Tuesday, August 10, 2010

The Millionaire Next Door: Read It!




This is one of the best personal finance reads out there. I would highly recommend this read for anyone who wants to learn more about how to become wealthy and the misconceptions that we have about the wealthy. In Thomas Stanley & William Danko's "The Millionaire Next Door" they probe into the lives of 500 affluent people to discover some amazing facts and similarities the wealthy share.

We often associate the wealthy with expensive Lamborghini's, yachts, and mansions. In most cases the most affluent can be your next door neighbour who drives a Toyota. There is an old saying "all hat, no cattle." This is one of the main messages of the book. People who usually give the appearance of ultra wealth are often just fakes. Their expensive tastes and habits are financed by loans and credit cards, so these type of people are usually deep into debt. People who end up building wealth are the ones who are smart consumers and well educated in the realm of personal finance. They are often business owners and have started with next to nothing.

One of the questions this book addresses is why some people who have won the lottery become bankrupt in a short amount of time afterwards. You would think that someone who won the lottery would never have to work again, but history has shown that most lottery winners end up in the same place they were before they won the lottery. Someone who was not used to having such money stumbles upon a fortune instantly. Their spending habits haven't changed nor has there financial literacy/IQ. In that case the money is lost as quickly as it was granted. This emphasizes the importance of how the wealth was generated and the development of your own financial knowledge.

The thing about people who have built their wealth from scratch is that they have very high financial IQ's. They have learned how money works and are able to use that knowledge to the fullest. There are cases of wealthy people with high financial IQ's that were close to losing everything, but were able to rebuild their wealth quickly because of their financial knowledge. Donald Trump is a great example of someone who has an exceptionally high financial IQ. There was once a time when he was millions of dollars in debt but rebounded to becoming one of the wealthiest men in America because of his financial knowledge. This book tells the story of the most affluent people in America and sheds light on the misconceptions we have about the wealthy. We can learn a lot about how this minority operates and hopefully gain some incite into our own financial lives. This book is a definite two thumbs up, borrow it from the library today!

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