Mike Stark

FIN-1050-400
Summer 2015
1. Explain the following four (4) concepts found in The Millionaire Next
Door.
Big Hat, No Cattle: A concept implying a focus on investment in possessions with
a good chance of return; for instance a rancher who doesnt care to drive the nicest
car, wear the nicest clothes, or the biggest hat but instead chooses to invest in
cattle. A big hat no cattle rancher would instead spend money unwisely on nonnecessities and not invest in his company (or cattle). Pg. 8
Go To Hell Fund: An accumulation of enough wealth to live on for ten or more
years. Pg. 10
PAW (Prodigious Accumulator of Wealth): In the top quartile for wealth
accumulation, or worth twice the level of wealth expected. Pg. 14
UAW (Under Accumulator of Wealth): In the bottom quartile for wealth
accumulation, or worth less than one-half of the wealth expected for all those in his
income/age category. Pg. 14

2. Provide short answers to each of the following four (4) questions:

How is wasteful defined in the book? The opposite of frugal, which is defined
as behavior characterized by or reflecting economy in the use of resources. The
authors define frugal specifically as a lifestyle marked by lavish spending and
hyperconsumption. Pg. 29
What is the cornerstone of wealth-building? Being frugal is the cornerstone of
wealth-building. Pg. 29
Most people will never become wealthy in one generation if they are
married to ? People who are wasteful. A couple cannot accumulate wealth if one
of its members is a hyperconsumer. Pg. 37
Upon giving his wife $8 million of stock from taking his company public,
what did his wife continue doing? She said I appreciate this, I really do. Then
she smiled, never changing her position at the kitchen table, where she continued
to cut out twenty-five and fifty-cents- off food coupons from the weeks supply of
newspapers. Pg 37

3. In the example of Theodore Teddy J. Friend and his parents, answer

the following two (2) questions:
List two reasons Teddy is considered a UAW: Last year, Mr. Friends income
was approximately $221,000. Given his age, forty-eight, his net worth should
be$1,060,800 (expected wealth = one-tenth age x total annual income). What is
his real net worth? Less than one fourth of the expected figure. Theodore Friend is
a UAW because although he makes $221,000 per year, he does not invest his

Mike Stark
FIN-1050-400
Summer 2015
money and instead spends it on a large house, multiple cars (six), two boats, one jet
ski, and other non-essentials. He also buys on credit and could not maintain his
lifestyle for more than a year should he lost his job. Pg. 51
What was the message Teddys parents sent him about consumer
behavior? (Be specific). One earns to spend. When you need to spend more,
you need to earn more. Pg. 52
What was the small change that Teddys parents could have made that
would have put them in the millionaire category? Teddys parents smoked
three packs of cigarettes per day. Over the course of forty-six years they spent
approximately $33,190 on cigarettes. Had they quit this habit and invested that
money in a cigarette company such as Philip Morris, they would have been worth $2
million. His parents didnt consider how small expenses become big expenses over
time. Pg. 53-54

4. In the example of Mr. W.W. Allan, answer the following two (2)
questions:
He never extended credit to anyone that exhibited the Big hat, no cattle
philosophy. Why? In his mind, such people would never be able to pay their
debts. These types, according to Mr. Allan, spend, spend, spend, in anticipation of
having money before they even earn it. In other words, Mr. Allan felt that people
who feel that they need to look wealthy are not sound investments because they
dont focus on repaying loans and instead choose to fulfill their immediate wants
before long term goals. Pgs. 109-110
Why did he decline the gift of the Rolls Royce? As Mr. Allan put it, Theres
nothing the Rolls-Royce represents thats important in my life. Nor would I want to
have to change my life to go along with [owning] the Rolls. I cant throw fish in the
back seat of the Rolls, like I do right now when I go fishing. Im gonna have to get
you all to the lakeIm out fishing here every weekend. We have some of the best
freshwater fishing in the country. Right out herewhere I keep my fishing boat.
He further goes on to describe how a Rolls Royce would interfere with his lifestyle by
making him appear to be showing off ostentatious wealth instead of living the
simple life he preferred. Pgs. 111-112

5. Regarding Economic Outpatient Care (EOC), answer the following four

(4) questions:
Define Economic Outpatient Care: Economic Outpatient Care refers to the
substantial economic gifts and acts of kindness some parents give their adult
children and grandchildren. Pg. 142
Upon learning his parents were donating their property to a local private
college, describe James reaction. James was upset, as he felt (after receiving

Mike Stark
FIN-1050-400
Summer 2015
gifts from his parents in the past) that they were giving away property that was
rightfully his. If written as a headline, it might read Son of affluent couple screams,
Thats my property too, and college people cant come in (to my yard). Pg. 156
Why was James response typical? James had received substantial cash gifts
from his parents throughout his adult life. In effect, he has equated these gifts as a
reliable source of income and associated his parents wealth with his own.
Therefore he felt that his parents gift threatened his future income. Pg. 156
As illustrated in the example of Henry and Josh, what is the fundamental
rule regarding wealth building? Whatever your income, always live below your
means. Pg. 161

