I read the book “The Millionaire Next Door” ten years ago, in 2001, shortly after the painful dot-com bust. At the time, I had felt that I needed to reinforce my basic belief system about handling money, the value of money, and what it means to be “wealthy.” Now, after the Great Recession and with a still-shaky economy and a high unemployment rate, the book is as relevant as ever – if not more so.
When I had first read the book, I really liked the basic premise, which contrasted a “wealthy lifestyle” with being truly wealthy. If I had to pick just one sentence from the book to sum it up, it would be this sentence: “Those who successfully build wealth believe that financial independence is more important than displaying high social status.”
The book helped me form and fine-tune my now strong conviction that “rich” does not mean, “surrounded by luxury,” because luxury can be financed with debt, and anything you finance with debt is not truly yours. I believe that “rich” means “free” – free from financial worries, free from the need to work full time whether you want to or not, free from being forced to report to a nasty boss. It means being free to pursue your true passions, to give to the causes you care about, and to be in full control of this very short life you’ve got.
Beware of Consumerism
Consumerism stands in sharp contrast to financial freedom, because it enslaves you. Unless you were born into money, and assuming you belong to the middle class or the upper middle class, consumerism will keep you in whatever class you were born into, forever. You will not be able to accumulate wealth, because you will spend too much. Perhaps you will be temporarily soothed by the act of buying and consuming, but you will never be truly free.
Here in the US, we’re facing incredibly strong pressures to spend and consume, from powerful companies and industries with huge advertising budgets. We’re told we should buy things to be happy, to feel better about ourselves, when in fact buying them usually leads to no more than a temporary rush, which ends with a disappointment and with the urge to buy even more.
I love America, and have chosen to build my life here. But the huge pressure to consume, stronger here than in any other place I’ve ever lived in or visited, is something that stands in the way of building wealth, and so has to be acknowledged and dealt with.
Living Below Your Means
I read an interesting personal story in one of the financial magazines I subscribe to – perhaps it was Kiplinger’s. The story was about a man who had accumulated $1.4 million by simply living below his means. He was not born into money, and received no inheritance. But when he started a new job and received a substantial raise, he continued to live as if he was making just a quarter of his new salary, because that’s what he was making before. He stashed the rest, invested wisely, and over ten years, he became a millionaire.
How many of us will ever have the discipline to do what he did?
Ignoring the Joneses
If you feel pressured to consume in order to display your purchases and acquire a higher social status, you will have a hard time becoming financially independent. LOOKING rich is expensive, especially when financed by debt, so for most middle and upper middle class folks, it’s a choice – you either APPEAR rich, or you accumulate wealth and – eventually – become rich.
But I Want to Enjoy Life, Dammit!
Well, define “Enjoy.” Some of the book’s critics say that the book promotes living a socially secluded life, hoarding money and never enjoying the pleasures that life has to offer. My thoughts? On a scale where on one extreme you have a miserable tightwad, and on the other a deep-in-debt spendrift, there’s a vast middle ground and it’s up to each of us to decide where on that scale we want to be. I certainly enjoy fine dining, high-end vacations and even the occasional designer clothing item (though I buy those on sale). My husband and I love to host, and donate annually to several charities.
My point is, that when deciding where to place yourself on that scale, keep in mind that while spending offers lots of pleasures, so does being financially independent. In this sense, the book is invaluable, because we live in a culture where the “get pleasure from spending” message is very prominent, but the message of “get pleasure from being able to tell your boss you are leaving for good because you don’t need the money” is rarely there, and when it’s there, it’s usually tied to winning the lottery, not to working hard, living below your means, investing wisely and accumulating wealth.
Where are YOU on that scale? Will YOU become the next “Millionaires Next Door?”