They’ve owned the same house for the past 15 years. The house is comfortable, but not elaborate. And so is the rest of their
lifestyle.
When they buy a car, it’s at least three years old. They take two-week vacations at a nearby lake. They live well below their
means (some might call them cheapskates). That’s okay with them because they don’t believe in living lavishly.
Would it surprise you to know that they are HNWIs? Though still in their forties, their assets exceed their debts by 10 to one.
They are what authors Thomas Stanley and William Danko call The Millionaire Next Door. What are the qualities that make
them successful with money?
Discipline. They follow a spending plan based on moderation and frugality -- and they stick to it. If you want to build a
comfortable net worth, you’ll live within a budget. You’ll buy things according to need and value, not status. You won’t look,
dress, or act like a millionaire so that someday you may be one.
Patience. Fortunes take time to build. If you want to build one, you’ll be a methodical investor who understands the time value of
money. Wealth accumulates over time by compounding. The earlier you start, the more time works in your favor.
Ambition. About two-thirds of typical high net worth individuals are self-employed, often owning businesses that are considered
“blue collar” or dull. You may welcome the opportunity to start a business that provides mundane services others rely on. And
you won’t mind putting in the long hours and hard work it takes to be successful.
Vision. Net worth builders think long-term. They see opportunities where others don’t. You will be willing to take reasonable
risks to achieve rewards in the future. You are an optimist who believes you can do it.
THE GET-RICH-SLOW PLAN
Daydreamers think in terms of “striking it rich.” They dream of winning the lottery or “getting lucky” with investments. They
wonder if Aunt Harriet put them in her will. They don’t understand the most probable method of building wealth: the Get-Rich-
Slow Plan. Here’s how it works.
Savings. Start by living on a strict budget today. Even if your income is high and your prospects for the future seem bright, learn
to live below your means. Why? Because you want to put as much of your income as possible into savings to establish a
foundation for future wealth.
Don’t think about how little your savings will add up to in the near future. Think about what the process of saving will accomplish
over the long haul. Albert Einstein said it best: “The most powerful force in the universe is compound interest.” Given enough
time, any sum of money that generates steady earnings will grow substantially.
Here’s just one example: Suppose you save just $25 per week in an investment account that earns 5% interest. At the end of
17 years you will have saved $22,100, but your account will have grown to $34,840, which includes $12,740 in interest. Now
suppose you stop making new contributions to the account and just let the principal continue to earn interest at the same 5%
rate for another 20 years. Your savings will grow to $94,282 – almost $60,000 more in interest. (For more future value of interest
calculations, visit www.moneychimp.com.)
Your first investment. For most net worth builders, your first (and maybe best) investment should be in a home. Not only do you
build up equity over the years compared to renting, but you enjoy a substantial tax deduction on your mortgage interest and
property taxes. The considerable equity you build in your home over the years can be a low-cost (and tax-advantaged) source of
borrowing for other investments such as starting a business or buying other real estate for income.
Owning your own business. That may be something you have always wanted to do – or never wanted to do. Not everyone
thrives on being the boss and shouldering the responsibility of business ownership. Nevertheless, owning a successful
business is a time-honored path to financial success.
If you are an “idea person,” but have limited interest in business management, you may make an excellent partner in an
enterprise that develops your ideas. A great idea doesn’t care where it comes from or who runs the business. Just make sure
your partners complement, rather than duplicate, your skills. The right combination of ideas and day-to-day management forms
the ingredients for many successful enterprises.
Other investments. Over the long term, a diversified portfolio of stocks, bonds, real estate, and other securities have proven to
be good investments. But know thyself. If you can’t tolerate the ups and downs of markets and the economy, you may want to
limit your investments to financial products that offer the safest and surest returns.
Tax-deferred assets. As your net worth and income grow, taxes will become an important consideration. You’ll want to take
advantage of tax-deferred savings plans such as IRAs, SEP-IRAs (for the self-employed), 401Ks, 529 and other college savings
plans, and capital gains exclusions when you sell your home. You’ll also want to investigate life insurance and annuity plans.
Consult a financial adviser who understands these products thoroughly.
As you fold new assets into your Get-Rich-Slow Plan, you may find that money actually becomes less of a concern in your daily
life. As your assets grow, your living expenses will become a smaller fraction of your net worth. You’ll have more energy to give
to your family, community, and your work. Living well within your means, managing your debt, and putting cash flow to work
productively will become habitual … and comfortable.
CHECKLIST FOR NET WORTH ACHIEVERS
Limit your debts to buying things that appreciate or hold their value.
Look for opportunities to be entrepreneurial.
Understand the time value of saving and investing.
Limit your investments to what you understand and can manage.
Make profitable use of skilled financial advisers.
GUARANTEED NET WORTH KILLERS
Too much debt at too high a cost
Investments made without due diligence
Law suits, divorce, tax problems
Deals that are “too good to be true”
Offshore trusts or tax shelters
Pride – it goeth before the fall
lifestyle.
When they buy a car, it’s at least three years old. They take two-week vacations at a nearby lake. They live well below their
means (some might call them cheapskates). That’s okay with them because they don’t believe in living lavishly.
Would it surprise you to know that they are HNWIs? Though still in their forties, their assets exceed their debts by 10 to one.
They are what authors Thomas Stanley and William Danko call The Millionaire Next Door. What are the qualities that make
them successful with money?
Discipline. They follow a spending plan based on moderation and frugality -- and they stick to it. If you want to build a
comfortable net worth, you’ll live within a budget. You’ll buy things according to need and value, not status. You won’t look,
dress, or act like a millionaire so that someday you may be one.
