Millionaire Next Door

[chisness]

I read this book and feel like I learned a lot from it. Mainly it made me understand that, especially early on, it is hugely important to make smart investments and to save money, not to waste money on luxuries to show off. I anticipate following many of the things I've read about in the financial books (mainly putting away money before anything else).

I'm still in college right now with probably the least expenses I'll ever have for the next 40 or so years. I'm torn between spending a modest portion of my poker earnings on luxuries (since I'd feel ridiculous (and never would) doing this when I had things like rent/mortgage to pay, a family to care for, etc.) and being smart about the money ( investing/saving almost all of it). I don't mean that I wouldn't enjoy myself with friends, eating out, etc., I mean I wouldn't get things like a new car or watch.

Anyone have any motivation for me to be as frugal as possible or to use this as a time to splurge a bit? I know in the end it's a very personal decision, but I'd like some outside advice.

you could become a poka superstar and then you can have yo luxuries and yo savings.
id have fun while i was young not worry too much about finances. not necessarily buy crazy bling but just not worry about money

[Paluka]

I think the book should be called "How To Live A Miserable Life But Die With Money In The Bank".

While I mostly agree with the advice given in Millionaire Next Door that you should live below your means, this shouldn't be taken to extremes. Ultimately, the goal of acquiring money is to allow you do what you want, rather than to die with as much as you possibly can.

In economic terms, we could say that the marginal utility of each dollar decreases with increasing spending. (i.e. $100 means a lot more to a bum than to Bill Gates). In order to maximize your utility over your lifetime, you should try to equalize your outflow over time. That means you should anticipate how much you'll be earning at different points in your life. In retirement, you'll probably be earning only investment income, so you know you'll need to build a big chunk before you quit working. This is easier the sooner you start, so there's good reason to sock away at least some of your income.

Beyond saving for retirement, though, there's good reason to splurge now. Yes, you're in college, with the lowest expenses you'll ever have. You also probably have the lowest income you'll ever have. Before you buy a new car, I'd suggest you try to figure out how much you'll need for retirement and how much you anticipate saving as you advance your career, buy a house, have kids, etc. Think about how much happier you'll be with a new car now compared to retiring a year earlier. It's not an obvious choice.

You might also consider giving to charity. I give a few % of my income each year to environmental charities like the Nature Conservancy and the Trust for Public Land, which buy up wild areas so they won't be developed. I figure I should do this now so they can buy this land before it's gone. There's probably some issue you feel strongly about, and you might think about giving to help out.

Lastly, just count yourself as lucky (and smart) for being in the position you're in. Most college students leave with a huge amount of debt for student loans and credit cards, because they have no financial awareness.

[chisness]

that's definitely the biggest argument i've thought about from it. i think the author probably overdoes his point with examples like the guy who turned down a rolls royce. much of the book is also quite boring, especially for a college student (the beginning is the best part).

i think the idea of being economical and reasonable is smart and it's cool that people can become millionaires on fairly modest salaries, but definitely agree: the 40 or so working years should be ENJOYED. maybe people want mercedes cars so they can enjoy them, not necessarily to waste money/show off.

i think this is a great topic to continue discussing -- weighing the nearly all out saving/wealth accumulation vs. reasonable saving but also a fair amount of spending.

[chisness]

very useful post. i think a reasonable couple year old used car will be a good compromise. i also think my income minus expenses during college will probably be higher than my first few years working (unless poker supplements these). even if this isn't the case, it's a lot easier to justify spending, say, 5k on a watch or something now than in 10 years even if my income is a lot higher.

[ QUOTE ]
I read this book and feel like I learned a lot from it. Mainly it made me understand that, especially early on, it is hugely important to make smart investments and to save money, not to waste money on luxuries to show off. I anticipate following many of the things I've read about in the financial books (mainly putting away money before anything else).

I'm still in college right now with probably the least expenses I'll ever have for the next 40 or so years. I'm torn between spending a modest portion of my poker earnings on luxuries (since I'd feel ridiculous (and never would) doing this when I had things like rent/mortgage to pay, a family to care for, etc.) and being smart about the money ( investing/saving almost all of it). I don't mean that I wouldn't enjoy myself with friends, eating out, etc., I mean I wouldn't get things like a new car or watch.

Anyone have any motivation for me to be as frugal as possible or to use this as a time to splurge a bit? I know in the end it's a very personal decision, but I'd like some outside advice.

[/ QUOTE ]

I think this is a good book. I came across it after I changed my attitude to more closely match what it says, but reading it I found that others had reached a similar conclusion to my own, and I like what it has to offer.

