How the Millionaire Next Door Pursues Income

How the Millionaire Next Door pursues Income

How the Millionaire Next Door Pursues Income

Today’s guest post comes from Matt, who is a licensed CPA and founder of Distilled Dollar where he shares how he and his fiancée went from living paycheck-to-paycheck to building wealth. With his fiancée’s help, he’s distilling down $$$ topics in pursuit of financial independence by the age of 35.

Take it away Matt…

The Millionaire Next Door, by Thomas J. Stanley and William D. Danko, is a classic personal finance book that goes in depth on a few major topics.

The overall premise is many millionaires don’t act or even look like millionaires. The specific topic I’ll pull out of the book today is the importance of financial offense AND defense. In other words, how the millionaire next door pursues income.

When it comes to accumulating financial resources and building wealth, I prefer to learn from people who have, “been there, done that.” That’s why I picked up the book many years ago.

About 1 in 15 households in America are millionaires when you include household equity. Compare that statistic with less than half of Americans having just $100,000, again, including household equity.

Many people we presume to be millionaires are, in reality, worth less, much less. In fact, one in ten drivers of an imported luxury vehicle are actual millionaires. The most common cars driven by most millionaires today include Toyotas, Hondas & Fords.




Don’t confuse rich with wealthy.


If we want to become financially wealthy then we should model the wealthy, not the rich. That’s why the book described financial defense as being critical. If we overspend our income, we will never become millionaires.


“A fat kitchen makes a lean will,” as Ben Franklin phrased it.

How Millionaires Pursue Income

 

Stanley and Danko interviewed thousands of millionaires. My main takeaway was that millionaires are willing to work harder because they understand their financial defense is in place.

Meaning, they know for every dollar they earn, they will be placing a large amount of that dollar into their investments and into their businesses.

Many affluent people know they need a strong positive cash flow going directly back into their assets as opposed to paying off liabilities.


If our income is earmarked for future purchases, then is it really our income to begin with?

Financial offense becomes more meaningful when we have a strong defense.

There are enough obstacles as it is when it comes to making additional income. The one barrier I, myself, have removed is having a lifestyle where the money’s gone before I realize it was there.

I’m always working on plugging holes in my budget to optimize my lifestyle.

Since I am young, at the age of 27, I know I’ll have plenty of time for luxury down the road. Right now, I’m focused on enjoying a lifestyle I can afford while simultaneously building wealth and resources for the next chapter of my life.

Is your financial defense supporting your financial offense? What helps you in having a winning combination?

-Matt
Distilled Dollar


To read more articles from Matt, check out Distilled Dollar.




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Comments

  1. Nice summary Matt and you are definitely taking the financial offense and defense strategies to heart. I wish I had been as committed twenty years ago as I am now! You’ll be wealthy soon if you stay on track. Have you projected out when you will be worth one million?

  2. Reading Millionaire Next Door really changed my life. I know before I read it, I always equated stuff with wealth. After reading it, I totally understand now that wealth has nothing to do with the stuff you have. Now, a lot of the time, when I see someone with fancy stuff, my first thought isn’t that there rich. I wonder how much debt they are in, or how little money they have since it’s all being spent on stuff.
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  3. I read the book “Millionaire next Door” some years ago and it was a real eye-opener to me. It higlights the key factor in the process of wealth building which is the saving rate. A high salary (“offense”) does not translate automatically into substantial wealth unless a meaningful portion is saved year by year (“defense”). My wife and I took these key take-aways to “streamline” our personal finances and invest on a regular basis. We gradually changed our view from a “one earns to spend – attitude” to a new perspective. Let me put it like this: “we save to invest, to have options in our lives and to pursue our dreams”.
    Cheers

    1. Excellent summary! I’m glad the book had a similar impact for you. It seems like one of those books that has a common result in everyone who reads it.

      Your comment also reminded me of the quote, “One who earns $100 and spends $101 feels poor. One who earns $100 and spends $99 feels wealthy.” At the end of the day, if we under spend our income, we have investments that will start to work for us.

  4. 34 but that’s given limited career promotions and a 6% market return. I’m confident we’ll see our income income increase, but the market return is anyone’s ball game.

    (I’m 27 now so that’s a ~6 year runway.)

    The other factor is lifestyle inflation – so we’ll see when that big day comes!

    The true joy here is basically anyone can copy our approach – at any age – and go from zero to financially secure within a decade.

  5. Having a strong financial defense is the best offense. Its important for anyone hoping to become wealthy to know how to begin to offset your expenses. Great post Matt!

    1. Thanks! Having the defense in place makes offensive initiatives much more rewarding.

  6. I can’t believe that luxury car stat. I don’t know how people sleep at night with that kind of debt. On the other hand, the concept of financial defense is a great one. I like the analogy and agree that without a financial foundation in place you’ll never really keep the money you make.
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    1. A fat kitchen makes a lean will, as Ben Franklin put it. 🙂

  7. I really love The Millionaire Next Door. It taught me so much and how to spot all the posers that pretend to be rich when they are actually living paycheck to paycheck.

    1. I agree Derek. The book completely changed the way I view the “rich”. Luckily, my changing view has also helped me go from looking rich to building wealth. 🙂

  8. I have read the Millionaire next door before and it was definitely eye opening. It reminds me of what Financial Samurai talks about with Stealth Wealth. When I shared with my friends that I’m completely out of debt including my mortgage they were shocked. They couldn’t believe it. I drive an older car and definitely don’t fit the profile of someone well off to them. With that said I fit in perfectly with millionaire next door 🙂

    1. I aspire to be you! Haha, I also love the concept of stealth wealth. It also makes it much easier to “maintain” your status if it is low cost to begin with.

  9. It’s surprising how many of people still equate outward signs of “wealth” with success. Most often, the people I see with luxury cars can afford them only as long as they have a paycheck. Great article.

    1. Agreed! My first thought is usually the same. If it is their 4th car paid with cash then I might think, “Okay, they might have some serious wealth here.”

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