THE SURPRISING SECRETS OF AMERICA’S WEALTHY

Writers Thomas J. Stanley and William D. Danko are scholars, who observed thousands of American millionaires to study their habits, sources of inspiration, spending patterns, the impact of wealth on their children, and other relevant things. They compiled these findings and wrote this definitive guide of do's and don'ts if you want to be financially independent.

 

 

BOOK'S MAJOR TAKEAWAYS

• People, who focus on creating wealth and persevere all the hurdles to achieve their targets, end up being wealth accumulators. On the other hand, people who give excuses to themselves and their circle of influence would not achieve financial independence.
• Ideally, any businessperson should not have more than 20% of his/her wealth tied up in stock markets.
• When your earnings per year do not match your lifetime savings(calculate the ideal threshold with the aforementioned formula), do a course correction and take out time every month for financial planning.
• Do not spend your earnings on luxury items such as expensive clothes, cars, flashy household items, put that money in savings schemes.
• Don't give yourself an excuse, that people with money are not happy, statistics say they are.
• Ideally, any businessperson should not have more than 20% of his/her wealth tied up in the stock market At any given time, one should’ve accumulated wealth, which shall last at least 10 years, even if one is not earning a single penny.
• Don't give yourself an excuse that people with money are not happy, statistics say they are extremely satisfied with their lives in all aspects.
• Teach your children the work ethic and instil the value of “living within your means” in your children. That can help create wealth for the generations to come

KEY CONTENTS AND QUOTES :

• Living below your means is always the key to financial independence: It might look odd in the modern-day and age when cryptocurrencies are quadrupling your money overnight, but it's still a piece of sane and timeless advice for accumulating wealth.
• Finding the right tools for savings and finding a balance for risk averse and safe investments are millionaires' “arm de Choix”.
• One should identify which idols are false and which ones you are supposed to follow.
• A windfall event( Earning a lot of money in a short period) rarely occurs in one's life, so better plan for slow and steady growth

 

THE SEVEN FACTORS :

1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways  conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation. 

These factors collectively can be a mantra for the upcoming generations who prefer nomadic life over a stable one. It’s exciting for a while, but it will be hard to achieve financial independence if you are just using up all your monthly income on your luxurious lifestyle items

 

PORTRAIT OF A MILLIONAIRE :

• If we make excuse to ourselves that most of the millionaires have inherited the wealth, it has been factually proven wrong, 80 % of them are self-made millionaires.
• “Go-to-hell” fund: Successful millionaires always keep aside a fund for any financial calamity or just so they can say “Go to hell” to an opportunity that does not sit well with their values. We can define this fund as: You should have saved up at least the amount with which you can survive 10 years without earning a penny. This can be achieved in two ways:
• Start being frugal and get into the habit of spending less on yourself.
• Start earning more.  Ideally working towards both aspects should let you accumulate a “Go-to-hell” fund. Thisfund is a great tool to determine if you are wealthy or not.
• Nearly 20% of income should be invested in markets, it will be a good idea to cut that 20% off of expenses on luxury items, that you can live without and to invest it in stock markets

 

HOW TO DETERMINE  IF YOU'RE WEALTHY :

"Multiply your age times your realised pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.”

 

Authors have suggested a foolproof formula for determining if you are currently wealthy or not; If you are earning more than what you should, you are a PAW( Prodigious Accumulator of Wealth). If your earnings are less than the ideal threshold, you are a UAW(Under Accumulator of Wealth). Ideally, UAWs should strive to move towards the PAW category.

After reading all the statistics for ethnic groups of the American population and the number of millionaires in those groups, one common theme was found; Self-employment from an early age is the key. People who become employees are less likely to be wealthy across any ethnic group.

This finding concurs with the works of other writers such as Robert T. Kiyosaki(Rich Dad, Poor Dad) that we should reverse the mentality of prioritizing finding jobs over creating jobs. Sometimes, even already established millionaires fail to understand that concept and want their children to be employees instead of employers. That results in a turn of events where the family wealth starts to dwindle.

The reason is not pragmatic, rather emotional because we all want our children to live a better and comfortable life compared to ours. That's where the strategy of wealthy families like Rockefellers and Vanderbilts differ; From a young age children are taught the ways of the business the work ethics of burning the midnight oil, and not being blinded by the shimmering wealth they see every day.

