I mentioned previously that we are participating in our library’s Summer reading program. The first book that I read was the Millionaire Next Door by Stanley and Danko. It was an interesting book and worth the read. The book, published in 1995, did feel dated at times, especially when talking about average incomes. It also made no mention of the burgeoning field of technology and all of the entrepreneurship opportunities there (the book talks a lot about how self employed individuals are statistically more likely to be millionaires compared to their rank and file counterparts).
The big takeaway that the authors hammer away at for the duration of the book is that wealthy individuals live below their means. In other words, they are frugal. Keeping up with the Joneses is stupid, because the Jones don’t have any money, they spend it all and spend everything that they can borrow. I like to think that we are living below our means. We have been in our house for 13 months now and have paid off 20% of the mortgage. Contrast that to the Joneses who most likely have a 30 year loan and would only be 3.6% done. How have we paid off so much of our mortgage in so little time? We live below our means and have started making quadruple mortgage payments each month. We also saved up before buying and were able to put down 66% on the house. If you put down less than 20% you are usually hit with PMI, private mortgage insurance. Those 3 little letters can add a substantial amount to your monthly mortgage payment so it is best to put at least 20% down on a house.
At this point, you may be wondering “What’s the point of being wealthy if you don’t spend money?” According to Stanley and Danko, millionaires do spend money on priorities such as tuition for their children and grandchildren, professional services including health care, accountants, and lawyers, and investing in their retirement accounts. The last one is most likely the largest motivator to accumulate wealth. Financial Independence, or the ability to live off one’s accumulated wealth without having to work to pay for necessities is the cornerstone of retirement.
The American dream/promise is that if you put in your 35-45 years of work, you can retire and laze about while enjoying the lifestyle that you had whilst working. The reality is that many Americans cannot afford to retire or maintain their lifestyles due to small savings and/or having a lifestyle beyond their means.
Retirement is a privilege, not a right
If that sounds too harsh read some of the statistics out there about the impending retirement catastrophe (okay the article and my wording are a wee bit hyperbolic, but my point remains).
Now for something completely different
I’ll step off my personal finance soapbox for now and pick up the next book on my reading list, Do Father’s Matter? by Paul Raeburn. I have read through the first chapter and so far the most interesting topic has been epigenetic inheritance. Way back when in 9th grade biology class, I was taught that a new living organism developed according to its DNA ‘blueprint’. My limited understanding of epigenetics is that they are kind of like doodles on the blueprint. Most of the time they are ignored or wiped off completely, but sometimes they affect the developing organism. In this way, it is possible for a male’s sperm to contain information in addition to the DNA. This information, according to Raeburn, acts as an environmental weather forecast for the developing fetus. “Hey fetus, there is no food out here in the real world, so turn on the genes that help you fend off starvation”. In this way, a father’s health at the time of conception plays a large role in the resultant baby just like the mother’s nutrition during pregnancy affects the fetus.
Pretty neat stuff.