicated to a frugal lifestyle. They live in a working-class neighborhood, invest their money, and spend on only essential needs. While they may have a few luxury items like expensive watches and jewelry, they ensure that the things that make them easily identified as wealthy are avoided.

Many of them do modest jobs and people do not know how rich they are until after they are dead. An example of a PAW is Ronald Read of Battleboro, Vermont. He died in 2014, leaving an estate of $8 million. His job? He co-owned an auto repair shop with his brother and became a part-time janitor at J.C. Penney during his retirement years. he gave over half of his estate to Brattleboro Memorial Hospital. As far as PAWs go, Read was true blood.

Budgeting is an essential part of a PAW’s life while a UAW does not believe in budgeting

The way PAWs reach their financial goals is by budgeting. They plan how much of their monthly income they are going to invest, and then they come up with a budget on how to spend the rest of their income to ensure that they reach this financial goal.

Thomas C. Corley is an expert on how to cut down expenses so that you can get into the Millionaire’s class. He developed certain parameters that must be followed to achieve the millionaire status. How much of your income should go into automobiles? You should never accumulate credit card debts and by using a tax-sheltered company retirement account, you can protect your money.

Generally, PAWs already have their own customized budgetary system. The key is sticking to the budget you make

PAWs are mostly business owners and self-employed people

PAWs mostly do unattractive jobs. They are plumbers, mechanics, used-car dealers, electrical contractors and so on. Doctors, lawyers, dentists, and accountants are examples of self-employed PAWs. The PAWs treasure their freedom and time, this is why they chose these jobs.

Millionaire Kids are a new type of self-made millionaires on the horizon who make a lot of money from businesses that the internet makes possible. Ashley Qualis of Detroit is an example. She started a website WhateverLife.com in 2004 and experienced a jump in revenue when she took part in Google’s Adsense program. Despite her rise to affluence, she bought a $250 000 house, which was well below what she could afford at the time.

Most PAWs choose financial freedom over social status.

PAWs value money for the present and future comfort it provides. Hence they invest. UAWs are those who make money for the purpose of living ostensibly and maintaining a certain social class. This is why they buy expensive houses, cars, clothes and throw extravagant parties.

Mark Zuckerberg and Warren Buffett are PAWs. Despite a net worth of $33 billion, Zuckerberg lives in a $7 million home in Palo Alto, California and drives a $30 000 Volkswagen. His dressing is as modest as they come. Buffett, the second or third richest man in the world, lived in the same middle-class home in Omaha for decades and eats a hamburger when he goes to a restaurant. These are billionaires who live far below their means.

Most PAWs had humble beginnings and little or no support from their parents

PAWs start from scratch. They fall into one of these categories:
• Poor parents who couldn’t send them to college or provide startup capital for their businesses.
• Parents who denied them money to teach them self-reliance.
• Parents who offered, but the PAWs turned them down to retain their autonomy.

John Paul Dejoria is a PAW who fell into the first category. Raised by a single mom who couldn’t provide enough for them to live by, much less start up a business, Dejoria sold newspapers with his brother, co-founded a hair care company with $700, which he and his partner Paul Mitchell built into a powerhouse in the hairdressing industry. Dejoria made other investments which culminated in him becoming a millionaire. He donated to orphanages and child-hunger programs.

Most PAWs invest as high as 20% of their annual income

PAWs love to invest.

Stocks and Real estate are their favorite investment opportunities. They seek professional advice, plug in their money and have the endurance to hold on to their investments for a long time instead of selling after a couple of years.

Buffett is a PAW who invests in businesses he understands. He focuses on products that everyone uses, businesses that have little competition and companies that produce products he likes. He prediction about the dot-com bubble came to pass and those who scoffed at him for not investing in the tech industry ate their words. He later invested in IBM in 2011. Buffet is the ideal PAW and there are invaluable lessons that other PAWs can learn from him even if they cannot become Warren Buffett.

Most PAWs have a low income tax rate because they earn modest income

The fact that most PAWs are business owners and they rarely sell stock or real estate makes their taxable income very low. On average, PAWs pay about 7% of their income in taxes.

When most people sell their stocks, bonds, and real estate, the difference between the price they paid and the price they sold their investments for is taxable. PAWs know this and it forms an extra motivation for them to hold on to their investments for longer. While some companies and wealthy individuals attract the resentment of an average US citizen because of their tax evasion practices, PAWs have mastered a legal way to lower their taxes.

PAWs devote time and higher experts for their financial planning

Knowing about financial planning does not make you an expert. PAWs know that hiring a financial expert is an investment and not a waste of money. Estate attorneys help them to develop strategies that ensure that they do not get to pay huge estate bills. These experts also help them to find ways to increase their income and limit their tax liability.

An example is a nuclear option, which John T. Dorrance III chose. He renounced his US citizenship and embraced Irish citizenship. This move helped him slash the estate tax he would have had to pay upon his demise from 55 percent in the US to just about 2 percent in Ireland. For someone that was worth $1.3 billion, that means $715 million estate tax was reduced to $26 million by changing citizenship. Dorrance had learned from his grandfather’s misfortune. Someone whose death caused the family to lose $34 million out of the $115 million value of his estate at the time.

Most PAWs use a car until it outlives its usefulness

PAWs buy cars that are dependable, good looking and drive well. Luxury cars are out of the question for them. They’d rather invest the difference between a standard used car and a luxury car than show off their wealth with a luxury car.

Auto companies in the US used to practice planned obsolescence. The idea is to keep making money from car sales by making the cars in such a way that they become obsolete in 5 years. It was not until Japanese models began to overtake US models in sales as a result of their longevity that the planned obsolescence approach was scrapped by US automakers. Now, US models last 10 to 20 years or more. PAWs take advantage of this opportunity by buying a durable used car instead of keeping a fleet of luxurious cars.

PAWs do not lavish money on their children in a bid to teach them self reliance

Most PAWs realise that they succeeded because of their humble beginnings and not in spite of these beginnings. Hence, they pass on the baton to their children by ensuring that they do not lavish gift items and money on them except when it concerns education. They invest heavily in their children’s education because they know it is a means to a good livelihood.

Pearl Buck, in his two books “The Good Earth” and “Sons”, tells the story of a poor farmer who amassed wealth through hard work and investments and how the sons of the farmer squandered their father’s wealth.

Some of the richest families in the US have lost their wealth. The Vanderbilts and the Pulitzers are some examples. Rich parents often ignore the need to teach their children to be ambitious and self-reliant. PAWs strive to ensure this does not happen to their children

Conclusion

It is possible to become wealthy, your background notwithstanding. There are abundant examples of people who did dull-normal businesses and rose to affluence from these businesses because they learned to invest and lowered their taxes. Learning from the PAWs will show you the principles you need to imbibe to become a one percenter. The drive for recognition and social status makes money spend the money they do have on things they don’t need to impress people they don’t like. You can choose to desist from this act today.

Try this:

Decide to save and invest 20% of your monthly income today and you’ll be amazed at how your level of wealth can improve considerably. What are the things you currently own but do not need? How can you turn these things into an investment?