6. Regarding Affirmative Action and Family Style, answer the following

questions.
Why were sisters Sarah and Alice so different regarding wealth
accumulation? Sarah and Alice were raised by a father who believed that women
should be educated in the fine arts and marry, have children, and not take an active
role in earning income for the home. Sarah disagreed and pursued a career as an
executive. Alice followed her fathers advice and married a local gentleman who
unfortunately didnt earn or save much. Their father subsidized Alices lifestyle by
helping pay for her familys home and bought her material goods. Sarah did not
receive these benefits and practiced financial responsibility. When their father died,
he left the bulk of his wealth to Alice, while leaving only a little for Sarah. However,
because of Sarahs responsibility she was not dependent on her father for money,
as opposed to Alice who could no longer live the lifestyle she preferred without his
largesse. Sarah became a self-made millionaire, while Alice passed away and her
children were unable to be provided for. Pgs. 186-187

What did Kens father tell him? Kens father taught him to achieve, not just to
consume. Earning to enhance spending should not be ones ultimate goal. He often
told Ken, I am not impressed with what people own. But Im impressed with what
they achieve. Im proud to be a physician. Always strive to be the best in your
fielddont chase money. If you are the best in your field, money will find you. Pg.
207

7. Now that you have finished reading The Millionaire Next Door,
answer the following three (3) questions in a minimum of three
paragraphs.
How has your perception of millionaires changed? The greatest change to my
perception was the concept of first generation affluent. I was amazed that so many
millionaires are self-made, everyday people. The general consensus in news and

Mike Stark
FIN-1050-400
Summer 2015
media is that millionaires inherit not only their fortunes, but businesses or other
ventures that guarantee that their wealth will accumulate further.
I also found it fascinating to see how often millionaires made a median income
throughout their lives, yet managed to have wealth accumulation far greater than
their peers. Intense budgeting strategies combined with sound investment
strategies always made sense, but the results of these practices over the course of
a lifetime is impressive. I have never been show the evidence that it is indeed
possible to accumulate wealth so well that not working for long periods of time
(even up to several decades) would be an option.
What are the two (2) concepts that you found most useful? The one that
struck home most for me was the idea of Economic Outpatient Care, and the
negative impacts it has on the lives of children or grandchildren. Extrapolated to a
more national scale, it seems to follow the concept of learned helplessness, or the
idea that if you receive a handout, that handout becomes necessary to continue to
maintain a lifestyle or survive in a manner that is commensurate with a persons
expectations. I know that I dont want to fall into the trap of relying on someone
else for my finances.
I found the idea of big hat, no cattle to be a very charming way to describe a
person who has to show off their wealth, while not actually having much to show for
their work. In his book Fight Club, Chuck Palahniuk said the things that you own
wind up owning you. This is true down to the most intimate level. Do you need a
huge house with three empty bedrooms and cars you never drive? What about
recreational toys you dont use? Taking these matters to heart and truly considering
every purchase is so key to financial success; this concept definitely hit home for
me.
How will you apply them to life? I think anyone who reads and seriously
considers the message in The Millionaire Next Door cant help but to start
questioning some of their own financial practices. I personally have regrets from
some of my past financial decisions, not the least of which is that my only
accumulation of wealth at this time is my car and my home. It has started me
thinking about budgets and ways to invest even though I am a college student and
have very meager financial resources.

Reflective Writing
This writing assignment was not a simple matter of finding an answer and pasting it
into a worksheet. To truly answer each question required not only a comprehensive
reading (and re-reading) of the specified book, but also required some in-depth
thought past what was written on the pages of the book to find the core concepts
and realities presented. To this end, it is clear that thinking creatively and critically
is required for this assignment. Further, extrapolating advice from millionaires to

Mike Stark
FIN-1050-400
Summer 2015
someone just starting out at the college level and making future plans required a lot
of translation from a settled, firm financial standing to one more subject to change,
one that is just starting.
The skills and concepts described in The Millionaire Next Door can be used
throughout a lifetime of wealth accumulation in both the business and private
financial settings. By following the core concepts of the book, it is easy to see how
a better life can be realized with more financial independence and security. I hope
to be able to put into practice all of the concepts found in the book, beginning
immediately to help me develop the attitudes and skills required for lifelong
wellness.
Finally, this project made me not only have to think through the concepts
introduced, but also express them in a coherent and sensible way. It does no good
to understand a concept if it cant be put into practice, nor does it benefit me to not
be able to communicate these ideas. Kurt Vonnegut once said any scientist who
cant explain to eight-year old what he was doing is a charlatan. I think this applies
to any idea or concept one claims to understand: you have to know it inside and
out, but you also have to communicate it effectively, which can only be achieved
through practice.