I disagree fundamentally with people who argue to spend needlessly; to me, spending money serves only to fill an insatiable emotional hole. I've grown up around a *lot* of really rich people, and come from an upper-middle class background, and I see these people chasing "things" to their graves. Things don't make people happy. To me the motivation for making money is to ensure that I'm in a position to comfortably live a good life, which I define as being able to allocate my time (which I see as my most precious resource) towards doing the things that I want to do with the people I want to do them with. Money is very, very important. But it's most important for someday allowing me to be free from the cycle of earn-buy-spend-earn. I drive a total piece of garbage car and I couldn't care less. I wear a $20 timex watch that used to belong to my grandfather. I have money in the bank and absolutely no debt, despite having a lower income than many people totally saddled with debt. When it comes to my finances, I sleep well, and I spend my time doing emotionally-fulfilling things rather than spending money that will have to be replaced with more earning. Every now and again I do something fun that costs money and I don't have to worry about it because I didn't waste money on watches, cars and ridiculously expensive houses.

In other words, to me the real difference between a Prodigious Acheiver of Wealth (PAW) and an Under Achiever of Wealth (UAW) (to use the terms from the book) is that the UAW sees money and thinks of the things it can buy, a PAW see money and thinks of the freedom it can buy. Since a PAW isn't totally hooked up on buying a bunch of stuff that won't last, he is able to work towards a more long-lasting goal.

As to what you should do, it's up to you. I spent a while after school being a UAW. For me, it completely sucked. I was cash-poor, unhappy and surrounded by a bunch of garbage I didn't need. I'm much happier with the different attitude I have today.

ddd

[CD56]

i think this book and others like it are only popular because a surprising number of people have little common sense and are in general retarded when it comes to money

don't spend more than you have, avoid credit card debt, live within your means...these aren't exactly hard concepts it's just that many americans are incapable of delaying gratification and they don't realize how deleterious that is to their bottom line

"Millionaire Next Door" is a great book, but the best book of all time on money management is "The Richest Man in Babylon." Every money management book, including MND, "borrows" from it.

With regard to spending versus saving, there's a difference between spending money, which is fine, and pissing it away, which is a waste.

Those who spend everything they make and then some, argue that "You only live once!" This, of course, is true. But when you live check to check, you're basically living scared, and have to take a lot more crap at work, as opposed to when you have "F.U." money.

I'm 40 now, if I could do it over, I would've been more responsible with money in my 20's. Had I done so, I'd able to retire now. As it stands, it's probably gonna take me until 50 to be able to live solely off of my investments.

For you, I'd suggest a happy medium. Have some fun, but be sure to put at least 10% aside for investing in your future.

Good luck

BTW

Excellent topic

[chisness]

yes, those things are easy. there's still much debate and certainly no right or wrong way to spend excess, but the overall decisions are very very difficult.

[chisness]

i read rich dad then that book and realized rich dad basically stole its ideas and added a lot of useless modern examples. i appreciate your suggestion and think even more than 10% is very doable, especially at the point where i have no expenses and could theoretically put away about 80%.

if you don't mind, what kind of things could you have done to be more responsible in your 20's? does this mean you spent too much on cars, weren't making good investments, bought too big of a house?

one of my biggest (and probably big among many people) is that i can be content for a while but then once i come into more money, am always able to find something new that i could use. in college i find this particularly difficult because it's a time of freedom, but also a time where being smart can go a lon gway.

i think a real estate investment might be a very good idea because it's profitable, gives one something to do/deal with, and gives a feeling of more substance than a stock or bond.

[ QUOTE ]

if you don't mind, what kind of things could you have done to be more responsible in your 20's? does this mean you spent too much on cars, weren't making good investments, bought too big of a house?

one of my biggest (and probably big among many people) is that i can be content for a while but then once i come into more money, am always able to find something new that i could use. in college i find this particularly difficult because it's a time of freedom, but also a time where being smart can go a lon gway.

i think a real estate investment might be a very good idea because it's profitable, gives one something to do/deal with, and gives a feeling of more substance than a stock or bond.

[/ QUOTE ]

My main problem was a general lack of planning for the future vis a vis spending it as soon as I got it. When you're in your twenties, you don't believe that'll you'll actually be 40 one day. Then you look around the bar and notice that the average person is 10 years younger than you.

I finally got tired of being broke all the time, did some soul searching as to why I was in that situation, and came to the conclusion that I simply wasn't making any effort to accumumlate wealth. From that point on, I've never been broke a single day in my life.

With regard to investments, Real Estate is fine. I own my own apartment, but I prefer stocks because of their greater liquidity. In addition, being a landlord can be a real pain in the ass.

True about the real estate end, also lot of people don't factor in the cost of intangibles of renting out real estate.