I searched the forum to see if anyone here had reviewed this book, but didn't find any threads on this. This is a book for the future 1%ers of this forum and according to various research, about 22-25% of Americans will experience being in the 1% at least one year of their lifetime as far as income. When it comes to wealth, that takes more work, as wealth is saved (retained) income. For another review from the approach of lessons to learn,
you can read this from Robert Brokamp.
The authors of this book have studied wealth and income and unlike much of the news you hear, know that most of the stuff we hear are lies about both (some of this may be ignorance instead of lies). They begin by telling us the characteristics of your average American millionaire:
Quote:Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of millionaires.
[The "we" is the millionaire]
In other words, we live on less than 7 percent of our wealth.
We have a ‘go-to-hell fund.’ In other words, we have accumulated enough wealth to live without working for ten or more years. Thus, those of us with a net worth of $1.6 million could live comfortably for more than twelve years. Actually, we could live longer than that, since we save at least 15 percent of our earned income.
About two-thirds of us work between forty-five and fifty-five hours per week.
Consider this fact: Most millionaires we have interviewed never in their lifetimes spent near $65,000 for an automobile. In fact, as we will report in Chapter 4, more than half of the millionaires we interviewed never paid more than $30,000 for a motor vehicle.
[The average age of a millionaire in the United States is 57.]
More than half of millionaires never inherited money.
Eighty percent of millionaires are first generation affluent.
Most millionaires are men or married men [no surprise - married men's wives stay at home].
Ninety-seven percent of millionaires are home owners.
I enjoyed the characteristics because when Millennials whine about not being millionaires at 27, it shows how absolutely ignorant they are about money. Most of you won't. The average millionaire in the United States is 57 years old, and this is an above average person who's hustling like crazy. Most of the billionaires, like Michael Dell, are people who come up with bold solutions to problems that enrich all of us, but few can become these because few want to solve very difficult problems (in the US, 70% of billionaires are non-silver spooners - meaning they weren't born into it).
To give a Red Pill example of this, I remember seeing Aaron Clarey ask why he wasn't a millionaire. I'm thinking Aaron is late 30s and simply put Aaron, you have about 17-19 more years to go (an estimate), assuming that you've been putting away a decent amount of what you earned. So Aaron may be a millionaire in his 50s, but we don't see that now because he's younger than that (I like Aaron's stuff because he's one of the few RPers that really gets the math of economics, so he's definitely worth watching and reading). This is true for all these ignorant media stories you read where the 24 year old college graduate is complaining about their $85K income - "I can just barely save $20K a year; I'll never be a millionaire!"
It is certainly possible to become a millionaire before an older age, but you're going to have to work at a much faster pace than most. The only two millionaires I've met in their twenties were both working 90+ hours a week for over 7 years years (beginning at 18) and both skipped college (it involved too much time and time). One became a millionaire at 26 and the other became a millionaire at 29. They still both work over 60 hours a week.
Also, who you think is a millionaire may not be one. Just because someone drives an Audi or BMW does not mean they have millions. They may be in debt up to their ears. Case in point: I was in a professional group of very "ambitious" men who were in the age range of 28-32, and asked these men how many of them had saved six figures in wealth -
just six figures. Even though most of these men made six figures in income, none of them had managed to save six figures. If we assume that all of them took the lazy route and only saved $15,000 a year on their $100K, they should have at least six figures in wealth - and yet they didn't. As the authors put it:
Quote:They inoculate themselves from heavy spending by constantly reminding themselves that many people who have high-status artifacts, such as expensive clothing, jewelry, cars, and pools, have little wealth.
The authors spend time comparing to Doctors - Dr. South and Dr. North - who both are income rich, yet save and invest differently. The result is that we see how someone can be income rich, yet poor in wealth, while another can be income rich and rich in wealth. But before anyone thinks they need to make six figures (while that will help), most millionaires were making $70K throughout their career - you don't actually need to make six figures to eventually be a millionaire; but you will need the consistent behavior of sacrificing your current income. Make no mistake, like the authors point out, anyone can come up with rationalizations why they won't sacrifice their current income.
In meeting a few 1%ers in my life (almost always older), I've compared how they differ from most, and this book shows some of these same patterns. For an example, here are some differing patterns of statements from 1%ers vs 99%ers:
- "It's just money" vs. "What a waste of life"
- "Money doesn't buy happiness" vs. "Money is a useful tool"
- "Work sucks" vs. "Work opens opportunity"
- "I don't save because" (always some reason) vs. "I always save."
- "I should earn more money because I graduated college" vs. "You can only learn selling by selling"
Unfortunately, amassing wealth is not an interest of most young people, so if you're young and you're working to do this, you will be very alone in this (which isn't bad, it will strengthen you). I would avoid this topic of conversation, especially anything relating to financial sacrifice, as this will never be "cool" to do. From my own life, I remember being 19 and working two jobs and one project and my friends kept telling me to "chill and take it easy" which I knew was unwise. I can see how different we are now and the results of that. Unfortunately, you have to understand that most people (financially) want you to justify their actions - the "chill and take it easy" types really want to feel comfortable about what they're not doing.
Finally, the part that angers everyone is the authors way to determine if you're wealthy:
Quote:Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
This equation tends to have older-age bias, but it useful for young people who want to be 1%ers to consider. A 35 year old with a pre-tax income of $65,000 should have a net worth of $2,275,500. Assuming that he started making that income level at 22 (and never got a raise - which would be under ambitious), he should have saved $84,500 in principal at 10% savings, $126,750 at 15% savings, and $169,000 at 20% savings. The age is what hurts him in this case, as his wealth has only had 13 years to grow - using the 20% savings rate and 13 years, at 9% his net worth would be about $338,000. However, if that same rate held for 33 years (he would be 55), his net worth would be over $2.5 million dollars. The only problem that I have with this equation is that it assumes a strong return on saved/invested money - unfortunately, even Warren Buffett has warned that we'll see lower returns in the future. Therefore, this equation may be updated to be divided by 20 (instead of ten) based on halving the returns (about $1.1 million dollars by 55, which is doable at 5% return).
For the record, one of the authors
addresses this on his blog and suggests:
Quote:Perhaps an equally viable rule of thumb was developed by a reporter from U.S. News and World Report who interviewed me about The Millionaire Next Door. She wrote that in order to reach millionaire status by age 57 one should invest 5% of his income in his 20s, 10% in his 30s, 15% in his 40s and 20% or more during his 50s. I have yet to verify this statistically, but from a glance it seems like her advice was sound.
I'll be the unpopular one and suggest adding 5% to each of her figures. Remember, this assumes that you're not out of work and that you're consistently saving. This also leads to the part that angers most young people: most millionaires and most people who will become millionaires in the United States will be older people. Ironically, this refutes many wealth inequality arguments, as it would be a disturbing sign if the majority of millionaires were young, as this would imply that working over a lifetime (and building on experience) has little value.
Finally, millionaires don't take breaks from their profession and "find themselves." They work and they work ever year, knowing how a little action over a long time leads to significant results. This is incredibly challenging because as we all get better at our profession, it will bore us - this is the nature of being good at something; it stops challenging you as much. But you won't find 4HWW advice in this book (I've met Ferriss and the guy works insanely hard, but he knows how to market - people want to hear it's easy); simply learning to not let "boring" stand in our way of doing something is a valuable skill (especially if we can take what's boring and see value in it).
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