PERSONAL FINANCE REFLECTIVE BOOK REPORT

FIN-1050 SUMMER 2016 SLCC ONLINE

RYAN FAIRBANKS

For this assignment I will be writing a reflective book report on The Millionaire Next Door by
Thomas J. Stanley and William D. Danko, published in 1996. The information used in the book is taken
from interviews, surveys and other qualitative and quantitative forms of exploratory research. The
people chosen to be interviewed are those individuals who live in high class neighborhoods as well as
those who are prodigious accumulators of wealth (P.A.W.). The purpose of the research is to help
answer the age old question, how to be wealthy.
In answering the question of how to be wealthy the book explains much of the lifestyles led by
the affluent in this country. Many of the affluent in this country are first-generation affluent, meaning
they did not receive a great amount of wealth from inheritance or substantial cash gifts from parents.
When someone has accumulated wealth for themselves they tend to want to maintain the wealth they
have accumulated. For this reason, the affluent dont always have high status items or high consumption
habits. The terms prodigious accumulator of wealth (P.A.W.) and under accumulator of wealth (U.A.W.)
are used frequently in the book and the formula for concluding if a person is a PAW or a UAW is crucial
to answering the question of how to be wealthy. The formula is this: AGE * INCOME / 10 NET WORTH.
Example, Ryan is 50 years old and makes $50,000/YEARLY his net worth is $150,000 is he a UAW or
PAW? AGE-50 * INCOME-$50,000 / 10 = $250,000 Ryan is a UAW because his net worth is less than the
result.

A vast range of topics on the life of an affluent person in America today are covered in this book.
I will list them here; demographic information, wealth accumulation, spending habits and lifestyle
choices, large purchases and lastly bequeathing wealth to your descendants. In examining these topics,
we come closer to understanding what the affluent have done to gain and maintain wealth. Starting
with demographic information the book outlines the Portrait of a Millionaire and explains that a
majority of the millionaires in this country are professional/entrepreneurial type job holders over the
age of 65 and married. On average they spend below their means and have spouses who are also frugal.
The affluent often have careers that provide services to the wealthy (i.e. legal services, health care,
vacation planning, financial guidance, etc.) the majority of their wealth is accumulated by the income
generated from their career.
In the previous paragraph we have discussed wealth accumulation. This paragraph outlines the
spending habits and wealth maintenance of the affluent in this country. We will use an example of two
people, Dr. Green a PAW and Dr. Red a UAW. Dr. Green and Dr. Red are both playing great offense when
it comes to income generation, Dr. Green makes $500,000 annually and Dr. Red makes the same. The
difference between the two is their defense in terms of income, Dr. Green saves and invests excess
income where Dr. Red spends excess income on high status goods. Where Dr. Green is growing wealth
Dr. Red is spending and for this reason the habits of Dr. Green lead him to wealth growing where Dr.
Reds habits lead him to wealth being lost where it could grow. Comparisons such as this one here are
used in the book to explain the offense and defense in terms of income of UAWs vs PAWs and how the
results of spending equal the result of PAW or UAW status. When a high income generating person
spends at a rate equal of their means wealth is lost, one must spend below their means to maintain
wealth.

Spending results in wealth growing or wealth being lost. When considering large purchases of
UAWs and PAWs they vary greatly and we can learn from the large purchases of these people. I will
refer to Dr. Green and Dr. Red on their purchasing of their latest vehicle. Dr. Green has just last month
purchased a used 2014 Mercedes Benz c-class for $30,000 he feels this car is adequate for his needs. Dr.
Red has also just last month purchased a 2016 Porsche 911 for $85,000 he feels this car is adequate for
his needs. Dr. Green feels that this vehicle will last him many years and he doesnt intend on buying
another car for at least another 8 years. Dr. Red conversely feels this vehicle will last him for two years
and he is already set on buying Porsches 2018 model of the 911 he buys a new car every two years and
is in a Porsche club. What can we conclude about the spending habits of these two men? We can
conclude that Dr. Red is much more frivolous with his spending than Dr. Green this allows us to infer
that Dr. Red has less wealth than Dr. Green.
The bequeathing of your worldly goods is a subject of great importance to that of a wealthy
person. We will all reach the end at some point and ensuring that your possessions and wealth are well
maintained after your gone is of great importance. The book deals with this subject by bringing in many
PAWs into a single room together to discuss this matter. The results of the discussion are as follows;
one should entrust the passing of estate, possessions and wealth to a qualified individual outside of the
family, one should never discuss the passing of possessions to the recipients of the goods outside of a
one-on-one setting. These two guidelines are simple to follow and have a very positive impact on the
outcome of your goods after death. If these guidelines are not followed and the passing of possessions
are discussed amongst family and entrusted to their decisiveness the results can be catastrophic, often
leading to heated arguments amongst family.

In conclusion I have learned very much about the lifestyles of the affluent in America. I can now
see that there is a higher likelihood of becoming affluent myself if I am to have a
professional/entrepreneurial career type. The topics covered in this book have allowed me to resolve
that wealth will never be accumulated if spending equals income. One of the chapter titles in this book
is Frugal, Frugal, Frugal I can see that being frugal makes it much easier to accumulate and maintain
wealth and without it accumulating wealth is a much greater challenge. I feel that completing this book
has opened my eyes to the ability each person has to gain wealth in this country. I believe that if I am a
frugal spender and am successful in my career endeavors I will be wealthy.
My financial plans have changed after completing this book. A major change to my own financial
plan is to save and spend less than my income consistently and to follow a budget. Having a budget,
saving and spending less will result in habits more inclined to increase my personal wealth. A statement
in the book is Wealth is not the same as income, this is very true and I can see it more now than ever
that spending high and earning high doesnt get you wealthy. The only realistic way to retain wealth is to
spend less than your income. My major goal is to play good offense and defense in terms of income I
would like to earn high and save high. I believe that by following a budget I can reach my goals if I am
frugal and aware of my income to spending ratio.