Middle-Class Lifestyles, Million-Dollar Portfolios

How can we get to be Daddy Warbucks?

Thomas J. Stanley and William D. Danko have one piece of advice: "Wage war against conspicuous consumption. Spend less than you earn; invest the rest."

For most Americans, it's a losing battle.

Only about 3.5% of us have a net worth of $1 million or more (Stanley and Danko's definition of a millionaire, and ours, for the purpose of this review.)

What's the typical millionaire look like?

-He's 57 years old, married with three children. About seventy percent earn 80% or more of household income.
- In 50% of cases, his wife doesn't work outside the home.
- His average taxable income is $131,000; he has an average net worth is $3.7 million.
- He never received an inheritance, and lives well below his means.
- He's a fastidious investor.
- His wife is a meticulous planner and budgeter; he's a tightwad. They're a good match for one another.

It's a somewhat sexist picture of the typical millionaire. The authors classify millionaire households by family unit, and their bias is somewhat traditionalist, classifying the male as economic head of household. In case you haven't guessed, divorce is a big detriment to becoming a millionaire.

Are you on track towards becoming one?
The authors define three categories of wealth-accumulators:

PAW's, or prodigious accumulators of wealth;
AAW's, or average accumulators of wealth;
UAW's, or under accumulators of wealth.

They give us a formula so that we can determine which category we're in.

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.

If you are forty, with a pretax income of $75,000, you would need a net worth of $300,000 to be an AAW. To be a PAW, you'd need to have twice the expected average, or a net worth of $600,000.

Net worth is defined as the total value of all assets, including retirement accounts, home equity, household furnishings, and possessions, minus all accumulated debt.

Our score? We are AAW's, working our way towards becoming PAW's.

How Do Millionaires Earn Their Money?
Many of them have their own businesses. In this ever-changing economy, it's hard to predict which businesses will prove most highly profitable in the future. This book, written in 1996, doesn't even mention the Dot-Com entrepreneurs. Instead, it lists the following occupations as having high potential for wealth accumulation: estate and immigration attorneys, medical and dental specialists, asset liquidators, auctioneers, and appraisers, educational professionals, housing specialists, fund-raising counselors, and travel agents.

Two very popular businesses among millionaires are auctioneer and trailer-park owner!

Risk or Freedom?
This section was one of the most interesting to me as a reader.

A group of 60 MBA students once defined risk as "being an entrepreneur."

Their professor answered, "What is risk? Having one source of income. Employees are at risk...They have a single source of income. What about the entrepreneur who sells janitorial services to your employers? He has hundreds and hundreds of customers..."

The greatest risk, apparently is being an employee with a ruthless boss.

After having seen my husband lose two highly-compensated positions in 3 1/2 years, and moving all over the country as he found new ones, I am ready to redefine the word "risk."

He has dabbled at becoming an auctioneer over Ebay, with somewhat spectacular results. I, who have been self-employed for a number of years, am looking towards finding more mobile self-employment opportunities (freelance writing being one.) There's nothing worse than taking the time and effort to build up a business (Piano and Early Childhood Music Education, Clowning) and having to pull up roots just as it's getting going.

EOC
Economic Outpatient Care. That's what the authors call the gifts to adult children who have fled the nest.

Can you guess that they don't approve of it?

Economic Outpatient Care keeps children from becoming independent, and encourages them to lead a high-consumption fantasy life they could never maintain on their own incomes.

Two forms of Economic Outpatient Care the authors do recommend: 1) providing children with the best education possible; and 2) giving kids seed money to start their own businesses.

As a parent of two children in their early twenties (and one eleven year-old), I try hard to follow that advice. My husband, the Ebay entrepreneur, would add that I don't succeed very well.

It's difficult to see children struggle towards independence. My sons, luckily, don't come to feed at the trough that often. We finance their education and housing costs, but don't give alot for extras. They live within their means and value relationships over status symbols. I'm the one who sees them eating Ramen noodles and wearing thrift store duds (their preference...) and wants to rush to their rescue. They don't see themselves as needing to be rescued, and that's great.

Affirmative Action, Family Style
This section discusses estate planning among millionaires.

If you want to raise independent children, the authors advise the following:

- Never tell them you're wealthy.
- Teach them discipline and frugality.
- Don't let them realize you're affluent until they've developed a mature, adult lifestyle and profession.
- Don't discuss inheritances.
- Stay out of your children's family matters.
- Tell your children there are alot of things that are more valuable than money.

Leave your children money if you want, but leave them the tools to deal with it wisely.

Car Buying, Clothes Buying, and Home Buying Styles of the Rich
This section could have been shorter. At this point in the review, you could probably pick out one of these millionaires on the street!

I have read a few of the other Epinions' reviewers essays about this book. Two whose writings I respect found Millionaire Next Door to be an over-inflated article.

I didn't.

Maybe the events of the past few years have taught us we have to examine our old paradigms and think outside the box.

Maybe our position in life, as parents of adult children, getting a little bit closer to retirement, makes this book more valuable to us.

I found it contained a good deal of common sense information, and reaffirmed some of the conclusions we've been coming to on our own about wealth accumulation and career planning.

I give it four stars (but skip the chapters about the used cars and $100 suits!)