That's how successful people create dynasties. Nevertheless, we wanted to make Mr. Bud feel that we fully understood the food and drink expectations of America’s decamillionaires. So after we introduced ourselves, one of us asked, “Mr. Bud, may I pour you a glass of 1970 Bordeaux?”

 

Mr. BUD LOOKED AT US WITH A PUZZLED EXPRESSION ON HIS FACE AND THEN SAID :

I drink scotch and two kinds of beer—free and BUD WEISER!“ When the writers invited a bunch of millionaires for a meet and greet and asked a millionaire about the expensive wine and food offered at the table, he replied with content in his eyes for the expensive food items. This is an acute example, how millionaires, even decamillionaires keep their habits cheap and are extremely frugal and that’s how they stay wealthy.

CHOOSE YOUR IDOLS WISELY :

Very few of the sample set(millionaires of US in 1996 ) were flashy and over-spenders, yet they were the idols of the masses as everyone wanted to wear those shoes and clothes, live in those luxury houses, drive those fancy sports cars, and the point that writers are trying to make is that people chose wrong heroes.

We can learn a lot from this example in today’s scenario, instead of getting inspired by flashy sportspeople, film stars, or pop stars, we should take inspiration from first-generation millionaires who worked hard, stayed frugal, stayed humble. Mr. N. R. Narayanmurthi, the co founder of IT behemoth Infosys, is one such person, who values strength of thought over fashion, and he should inspire us.

 

THE MAJORITY DO  PAWs ARE FOUND TO BE EXTREMELY FRUGAL :

Both groups, PAWs(Prodigious Accumulators of Wealth) and UAWs(Under Accumulators of Wealth) have the same financial goals: to achieve financial independence till retirement. Yet they differ in their execution: UAWs spend their money on items such as luxury clothing, footwear, going out every night, etc, while PAWs save that  money and put it into college funds for their children, family trusts, stock markets, and real estate.

“If your goal is to become financially secure, you’ll likely attain it.... But if your motive is to make money to spend money on the good life, ... you’re never gonna make it."

The goal must be financial independence and not earning money to spend money. Tools such as the “Go-to-hell” fund can help you achieve that and to get rid of expensive habits, such as driving an expensive sports car, buying luxury clothing items, etc.

Assets such as cars start getting depreciated the day you drive them out of the Car Dealer showroom. Ideally, we should invest in assets such as real estate venues, which always appreciate in worth.

YOU AREN'T WHAT YOU DRIVE :

It's important to understand that you cannot give yourself an excuse that this is my passion and I am ready to spend over the top on this one product. It does not happen that way, in order to match that expensive car, you would be compelled to buy or lease a house that matches the car, you would want to show off the car in front of the nightclubs or social gatherings, you would want to wear expensive clothes to match the car, then come shoes. It's a vicious cycle once it gets started.

ECONOMIC OUTPATIENT CARE :

Economic Outpatient Care" is a funny term that authors coined. It is for people who are not financially independent even at an age of retirement. Their parents set up trust funds for them and took care of them since the day they left home, just like some hospitals provide Outpatient Care even when the patient has been released from the hospital. People should understand that constant handouts to children are major hindrances to their self-reliance.

AFFIRMATIVE ACTION :

Affirmative action talks about making special rules(leeways), for groups of people who are underrepresented in society and the statistics mentioned in the book indicate that women are grossly underpaid compared to men. We need to address this gender bias in terms of income. Women have always been paid less for the same job than men and that has been an obstacle for them to achieve financia independence. That resulted in women being majority recipients of the Economic Outpatient Care from their parents and that needs to be mitigated in the future.

 

RULES FOR AFFLIENT PARENTS AND PRODUCTIVE CHILDREN : 

After researching with different data sets of Millionaires all around the USA, authors were able to come up with guidelines for people who are already wealthy and want to pass on the same work ethic to their children and do not want to spoil them with the bling of wealth at their footsteps every step of the way. “Kids are very smart. They will not follow rules that their parents themselves do not follow.

We [my wife and I] were well disciplined parents.... We lived the rules ... we taught by example.... They [the children] learned by example.” It’s not very smart to set ideal-sounding rules for kids if parents are not following those rules themselves. In the majority of cases, children are smarter than their parents and they will call out the hypocrisy of parents and that can backfire. The smart way is to let actions speak more than words.

 

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