Stuart Zadel on The Millionaire Next Door Series. How do you determine how wealthy you are? Are there specific measures to make the determination valid?
INTRODUCTION
Hello friends! This is Stuart Zadel, and I’m bringing you an 8-part series that will hopefully inspire you and bring out the millionaire in you: The Millionaire Next Door Series. In a succession of discussions that focuses on the positive habits that help create wealth, you’ll discover that you actually have the power to rise from your present circumstances and become the millionaire next door.
Much of my discussion in this 8-part series is inspired by the book, “The Millionaire Next Door” by Thomas Stanley and William Danko. Based on 20 years of research, interviews, surveys, and personal interactions with people who appeared wealthy and those who were really wealthy, both authors were able to discover two odd things:
- That many people who appear wealthy actually do not have much wealth,
- That those people who actually are wealthy do not live in upscale places, drive luxury cars, or dine in expensive restaurants.
Interesting discoveries aren’t they?
You see for me, the bottom line is that we all have the wrong concept of what ‘wealth’ really means.
In my opinion, wealth is not synonymous to income, nor is it a product of inheritance or sheer luck. Wealth is more of a ‘result’ rather than an endowment. It is the product of perseverance, hard work, planning, and above all, self-discipline.
Throughout this 8-part series, I aim to break down many of the stereotypes related to wealth. Together, we’ll break-free from the traditional, and often, limiting aspect of our own perceptions about money, good habits, and proper mindset. We’ll learn about the best characteristics that mould the wealthy and hamper the non-wealthy; and the different types of wealth accumulators. And finally, we’ll learn why most people never really attain ‘wealth’, as it’s defined in this series.
Along the way, I’ll be sharing stories that illustrate how ‘wealth’ has been long misunderstood by most of us. I’ve studied this and it’s inspired me so much that I now want to share it with you.
So to kick off our discussion, let’s look at the concepts that hold this series together: your habits and your net worth. Lots to find out in this first part so read along with me!
PART 1 OF 8: HOW TO DETERMINE HOW WEALTHY YOU ARE
The Classic Questions
Let me start by asking you: would you rather look rich or be rich? If your income dried up tomorrow, how long can you afford to live? Do you even know how wealthy you are?
In today’s society, it’s much easier to look rich by buying an expensive car, wearing expensive clothing, and getting expensive accessories. But all these have done is to cause some very expensive finances. It’s very easy to look wealthy but its a lot different to be actually wealthy. So what does it mean to be actually wealthy?
THE 7 DENOMINATORS THAT DIFFERENTIATE THE WEALTHY AND THE NON-WEALTHY
In the book “The Millionaire Next Door”, the authors have identified 7 excellent denominators that set the wealthy apart from the non-wealthy. I will be discussing each denominator as we go on but for now, let me offer you a snapshot of each.
They know how to live within their means
Wealthy people are frugal. They are aware of how much money is coming in to their bank account and they know how to live well below that.
They allocate their time, energy, and money efficiently
This means that wealthy people dedicate their time, energy, and money in pursuits that allow them to increase their net worth.
They believe that financial independence is more important than displaying social status
The wealthy are not worried about impressing the people around them. Instead, they understand the value of staying wealthy for life and working long-term to attain that.
They are not dependent from their parents
The real wealthy people do not rely on their parents’ financial ‘act of kindness,’ or what the book calls ‘Economic Outpatient Care.’ In fact, contrary to popular belief, the wealthy do not inherit their wealth.
Their children are financially independent
Talk about passing on a positive mindset and a healthy financial values, the wealthy are able to imbibe on their children the correct attitude on money.
They are proficient at targeting market opportunities
Wealthy people are able to spot investing opportunities based on market needs that are yet to be fulfilled. They trust their judgment as they listen to their voice of wisdom and their skills.
They choose the right occupation
The wealthy knows that while they have multiple skills and competencies, they can’t be best in all of them. They also know that some people are better than others, including themselves.
The succeeding parts in this series will discuss each of these denominators in detail but for now, let’s go back to one of the classic questions: how do you know how wealthy you are?
HOW TO DETERMINE YOUR NET WORTH
Going by the book, the authors offer a simple formula to compute for your net worth:
Multiply your age by your realised pre-tax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
For example, if you’re 40 years old with a pre-tax annual income of $70,000, you’ll get $2,800,000. Divide that by 10 and you’ll have $280,000 as your net worth. But obviously, net worth is age-dependent. Ideally, the longer you’ve been on the planet, the more income you’ve earned. In theory, your wealth should be higher as every year on the planet, your wealth should be accumulating, only if you manage it well.
So considering your net worth, you can either be a Prodigious Accumulator of Wealth (PAW), an Average Accumulator of Wealth (AAW), or an Under Accumulator of Wealth (UAW). This three represents the elements in a continuum of wealth: those who are already wealthy (PAW), those who are almost wealthy (AAW), and those who are spend thrift (UAW).
Where do you currently sit? Are you even satisfied with your computed net worth? Why or why not?
Do you think that you already possess some of the 7 denominators I mentioned above? Which ones are you already practising? Which ones do you think you need to acquire?
Ponder upon those questions for now and keep watching for the second part of this series because in the next installment, I’ll be discussing the first of the 7 denominators that the wealthy possesses.
Watch the entire Next Door Millionaire Series episodes here.
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