Tuesday, June 24, 2014

"The Millionaire Next Door"

What does a rich person look like? What is their lifestyle? From what we see on TV on shows like MTV's "Cribs", they drive outrageous luxury cars by Rolls Royce or Lamborghini, wear expensive Italian suits and live in over-the-top multi-million dollar mansions. That is true for some people, but assuming that all wealthy people live that way is incorrect. They often don't drive luxury cars, they don't always buy $25,000 fancy Rolex watches or have closets full of Armani suits. They have basic credit cards like Visa, Master Card, Sears and JC Penney. They are rich because they are frugal. They stay rich because they are smart with money.

These topics are covered in a book called "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" by Thomas Stanley and William Danko.

There is a phrase that says "The rich get richer and the poor get poorer." This happens since the rich know how to put their money to work for them. They spend time studying personal finance and accounting. They read publications like Forbes magazine and The Wall Street Journal. They know to avoid the pitfalls that lead to financial ruin such as accumulating too much debt. They stay away from wasteful spending like rent-to-own stores, playing the lottery and falling for fraudulent investing schemes. Are there exceptions to the rule? Yes, there are many. Often the rich get greedy and take foolish risks in order to multiply their wealth. Look no further than the likes of Bernie Madoff or the crooked bankers behind the 2008 housing crisis.

Those who have inherited money tend to be show-offs more often, buying expensive possessions, when compared with those who have earned their wealth. Earning something makes you enjoy it rather than having it handed to you with no work involved.

You can't judge a book by its cover. Spotting a truly wealthy person is not as easy as you might think.

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