Millionaire Next Door and All Your Worth

December 6, 2008

No this post isn’t about my new neighbors, or my new house.

Its about the secret to wealth.

First you buy two copies of the Millionaire Next Door and then you give one to each of your next door neighbors. Suddenly your odds of getting rich will improve.

Ok hopefully that gives you a chuckle. Nonetheless, here is my prescription for improving America’s financial health. While I normally write on the topics of Identity Management and SQL Server, I did also earn an MBA from the Eller College of Business at the University of Arizona, and have done some financial counseling as a volunteer through church. So I have done some deep thinking on these matters.

Reading the Millionaire Next Door affects people, and helps them realize that wealth isn’t about showing it off, that the people that appear as though they live like Millionaires often aren’t, and quite frequently those whose net worth truly does exceed a million dollars don’t like to show it.

After one catches the appropriate philosophy, and begins to desire to save a million dollars rather than have spent a million dollars, it is time to move to the how, and that is where All Your Worth comes in. This book by Elizabeth Warren and her daughter Amanda Tyagi, teach you how to put your financial life in balance, how to be prepared for a rainy day, and they teach you without forcing you to track every penny. They have excellent suggestions and ask you to look deep and make the hard choices, such as did I buy too big of a house? Perhaps the single most powerful thing I found was how to measure your finances. Income = Needs + wants + savings. So how to calculate your wants, track every penny? No! Subtract your needs (usually big ticket items) and your savings (they have great easy formulae to help you calculate that) from your income and you are left with how much you spend on your wants. If you are 50% needs, 20% savings and 30% wants then you are in balance and are beginning to be prepared for the rainy day.

Once you have gotten your life in balance and are saving well you need to be a smart investor. While Dr Elizabeth Warren recommends indexed mutual funds with no loads and low costs, I don’t always agree that the stock market is the best place for funds. So I recommend Ben Stein’s Yes you can time the market. No he doesn’t reveal some magic secret about how to pick individual stocks, but rather about when to buy US Gov’t bonds vs when to buy the aforementioned indexed mutual funds.

Additionally, I highly recommend John Nofsinger’s Psychology of Investing. Learn how to avoid making sucker’s choices with your investments, learn why people often make emotional decisions about stocks.

No the preceding advice is no guarantee, nor does it mean that your author is set for life, but I think this is the way to go.

Be skeptical about anything that makes life sound too easy, and check out the gurus (especially real estate gurus) John T Reed