Inc, here is one of my old posts exactly a year ago. His most recent book in 2009 interviews more of broader millionaire audience, not just the frugal ones, but also the ones that live the fabulous lifestyle with a rich man attitude.
The most interesting part I found in his recent book is the median home prices that a millionaire lives in who has a net worth of 1.4M, $3.4M, and $6.8M. The millionaires who live in a million dollar home have an average networth of $6.8 million dollars.
Below is my old post on TI.
The author of the millionaire next door is Dr Thomas Stanley who is now a retired UGA business professor residing in Atlanta. He is one of my favorite authors and his books have been a guide to me in making my own big financial decisions.
I will type out some of the highlights i made in his most recent book (2009)
page 42:
The Money Pit:
When we make home buying choices, we look at several factors, mostly the carry costs of the home such as mortgage and taxes. I believe the greatest detriment to building wealth is our home/neighborhood environment. The type of home we live in and where we choose to live often takes the greatest toll on our financial wealth, and from it, all other perils flow.
page 43:
Contrary to popluar belief, however, most of the self made millionaires I have studied have one thing in common : They are able to build wealth precisely because they never lived in a home or neighborhood environment where their domestic overhead made it difficult for them to build wealth. In essence, they ran their households like a productive business. It is not only about how much your make (or generate sales) More important, it is how much you keep. And the ?keep? component begins and ends at your home address.
Buying an expensive home is a great way to fool people into thinking that you are wealthy. And it is likely that you will not feel out of place. Many people who live in pricey homes situated in tony neighborhoods are not millionaires. If you want to actually become rich one day, then enhance your chances by living in a modest home ? say, one valued at under $300,000. Most millionaires do not live in homes that have a market value of $1 million or more. About 90% live in homes valued under $1 million.
Page 46:
Once the market value begins to move up beyond the $500,000 level, wealth building productivity moves into unproductive range (i.e. less than 1.00). Buying a more expensive home is likely to decrease the odds of becoming financially independent. With the ?big house? strategy, not only would you face hefty mortgage payments. But ? also?. Property taxes, maintenance costs, HOA, insurance, and utlilties. Buying a bigger house isn?t an investment. Rather it is a lifestyle choice ? and it comes with a brutally large price tag.
To enhance your chances of becoming financially independent, you should live in a home and neighborhood environment that has high wealth-building productivity characteristics. You need to be surrounded by neighbors who have lower incomes than your household generates.
The millionaires profiled by Dr. Stanley who live in million dollar homes have an average net worth of $6.8M. For these penta-millionaires, you can see that only 15% of their net worth is the value of their home.
Page 8:
Since 1980, I have consistently found that most millionaires do not have all their wealth tied up in their stock portfolios of in their homes. When the investments gurus talk about diversification, they show how very parochial they are. Real safety is not in a diversified stock portfolio. One of the reasons that real millionaires are economically successful is that they think differently. Many a millionaire has told me that true diversity has much to do with controlling one's investments; NO ONE CAN CONTROL THE STOCK MARKET. But you can, for example, control your own business, real estate investments, private investments, and money you lend to private parties.
I find this to be interesting.......
Not at any time during the past 30 years have I found that the typical millionaire had more than 30% of his wealth invested in publicly traded stocks. More often it is in the low to mid 20 percent range. These percentages are consistent with those found in the studies conducted by the IRS, which has the best data set on millionaires in the world.
Above is the asset allocation of penta millionaires (assets valued at $5M or above) before the stock market crash 2007. In 2013, I believe the that the ideal asset allocation should be around 20% Marketable securities, 40% in privately held businesses, and 40% in real estate. I put the 80% as these assets in real estate and small businesses as these assets are more under your control and stock market is generally not under your control 100% of the time. Please also note that the asset allocation of equity in primary residence is only 11 - 13% which is consistent with Thomas Stanley's research. This is how small the percentage their primary residence is compared to their entire networth.
lnc said:
Panda said:
Give a million dollars to someone who does not possess the attitude of a millionaire and that person will most likely lose it.
What is the attitude of a millionaire exactly?
According to the book "The Millionaire Next Door", most successful millionaire have these in common, they spend less than they earned, avoid buying status objects or leading a status lifestyle, and willing to take financial risk if it is worth the reward. Basically, the typical millionaire next door are savvy financial planner who lived in a humble live style without the typical rich man attitude.
In OC, we do have lot of people posses the "attitude" of a millionaire, living in fabulous status lifestyle, but without real wealth.
