The Millionaire Next Door

The last time I was in Vegas, someone in my group won $5000. I wasn’t there when it happened and don’t know the exact details, but I think he got a royal flush at some table game and received a 500 to 1 payout.  Anyways, how he won isn’t important. What is important though, is what he did afterwards.

He continued playing at the $10 limit, won another $400 or so, came back to the room… and went to sleep.

I had a hard time wrapping my head around this. Is he the world’s most boring motherfucker or what? I kept thinking, if I were in his shoes, I definitely would not have done the same. I would’ve wanted to do something wild. I probably would’ve upped my bet twenty-fold or went back to the room to wake everyone up and take them to the strip club or something. Either way, I’m pretty sure that at the very least, $1000 of that stack would’ve been gone by the time we left for home.

In retrospect, here’s what I learned:

I am a dumbass, and he is a genius.

I recently read a book called “The Millionaire Next Door” that helped me discover this. Yes, it is a bit old, but it was so good that I finished it in two sittings. It’s written by two PH.D.’s who presented findings from their research on the spending habits, mindsets, financial views and demographics of  America’s millionaires. They got their data from the IRS and from interviews and case studies of actual millionaires (people with a net worth [total assets – total liabilities] of over a million dollars).

Although the word they use is “frugal”, this book most definitely restored my confidence in the importance of being cheap.

If I were to try sum everything I learned from this book in one sentence, it would be… “Self made millionaires are cheap as fuck.” And it makes perfect sense! I had always thought about this, but now they actually have data backing it up. From an incredibly simple point of view, how can you accumulate wealth if you keep spending it all? The book talks about offense and defense in terms of money. Offense refers to obtaining money, while defense refers to not spending money. You need both high offense and defense to be successful in accumulating wealth.

The craziest thing I learned is that most millionaires in America don’t even buy new cars.  Also, they don’t spend that much on expensive watches, suits or shoes either. According to the book, only 10% of millionaires surveyed have spent over $999 on a single suit, $298 on a single pair of shoes, or $3,800 on a single watch in their entire lives. (p32) What?!? If millionaires aren’t the one’s buying this shit, then who is? I don’t know, probably people who want to be seen as millionaires.The book describes these types of people as UAW’s or under accumulators of wealth. Basically, they are just people who are great at spending and suck balls at saving and investing.

The main idea is that it doesn’t really matter how much you make. If you are a UAW, you will never be rich. The book offers tons of examples of UAW’s who make good money, but can barely make ends meet.  On the flip side, it also offers a lot of examples of PAWs or prodigious accumulators of wealth. For example, Mrs. Rule has an annual salary of only $90,000 but has accumulated  a net worth of over 2 million dollars. (p40)

So, I guess the common perception of the average millionaire is 180 degrees backwards. They aren’t the “ballers” you see on TV who just splurge their money on whatever the fuck. They are actually well disciplined people, good investors and meticulous planners.

I’m sorry to say that the life of an average millionaire isn’t as glamorous as you may have hoped. But I guess the real question is, would you rather be a wealthy and financially independent person… or just be seenas one?

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