Stuart Zadel on The Millionaire Next Door Series. What’s more important to you: financial independence displaying social status? Your answer says a lot about you.

FINANCIAL INDEPENDENCE IS MORE IMPORTANT THAN DISPLAYING SOCIAL STATUS

Welcome, friends! We’re on to the fourth installment of The Millionaire Next Door Series. This 8-part series features a succession of discussions about the key denominators that set the wealthy, or what we call Prodigious Accumulators of Wealth or PAWs and the non-wealthy, or what we call Under Accumulators of Wealth or UAWs, apart.

The discussions featured in this series are inspired by the book, “The Next Door Millionaire” by Thomas Stanley and William Danko, in an attempt to discover what the wealthy are doing to get even wealthier.

So what happened in the last installment?

IN REVIEW: ALLOCATING YOUR TIME, ENERGY AND MONEY EFFICIENTLY

In the third installment of this series, I discussed how spending your time efficiently determines the result that you get. You discovered that Prodigious Accumulators of Wealth or PAWs spend more time each month planning and managing their financial independence as compared to Under Accumulators of Wealth or UAWs. Compound that amount of time spent each and every month over a lifetime, and you’ll understand the difference between the wealthy and the non-wealthy. They’ve got different habits, and over time those habits are magnified. It’s also not how much money you make; it’s what you do with it that counts.

FINANCIAL INDEPENDENCE IS MORE IMPORTANT THAN DISPLAYING SOCIAL STATUS

The whole chapter in the book kicks off with a discussion about cars. Here’s a proposition: cars are probably the single greatest wealth destroyer on the planet. Certainly behind the family home, it will probably be the second largest investment most people in western societies will ever make.

Think about it: a brand-new car drops in value 20-40% immediately after you drive it off the showroom. It’s a usually non-tax deductible debt. The car is worth a lot less each year, and it’s got significant running cost as well, including fuel.

So how do the PAWs buy their cars? They are buying everyday cars. They are not wasting their money displaying luxury European brands. In general, PAWs are usually small business owners and have been for many years. They own those normal and boring businesses you see in the local suburbs. They are efficient in how they run their businesses and their lifestyle and they are almost allergic to displaying high social status.

With this efficiency, and with their solid income from their businesses, they end up with surplus cash flow. And what do they with their money? They invest it back into their business, growing the thing that creates the income and the cash flow in the first place.

Apart from investing it back into their business, PAWs also invest it, often in commercial real estate and also in general common good stocks. Over time, these people become what we call Super Prodigious Accumulators of Wealth – these are people who have ten times the wealth of the average and everyday Prodigious Accumulators of Wealth.

Story 1: The Start-up Girl

Recently, I met with one of my clients from one of my events. This client invested in one of my programs, and was asking me about where she can find angel investors. Her internet business is about to launch and she requires $150,000 worth of capital to do it against an untried business model. Interestingly, I know that for decades, her family owns a delicatessen business in a major regional town. I don’t know for a fact, but I think that her father is not just a Prodigious Accumulator of Wealth; I think that he is a multi-millionaire.

Having been in that business for decades, her parents are known to the local town and, of course, they want to hand-pass or sell that business on to their children. But do the children want to know anything about that business? No. Why?

Well, it’s because they want to live in the city where things are faster and where life has more options. So she’s out there looking for an enormous launch capital to grow a business that might be a hit – or not. To me, she has key knowledge into an existing great business that has already produced a PAW but she’s working right away from it.

Story 2: The Secret To Wealth

I have an uncle who is a very wealthy man. He owned a petrol station on a road in some town. But this town was on the way to a famous landmark. You couldn’t get to that landmark in New South Wales from the north without going through this town. One time, he asked me: “Stuart, what’s the secret to wealth?” I then realized that people were coming for the fuel but then I could buy something for a dollar, sell it to my uncle, and I can double my money.

He had that server for many years and he’s made an absolute fortune. He really has his money buried all over his properties or that he owned a lot of land around that town. In fact, he thought that the network of roads will eventually redirect to the one road that went through his town into another alternate route.

What did my uncle do? My uncle went and bought up all the land around that route where he is going to relocate his service station! Now, my uncle had three or four children. Did any one of them want to take over that service station? No. They all wanted to move to the city, have their jobs and do their own thing. Well, fair enough. But remember, the petrol station produced a Prodigious Accumulator of Wealth once, and I expected one or all of his children to be next. But they’re now all Under Accumulators of Wealth.

INSIGHTS

Here is another story from the book. It’s about one of the Super Accumulators of Wealth. This gentleman had supported and saved a lot of other businesses. He was a mentor to many other entrepreneurs and business owners in the community and he would never lend money to people who had the “big hat, no cattle” syndrome. What does that mean? Well, the big hat is meant to symbolize that you have a lot of farm land and a lot of cattle. But they have none. So, they are displaying that they’re wealthy but they’ve got nothing to show for it.

The book also says that PAWs generally love their jobs. They love their businesses. They work because they love it. In contrast, the UAWs work to support their spending habits. They have no thought, no plans at all of being financially independent.

In conclusion, PAWs want nothing to do with displaying high social status. So you should decide. Do you want to look rich, or do you want to be rich? Life is already full of enough burdens as it is. Why do you want to add all these payments and maintenance and stuff to your life? You’re going to have to decide on that as well.

Watch the entire Next Door Millionaire Series episodes here.

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