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Insights From The Millionaire Next Door Pt.3 (#37)

Time Allocation To Budgeting

  • PAWs do a little planning each and every month (they average about 8 hours a month).
  • Most PAWs despite being busy make it a priority to make the time to spend the time planning their financial future, while most UAWs don’t.
  • Many people who do little or no investment planning often tell themselves the following excuses:
    • I never have the time needed to make it pay off
    • We never have made so much...But the more we earn, the less we seem to accumulate.
    • Our careers take up all our time.
    • I don’t have 20 hours a week to fool with investing my money. 
  • PAWs allocate approximately 1.2% of their time planning their investments. 

The difference between UAWs and PAWs in holding wealth

  • UAWs hold a larger percentage of their wealth in motor vehicles and other assets that tend to depreciate. 
  • UAWs consider cash/near cash and equivalents, such as savings accounts, money market funds, and short-term T-bills, to be investments. 
  • UAWs are 2x as likely as PAWs to hold at least 20% of their total wealth in cash/near cash. 
  • PAWs are more likely to invest in categories that usually appreciate in value and require planning, but do not produce realized (liquid) income like:
    • privately held/closely-held businesses
    • commercial real estate
    • publicly traded equities
    • pension plans/annuities
    • tax-deferred categories

Active or Inactive Trader

  • 95% of the millionaires we surveyed own stocks; most have 20% or more of their wealth in publicly traded stocks. You would be wrong to assume that these millionaires actively trade their stocks. 
  • 42% of the millionaires we interviewed for our latest survey had made no trades whatsoever in their stock portfolios in the year prior to the interview. 
  • Millionaires spend more time studying far fewer offerings. 

Hours Spent Per Month For Money Management

Typical PAW

Typical UAW

Studying/Planning Future Investments



Managing Investments



  • Most of the PAWs interviewed in the book make their own investment decisions. They take the time and energy to study investment opportunities. A lot of high-income UAWs outsource this out to financial advisors.

How To Screen A Financial Advisor:

  • The more intellect, time, and energy you spend in hiring a financial advisor, the more likely you will be to find a suitable one. 

  • The book suggests you do the following to screen for a financial advisor:
    • Several references
    • An official college transcript
    • A credit check
    • A series of personal interviews
    • Completion of a detailed employment application
    • Documents attesting to the ability of the applicant to perform the duties and tasks required.
  • Some CPAs are better than others at helping clients accumulate wealth. Interview several. Choose the one who has the highest concentration of PAWs as clients. 

Self-Employed Workers

  • The self-employed spend more time planning their investment strategies than those who work for others. 
  • Those who succeed among the ranks of the self-employed never take their economic position for granted. 
  • Most successful people who are self-employed work 10-14 hours per day.
  • Most middle-aged people who are self-employed have seen good as well as bad economic times. 
    • They tend to offset the inevitable changes in their revenue by planning and investing. They must build and manage their pension plans by themselves. 
  • They have to rely on themselves for their current and future financial situation.
  • Only the well-disciplined self-employed survive economically over the long run.

Risk Or Freedom

  • Business owners have a set of beliefs that helps them reduce their risk or at least their perceived risk:
    • I’m in control of my own destiny.
    • Risk is working for a ruthless employer
    • I can solve any problem
    • The only way to become a CEO is to own the company.
    • There are no limits on the amount of income I can make
    • I get stronger and wiser every day by facing risk and adversity
  • The most successful business owners are the ones who put much of their own resources behind their own ventures. Many succeed because they have to succeed. It’s their money, their product, their reputation.
  • Dull industries don’t attract a great deal of competition, and demand for their offerings is not usually subject to rapid downturns. 
  • There are significant business opportunities for those who target the affluent, the children of the affluent, and the widows and widowers of the affluent. Very often those who supply the affluent become wealthy themselves. 
  • The million-dollar investor program was created by Congress in 1990. It allows foreign nationals to attain permanent U.S. residency if they invest $1 million in a U.S. business, provided that investment creates 10 jobs. 

Wealth Accumulation & Marriage

  • It is very difficult for a married couple to accumulate wealth if one spends money in an irresponsible way. 
  • Most millionaire couples’ household purchases are placed on one “central” credit card, a Visa (preferred) card. Both their purchases are listed on one single statement each month. 

Economic Outpatient Care (Rich Parents Giving Money To Their Kids)

  • Economic outpatient care refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren. 
  • In general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.
  • Adults who sit around waiting for the next dose of economic outpatient care typically are not very productive. 
  • More than 46% of the affluent in America give at least $25K (in 2020 dollars) worth of EOC annually to their adult children and/or grandchildren. 
  • The real tragedy is the helplessness of those who come to depend on outpatient care. 
  • The more wealth parents accumulate, the more economically disciplined their adult children are likely to be. 
  • About 1 in 4 male children (25 to 35 years of age) resides with his affluent parents, and some respondents did not perceive this living situation as gift giving/receiving. 
    • These adult children are also more likely than their brothers and sisters who are employed to receive inheritances in the form of personal real estate.

Mindset of Rich Kids That Receive Money

  • Gift receivers...the adult children of the affluent feel that their parents’ wealth/capital is their income...income to be spent
  • One of the main reasons gift receivers typically think of themselves as being financially well-off is because they receive parental subsidies. 
  • Unfortunately, a growing portion of adult children are not being taught the value of being emotionally and economically independent of their parents. 
  • 2 of every 3 adult children who receive significant cash gifts periodically from their parents view themselves as members of the “I did it on my own” club. 
  • Adult children who receive cash gifts are more likely than other adult children to live in anticipation of the sizable inheritance eventually coming their way. 

How To Raise Rich Kids

  • Teaching their children to be frugal is critical. 
  • The affluent have a great appreciation for the value of a high-quality education. 
  • Create an environment that honors independent thoughts and deeds, cherishes individual achievements, and rewards responsibility, and leadership. 
  • Teach your own to live on their own. 
  • If you are wealthy and want your children to become happy and independent adults, minimize discussions and behavior that center on the topic of receiving other people’s money. 
  • Courage ⇒  mental or moral strength to resist opposition, danger or hardship. 
    • Ray Kroc, looked for courage in selecting potential McDonald’s franchise owners and executives. Kroc actually welcomed cold-calling sales professionals. 
  • To teach kids how to be courageous:
    •  Expose them to the sales profession.
    •  Encourage your children to run for class office in their elementary or high school. 
  • Widows and widowers especially are becoming more aware that the government can take 55% or more of their estate via estate tax mandates. 

Rules For Affluent and Productive Children

  1. Never tell children that their parents are wealthy.
  2. No matter how wealthy you are, teach your children discipline and frugality. 
  3. Assure that your children won’t realize you’re affluent until after they have established a mature, disciplined, and adult lifestyle and profession. 
  4. Minimize discussions of the items that each child and grandchild will inherit or receive as gifts. 
  5. Never give cash or other significant gifts to your adult children as part of a negotiation strategy.
  6. Stay out of your adult children’s family matter - Let them run their own lives; ask permission even to give advice.
  7. Don’t try to compete with your children. 
  8. Always remember that your children are individuals - They differ from each other in motivation and achievement. 
  9. Emphasize your children’s achievements, no matter how small, not their or your symbols of success.  Tell them to always strive to be the best of your field.
  10. Tell your children that there are a lot of things more valuable than money.

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