The millionaire next door drives a 4 year old car , lives a frugal lifestyle and doesn't take on consumer debt or show their wealth..

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Laughahalla

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Just finished reading the millionaire next door(by Thomas J. Stanley) Very interesting book and well worth a read. A page turner for nerds. I had it read in two days.

Basic concepts are frugality, not spending your money ( that you give up your precious time for) on frivolous consumerism.
Staying out of debt permanently and Investing in dividend paying stocks in the most tax efficient way.(Which I guess for most PAYE workers in Ireland is through a company Pension or PRSA)

Most likely the person in the street with an expensive watch, clothes and car are spending everything they make to maintain a lifestyle or as the book calls them "under accumulators of wealth". ( Compared to their income)
 
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Saving up for a house may not be realistic for most but I would say paying off in 10-15 years is realistic if that was made your priority.
 
Your home is not an investment. Too many people got caught in this fantasy about 10 years ago.
While its sensible to pay off a mortgage early, the investment only gets realised when you sell it.
Call it, geo-arbitrage.
 
I'd also recommend the book or it's follow up the millionaire mind.

The summary I remember from reading it about a decade ago: most millionaires don't look like millionaires, and that is a significant part of the reason they become wealthy.
 
Laughahalla said:
Just finished reading the millionaire next door. Very interesting book and well worth a read. A page turner for nerds. I had it read in two days.

Basic concepts are frugality, not spending your money ( that you give up your precious time for) on frivolous consumerism.
Staying out of debt permanently and Investing in dividend paying stocks in the most tax efficient way.(Which I guess for most PAYE workers in Ireland is through a company Pension or PRSA)

Most likely the person in the street with an expensive watch, clothes and car are spending everything they make to maintain a lifestyle or as the book calls them "under accumulators of wealth". ( Compared to their income)
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or maybe that person with the flash watch and flash car is just richer.
 
I absolutely love this book. There are two other books in the series, The Millionaire Mind and The Next Millionaire Next Door, which was written by his daughter Sarah Fallaw. Sadly, Thomas Stanley was killed in a car crash a number of years ago.

Andrew365 said:
or maybe that person with the flash watch and flash car is just richer.
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They may well be, afterall, there are lots of millionaires. Stanley's point is that you should buy the flash car or watch until you have made it. People are too often in a rush to have a €100k car when they don't have the wealth to buy it. So instead of accumulating wealth, they are using their money to pay down the debt they took out on a car loan.

The location of your home has a huge impact on future wealth as the cost of lifestyle in an area will have an impact on your ability to accumulate wealth. If you neighbour has the car, golf club fees etc, you may want it too. Or your wife may want it. Or your kids will want what the others kids have.

It's a great book, well worth the read. I have a load of copies of it that I give out to clients.


Steven
www.bluewaterfp.ie
 
Laughahalla said:
Saving up for a house may not be realistic for most but I would say paying off in 10-15 years is realistic if that was made your priority.
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Pretty much. But if you are in a career that you like, and see yourself staying in it til retirement, then living well under your means is not necessary.

Frugality is a method, not an objective.
 
In the book , The factors that the millionaire next door had in common were as follows
1. They lived well below their means
2. They believe that financial independence is more important than displaying high social status
3. Their parents did not provide financial assistance to them in adulthood (14% inherited something from their parents when they died)
4. Their adult children are economically self-sufficient (once finished education)
 
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fistophobia said:
Your home is not an investment. Too many people got caught in this fantasy about 10 years ago.
While its sensible to pay off a mortgage early, the investment only gets realised when you sell it.
Call it, geo-arbitrage.
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Robert Kiyosaki made a similar point in his book rich dad poor dad. He maintained that anything that took money out of your pocket (i.e. mortgaged home) was a liability and that anything that put money in your pocket was an asset (stock that paid dividends, rental income, royalties e.t.c.)
 
