MND: Seven Factors

Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from the book:

Affluent people typically follow a lifestyle conducive to accumulating money. In the course of our investigations, we discovered 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 targeting market opportunities.

7. They chose the right occupation. (pages 3-4)

This is the heart of The Millionaire Next Door. Pretty good principles, wouldn't you say?

Comments

[Alexander Barbara]

Robert Kiyosaki would add that they know the difference between an asset and a liability. He says that rich people buy assets that generate income (like savings bonds), but everyone else buys things that cost money (like a house) and call it an asset.

[Madame X]

The principles make sense-- it's sad that so many people have to read a book like this to figure them out! If the book just listed these things and said you should do them, I'd have no problem with it.
I'm just bothered by the generalizations about real millionaires vs. people who are just trying to look like millionaires, etc. People should not assume that these characteristics of millionaires are truly representative. Also, just the term "millionaire" is not really useful. There is a pretty big range between everyone who has $1million net worth and then everyone else above that. I'm sure plenty of people in that broad category inherited at least some of their wealth, and wear status symbol clothing, and drive European luxury cars, etc etc. And if they live below their means, it's because at a certain point, even the most extravagant billionaire is going to run out of things to throw money at! I think Bill Gates would have a really hard time living beyond his means!

[FMF]

Madame X --

In some respects, that's what survey results are -- they are generalizations of a large group. It happens in every survey -- you get results that generally describe the population as a whole. So whether the survey is meant to study preferences for diet sodas, how women buy clothing, or the habits of millionaires, what you end up with is a generalization of how the group behaves. You can then make business and other decisions from this information.

Does that mean everyone in the population acts the way described in the generalization? No. Does it even mean that everyone in the survey sample acts that way? No. But what it does tell you is that this is the way that the group generally behaves, acts, thinks, etc.

So you can say "not all millionaires act this way" and they can say "this is how millionaires generally act" and you can both be correct.

Make sense?

FMF

[Madame X]

Yes-- I do think people who say "but I'm a millionaire and I don't fit their profile so they are full of crap" are missing the point.
But I think the authors are misusing a very small amount of data to over-generalize, and they twist the number to suit there purposes. Some more details on this in the comments on this post:
http://myopenwallet.blogspot.com/2005/08/what-color-is-your-millionaire.html