Patience. Fortunes take time to build. If you want to build one, you’ll be a methodical investor who understands the time value of
money. Wealth accumulates over time by compounding. The earlier you start, the more time works in your favor.
Ambition. About two-thirds of typical high net worth individuals are self-employed, often owning businesses that are considered
“blue collar” or dull. You may welcome the opportunity to start a business that provides mundane services others rely on. And
you won’t mind putting in the long hours and hard work it takes to be successful.
Vision. Net worth builders think long-term. They see opportunities where others don’t. You will be willing to take reasonable
risks to achieve rewards in the future. You are an optimist who believes you can do it.
THE GET-RICH-SLOW PLAN
Daydreamers think in terms of “striking it rich.” They dream of winning the lottery or “getting lucky” with investments. They
wonder if Aunt Harriet put them in her will. They don’t understand the most probable method of building wealth: the Get-Rich-
Slow Plan. Here’s how it works.
Savings. Start by living on a strict budget today. Even if your income is high and your prospects for the future seem bright, learn
to live below your means. Why? Because you want to put as much of your income as possible into savings to establish a
foundation for future wealth.
Don’t think about how little your savings will add up to in the near future. Think about what the process of saving will accomplish
over the long haul. Albert Einstein said it best: “The most powerful force in the universe is compound interest.” Given enough
time, any sum of money that generates steady earnings will grow substantially.
Here’s just one example: Suppose you save just $25 per week in an investment account that earns 5% interest. At the end of
17 years you will have saved $22,100, but your account will have grown to $34,840, which includes $12,740 in interest. Now
suppose you stop making new contributions to the account and just let the principal continue to earn interest at the same 5%
rate for another 20 years. Your savings will grow to $94,282 – almost $60,000 more in interest. (For more future value of interest
calculations, visit www.moneychimp.com.)
Your first investment. For most net worth builders, your first (and maybe best) investment should be in a home. Not only do you
build up equity over the years compared to renting, but you enjoy a substantial tax deduction on your mortgage interest and
property taxes. The considerable equity you build in your home over the years can be a low-cost (and tax-advantaged) source of
borrowing for other investments such as starting a business or buying other real estate for income.
Owning your own business. That may be something you have always wanted to do – or never wanted to do. Not everyone
thrives on being the boss and shouldering the responsibility of business ownership. Nevertheless, owning a successful
business is a time-honored path to financial success.
If you are an “idea person,” but have limited interest in business management, you may make an excellent partner in an
enterprise that develops your ideas. A great idea doesn’t care where it comes from or who runs the business. Just make sure
your partners complement, rather than duplicate, your skills. The right combination of ideas and day-to-day management forms
the ingredients for many successful enterprises.
Other investments. Over the long term, a diversified portfolio of stocks, bonds, real estate, and other securities have proven to
be good investments. But know thyself. If you can’t tolerate the ups and downs of markets and the economy, you may want to
limit your investments to financial products that offer the safest and surest returns.
Tax-deferred assets. As your net worth and income grow, taxes will become an important consideration. You’ll want to take
advantage of tax-deferred savings plans such as IRAs, SEP-IRAs (for the self-employed), 401Ks, 529 and other college savings
plans, and capital gains exclusions when you sell your home. You’ll also want to investigate life insurance and annuity plans.
Consult a financial adviser who understands these products thoroughly.
As you fold new assets into your Get-Rich-Slow Plan, you may find that money actually becomes less of a concern in your daily
life. As your assets grow, your living expenses will become a smaller fraction of your net worth. You’ll have more energy to give
to your family, community, and your work. Living well within your means, managing your debt, and putting cash flow to work
productively will become habitual … and comfortable.
CHECKLIST FOR NET WORTH ACHIEVERS
Limit your debts to buying things that appreciate or hold their value.
Look for opportunities to be entrepreneurial.
Understand the time value of saving and investing.
Limit your investments to what you understand and can manage.
Make profitable use of skilled financial advisers.
GUARANTEED NET WORTH KILLERS
Too much debt at too high a cost
Investments made without due diligence
Law suits, divorce, tax problems
Deals that are “too good to be true”
Offshore trusts or tax shelters
Pride – it goeth before the fall
Building Net Worth
Would you like to become an HNWI? That’s an acronym for
High Net Worth Individual. The financial community defines an
HNWI as someone with net assets of at least $1 million,
excluding real estate. Anyone who learns to live moderately and
save aggressively can achieve an impressive net worth. It’s the
process of building your net worth that’s important.
However you define “being rich,” it almost never happens
overnight. For most of us, it’s the gradual accumulation of
assets and control of liabilities. It’s building your net worth one
step at a time. You don’t have to be a financial genius, but it
does take some personal qualities that high net worth
accumulators typically acquire.
HABITS THAT LEAD TO HIGH NET WORTHS
You know that fellow who lives down the street -- the one who
wears khakis to work and drives a seven-year-old pickup truck?
He owns a small tool-and-dye shop. His wife teaches school.
Would you like to become an HNWI? That’s an acronym for
High Net Worth Individual. The financial community defines an
HNWI as someone with net assets of at least $1 million,
excluding real estate. Anyone who learns to live moderately and
save aggressively can achieve an impressive net worth. It’s the
process of building your net worth that’s important.
However you define “being rich,” it almost never happens
overnight. For most of us, it’s the gradual accumulation of
assets and control of liabilities. It’s building your net worth one
step at a time. You don’t have to be a financial genius, but it
does take some personal qualities that high net worth
accumulators typically acquire.
HABITS THAT LEAD TO HIGH NET WORTHS
You know that fellow who lives down the street -- the one who
wears khakis to work and drives a seven-year-old pickup truck?
He owns a small tool-and-dye shop. His wife teaches school.
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