Thursday, June 21, 2007
The Millionaire Next Door
I recently read The Millionaire Next Door. It was an excellent book and I highly recommend it. It was written by two men who interviewed hundreds of millionaires. The book highlights their findings about how these individuals were able to become millionaires. The most interesting fact, in my opinion, is that income was not the key factor in how the millionaires became rich. In fact, many of the millionaires had very average salaries. The key factor was that they were great savers. They spent less than they earned. They did not live extravagant lifestyles. They were, in fact, frugal! So much so that they often couldn't get any of them to come to the interviews unless they offered them payment. And, after trial and error, they found that when the millionaires came for the interviews, they were not comfortable with fancy decor and caviar. They were basically plain folks with simple tastes. Most drove older cars.
I found this very eye-opening! My husband earns an income that is well above average, yet we still have managed to live above our means for years! I figure that if we can finally learn to "act our wage" as Dave Ramsey would say, we will be on our way to financial peace.
Another interesting tidbit I remember from the book is about your net worth. (Your net worth is your Total Assets minus Total Debts.) To judge how you are doing financially for your age and income, follow this formula:
(Your Age) x (Your Annual Income) divided by (10) = Average Net Worth
According to The Millionaire Next Door, if your net worth is higher than this number you are doing better than average. If it is lower than this number, you are below average. (Hint: all of the millionaires were substantially above average!)
Anyway, I guess it's true that it's not what you make, it's what you keep that matters!
What do you think? Comments welcome!