Brooke D'Sousa

1. Explain the following two (2) concepts addressed in The Millionaire Next Door:

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• “Big Hat, No Cattle”

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“Big Hat, No Cattle” refers to a person who displays ostentatious behavior but is unable to support their flamboyant appearance or pretentious claims. This is someone who surrounds themselves with material items that present a façade lifestyle, as they are unable to actually afford their habits and tastes, but they’d like others to think they can.

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• “Go to Hell Fund”

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A “Go-to-Hell-Fund” as defined by the book is savings enough that one could live comfortably for 12+ years without having to work.

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2. In the examples of Mr. Richards (PAW) & Mr. Ford (UAW), both men are close in age & yearly income. Explain why Mr. Richards has nearly five times the net worth of Mr. Ford.

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Mr. Richards has characteristics of a person who is worth twice the level of wealth expected of a person his age, which is typically obtained by being very frugal and living well below your means. Mr. Ford attended college and law school for 7 years, accumulating a lot of student debt, and lives an upper-middle-class lifestyle, which includes the big expensive house, luxury car, and lavish accessories and clothing. It costs more of his income to pay for these things, leaving little money for savings. Mr. Richards, on the other hand, lives the modest middle-class lifestyle of a blue-collar worker. He is a business owner and lives below his means, thus he is able to save a substantial amount of his earnings.

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3. Provide short answers to the following three (3) questions:

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• “Most people will never become wealthy in one generation if they are married to people who are _________.”  

 

Answer: wasteful

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• Upon giving his wife $8 million of stock, from taking his company public, what did his wife continue doing?

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She continued doing what she has always done. She clipped coupons and remained frugal. Even though she could afford to spend more, she didn’t.

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• Why would someone who is a millionaire need to budget?

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Budgeting is the cornerstone of wealth accumulation. It is important to know where your money is being spent so you can make decisions that put your closer to your financial goals.

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4. In the example of Theodore “Teddy” J. Friend and his parents, answer the following two (2) questions:

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• The book describes Teddy as being “possessed by possessions.” Explain this comment.

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Because of his lower-middle-class upbringing, Mr. Friend feels compelled to live at a higher socioeconomic status in an attempt to impress others. Teddy has accumulated so many possessions on credit that he must work harder and harder to ensure he can pay for them all, leaving little time to enjoy them.

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• What was the “small change” Teddy’s parents could have made that would put them in the millionaire category?

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Mr. Friend’s parents could have had a better chance at landing in the millionaire category by putting any increase in earnings into savings instead of increasing their spending habits.

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5. Mr. Rodney is a high-income/low-net worth corporate manager. Explain why he is described as having “sold his financial independence.”

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Financial independence requires sacrifice. Like Mr. Friend, Mr. Rodney is possessed by his possessions, and therefore unable to afford to save. Although he aspires to be financially independent, he is unwilling to make the sacrifices necessary to achieve such a status.

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6. Why did Mr. W.W. Allan decline the gift of a Rolls Royce?

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A Rolls Royce would not have been conducive to Mr. Allan’s lifestyle, and would not convey the appropriate message to the employees in his manufacturing plant, which is that he is one of them.

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7. Regarding Economic Outpatient Care (EOC), answer the following four (4) questions:

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• Explain why Economic Outpatient Care (EOC) can be harmful.

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Receivers of economic outpatient care have unrealistic expectations of what they can actually afford to purchase and maintain. Because their income is being subsidized, they live above their means, creating a greater chance of financial hardship should the extra income cease.

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• Explain this statement: “The more dollars adult children receive, the fewer they accumulate.”

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When adult children are receiving economic outpatient care from their parents, they are less likely to have the discipline necessary to live within their means. They didn’t have to personally put in the hard work required to earn the additional income, and the distance from actually earning the money makes it easier for them to spend it once they have it.

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• What is the likely financial outcome for Mary & Lamar once her Mother passes away?

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It is likely that Mary and Lamar will default on their debt, as they will no longer be able to afford their lavish lifestyle. Even if they receive a sizable inheritance, they will probably consume more at a faster rate, drying up any financial reserves the inheritance may have provided.

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• As illustrated in the example of Henry & Josh, what is the fundamental rule regarding wealth building?

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Frugality is fundamental to building wealth. In the example of Henry and Josh, Henry maintains the modest lifestyle of a teacher, even though his parents provide EOC, and has significantly more wealth than his attorney brother Josh.

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8. Regarding Affirmative Action, Family Style, answer the following three (3) questions:

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• In the example of sisters Ann & Beth, describe the consequences to Beth & her husband from receiving EOC?

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There was a price to be paid by accepting the economic outpatient care Beth and her husband received from her parents. They have less control over their lives as a result. Her parents feel because they are providing subsidization for Beth’s upper-middle-class lifestyle, that they can be more involved in making decisions that affect Beth and her husband. Her parents also have less resect for her and her husband, and believes them to be inferior to someone who lives a similar lifestyle without the financial assistance.

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• Explain the concept “weakening the weak.”

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“Weakening the weak” is the concept of doing more for the person you perceive to be less capable, instead of teaching them how to do it for themselves. Essentially making that person dependent instead of independent.

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• What did Ken’s father tell him often?

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Ken’s father often told him the he was more impressed with who people were than what they owned. He also told him to always do his best, and if he does, the money will find him.

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9. Explain the root cause for the conflict between Mr. W. & the residents of the vacation condominiums.

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The residents of the condominium complex are considered UAWs (under-accumulators of wealth) and therefore, live a lifestyle above their means. Mr. W. is considered a PAW (prodigious accumulator of wealth). PAWs typically appear more modestly than UAWs, even though the PAWs net worth is significantly larger than the UAWs. The UAW residents didn’t feel Mr. W. fit in well with the lifestyle they were portraying, thus attempting to devise a plan attempting to force him out.

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10. Now that you have finished reading The Millionaire Next Door, answer the following three (3) questions in a minimum of three (3) paragraphs.

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• How has your perception of millionaires changed?

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I will admit that previous to reading this book, I made certain assumptions about what a millionaire “looked” like. Now I can see that my definition was extremely narrow, and in some cases incorrect, because how wealthy one appears may be deceiving. is a book about exactly that. Your neighbor in your modest middle-class neighborhood may be living more modestly than they need to in order to amass wealth.

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• What are the two (2) concepts you found most useful?

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The two concepts I found most useful were that frugality is the key to building wealth, and to strive for financial independence by saving early. These two concepts go hand-in-hand, as you can’t have one very well without the other. I can see that by living frugally, one is able to save more than one who spends everything they earn. Although saving a substantial amount of your earned income can be a large sacrifice for some, the rewards of having financial independence later in life make it worth it, in my opinion. I would like to be able to retire and still live a lifestyle similar to the one I have now during my working years.

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• Give a specific example of one small change you can make to improve your financial well-being.

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After reading this book and gaining a broader perspective on wealth accumulation, I need to start by tracking my spending habits. I will be creating a budget, and based off my findings, curbing spending in areas of “want” and redefining areas of “need”. I will also invest more once I’ve been able to accumulate an emergency savings fund for my family.