Laughahalla said:
Robert Kiyosaki made a similar point in his book rich dad poor dad. He maintained that anything that took money out of your pocket (i.e. mortgaged home) was a liability and that anything that put money in your pocket was an asset (stock that paid dividends, rental income, royalties e.t.c.)
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But if you do not own your own home, then you will be paying rent. It does not really matter whether the money you are spending on your accommodation costs is labeled "rent" or labeled "mortgage interest".

In Ireland, owning your own home has huge financial advantages as well as the other non-financial advantages.

The interest on a mortgage is a lot less than the rent being paid for a similar property.

I would say that the "millionaire next door" is very unlikely to be a tenant.

Brendan
 
Brendan Burgess said:
But if you do not own your own home, then you will be paying rent. It does not really matter whether the money you are spending on your accommodation costs is labeled "rent" or labeled "mortgage interest".

In Ireland, owning your own home has huge financial advantages as well as the other non-financial advantages.

The interest on a mortgage is a lot less than the rent being paid for a similar property.

I would say that the "millionaire next door" is very unlikely to be a tenant.

Brendan
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I would have to agree. Although I have a mortgage to pay, the interest cost is negligible and the overall repayment (interest and principal) is lower than the cost of renting in my area. I am quids up every month on that basis.

SPC100 said:
... most millionaires don't look like millionaires, and that is a significant part of the reason they become wealthy.
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I recall some time ago now, chatting with a colleague about EuroMillions (it must have been a big jackpot), she was saying that she wouldn't know what to do with even a €1m, jokingly I suggested she ask the millionaires she knew, her reaction was that she didn't know any, her draw dropped when I demonstrated that she knew several, including the one she had just said good morning to in passing.
 
I agree 100%.
One of the key indicators you see in a household with a net worth greater than a million is a paid off home.
 
Brendan Burgess said:
But if you do not own your own home, then you will be paying rent. It does not really matter whether the money you are spending on your accommodation costs is labeled "rent" or labeled "mortgage interest".

In Ireland, owning your own home has huge financial advantages as well as the other non-financial advantages.

The interest on a mortgage is a lot less than the rent being paid for a similar property.

I would say that the "millionaire next door" is very unlikely to be a tenant.

Brendan
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Rich Dad, Poor Dad is well worth reading - he deliberately changes the nomenclature for "assets and liabilities" but really what he is doing is putting things into cash flow terms. And just as with a business, very often people run into issues because of cash flow.

So he terms an "asset" as something that generates cash flow and a "liability" as something that drains it. He also defines "wealth" as the period of time you can live your current lifestyle if your income drops to zero. Yes you are correct in terms of proper terminology but what he is really doing is have the reader think of their cashflows. So a significant house with significant repayments is sometimes considered a big asset, if your income drops off it is likely to reduce your ability to survive irrespective of assumed value in the property (e.g. the last 10 years where people went under water very quickly along with a sudden drop in income)

Rent is something people already think of as an expense / liability. But it is one that can be changed relatively quickly if your income changes. A mortgage takes a lot of time to change and if the market has moved, it is possible that you can't cover it. And in the meantime it eats into your "wealth" (as he defines it).

The book isn't contrary to what many people talk about here - it's a cash flow analysis approach
 
It is widely accepted that mortgage debt is different to debt to fund lifestyle.

In the book, those questioned all take out mortgages to purchase homes. But they take out a manageable level of debt and don't buy in areas that they can't afford.

Taking out loans to pay for holidays, cars etc are different and something that you are advised to avoid.


Steven
www.bluewaterfp.ie
 
Do I and my wife consider ourselves millionaires ?
House value 400k. Mortgage 25k.
Investment property 150k no mortgage.
Cash on hand 70k. Shares 10k.
My pension in pot 210k.
Spouse pension pot 150k.
We don't think we could classify ourselves as millionaires as our home is our home. If we would be classified as millionaires then I imagine there are lots of us around.
 
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