This is the first article in the millionaire next door book summary.
Let’s meet the millionaire next door. Who are they?
Wealth is not the same as the income
Many people who live in an expensive home and drive luxury cars do not actually have much wealth. These are the people who believe in maintaining a high-class status. These are not actual millionaires. They spend more than they save. According to the authors, Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. you are just living high. Wealth is what you accumulate not what you spend.
So, Who are the People who become wealthy?
After doing their research, the authors say that usually, the wealthy individual is a businessman who lives in the same town for all of his adult life. This person owns a small factory, a chain of stores, or a service company. He lives next door to people with a fraction of his wealth. He is a compulsive saver and investor. And he has made his money on his own.
According to the authors, there are seven common denominators among those who successfully build wealth.
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 target market opportunities.
7. They chose the right occupation.
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 target market opportunities.
7. They chose the right occupation.
We will go in deep in each denominator deeply in the upcoming article.
So how can a person be defined as wealthy?
An average person refers wealthy as someone who has an abundance of material possessions. But the authors define wealthy differently.
The authors say many people who display a high consumption lifestyle have little or no investment, income producing assets, common stocks, bonds or any private business.
One way of defining wealthy is based on net worth. Net worth is defined as the current value of one’s assets less liabilities.
HOW TO DETERMINE IF YOU’RE WEALTHY
After years of research, the authors have developed a wealth equation to determine one’s wealth.
Multiply your age times your annual household income from all sources. Divide by 10. This is what your net worth should be.
For example, If your age is 41-years-old, income is $ 143,000, then your net worth should be (143000*41 )/10. Solve it yourself.
PAWs vs UAWs
PAW — These are the people who live well below their means, who save and invest wisely. These are the prodigious accumulator of wealth.
UAW — These are the people who live above their means. Do not save or invest their money. These are the under accumulator of wealth.
We will dive into the full summary in the next article.
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