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from https://www.marketwatch.com/story/a-better-gift-idea-how-to-help-your-friends-and-loved-ones-gain-financial-independence-2018-12-13

Opinion: This is how your neighbors are preventing you from becoming a millionaire

Published: Dec 15, 2018 8:32 a.m. ET

‘The Next Millionaire Next Door’ helps you realize that keeping up with
the Joneses can cost you a fortune

DataPoints
Sarah Stanley Fallaw, founder and president of DataPoints and co-author
of “The Next Millionaire Next Door.”

By PHILIP VAN DOORN
INVESTING COLUMNIST

A book that explains how people can most easily achieve financial
independence is least likely to be read by those who need it the most.

But “The Next Millionaire Next Door” (yes, “Next” is italicized in the title) can help you convey these ideas to people you care about (or to
your clients if you are a financial planner or adviser), and if you give
it as a present while showing how much you care, the recipient may
actually read it and benefit greatly.

The most popular article I have ever written was published in July 2015
after I read the 2010 edition of “The Millionaire Next Door,” by Thomas
J. Stanley and William D. Danko, originally published in 1996.

Here’s the original article and a follow-up based on an interview in
2016 with Stanley’s daughter, Sarah Stanley Fallaw. Fallaw is the
founder and president of DataPoints, a company that conducts scientific research to help investment advisers and other businesses identify
potential clients by predicting how successful people will be in
building wealth.

The new book
Stanley and his daughter were conducting new research about “key
behavioral traits of millionaires next door” when Stanley died in 2015.

Fallaw continued the work and “The Next Millionaire Next Door” was
recently published. The new book reiterates timeless ideas about the
thought processes that enable people to accumulate wealth or prevent it
from happening. It also digs into newer challenges and opportunities
presented by changes in the labor market, technology, markets and how
people spend their time.

DataPoints
After addressing what motivates people to make decisions that affect
their financial health, Fallaw shares research findings about how
education, career, investment and time-management choices influence
financial and general well-being.

The major concepts of under-consumption and not mimicking the
wealth-destroying behavior of the people around you still hold true, but
you must also consider how the financial environment has changed.

“What does it mean for the current millionaire next door, and those of
the future, that there have been significant increases in health-care
costs, or that college costs have increased 153% between 1984 and
2016?,” Fallaw asks in the new book.

She answers the question: “They will have to change their way of doing things, even where (or if) they go to college or how they chart a path
for a career.”

Individuals cannot control government policies or the movement of
financial markets. But “we can control what we spend, how we invest, the opportunities we see and other aspects of our financial lives, for
better or worse," Fallaw writes.

First, some good news
The word has spread — living within, or below, your means, no matter how
much or how little you earn, is the most important element in achieving financial independence. And there are now thousands of people spreading
those ideas, and there’s even a trendy name for it: FIRE, which stands
for financial independence/retire early.

Many of the FIRE bloggers haven’t really retired. They have enabled themselves to escape the typical work and consumption rat race, freeing themselves to pursue career paths that are more interesting to them,
less arduous, more altruistic, or all three.

In the new book, Fallaw urges readers to check out those blogs because
the writers have a variety of methods they have followed to achieve
financial independence.

It’s easy to be a naysayer
You or someone you care about might be discouraged right from the start.
Here are two arguments against the idea of under-consuming to build
wealth, and counter-arguments.

----------------------------------
One might be quick to say that “being a millionaire doesn’t mean what it used to mean, because of inflation.” But a person saying that probably hasn’t worked to build up a million dollars worth of wealth. What can
you do with a million dollars? With a little work on learning how to
create an income investment portfolio, you might generate a 5% annual
return without spending a hard-earned nest egg. That’s $50,000 in annual income. It may not seem like very much, but if you own your own home
free and clear, and limit overall expenses, that income can go very far.
You may also have other sources of income. This also provides a
reasonable example of the power you gain from accumulating wealth. ----------------------------------

Another easy negative argument is that circumstances have made it
impossible for you to build wealth, so you might as well not even
bother. “You will have to stop blaming those who have achieved economic success and instead examine how you can succeed based on your own unique background and talents,” Fallaw writes.

Busting myths
In the second chapter of “The Next Millionaire Next Door,” Fallaw takes
on many myths that discourage people from building wealth. Here are two examples:

1. “You are your group.” No, you are not. It’s easy in the media to lump millennials or other labeled “generations” into behavioral patterns, but there is no reason any stereotyping needs to apply to you.

2. “Income equals wealth.” It certainly does not. A person who has
recently entered a high-paying profession may feel an immediate need to
show this status through wealth-destroying purchases of a very expensive vehicle and a home in an affluent neighborhood. They may quickly
increase their expenses to the point that they are living
paycheck-to-paycheck. High income, no wealth.

Fallaw cites her father’s conclusion that for millionaires, annual
realized income comes to only about 8.2% of median net worth.

Getting started with ‘social indifference’
“Most millionaires we interviewed highlighted the great freedom that
comes from spending below their means,” Fallaw writes. What motivates
you to spend a lot of money on a new car or on an upgraded home?

Worrying about what others might think of you could be a problem. Did
you grow up in an affluent neighborhood? Does that mean you must live in
a similar neighborhood at the start of your career, even if you must
struggle financially to do so?

What about a car or an SUV? Do you believe you need a new one in order
to present a certain image as a professional or to fit in better with
your neighbors?

Resisting those financially destructive impulses is what Fallaw calls
“social indifference.”

The importance of this concept cannot be stressed highly enough, and the increasing use of social media underlines it. If you are constantly
reading about other people’s wonderful experiences, vacations, etc., you might feel more pressure to spend beyond your means.

Building toward independence
Once you are ready to stop living beyond your means, you can build wealth.

“The Next Millionaire Next Door” includes many tables based on data
drawn from interviews of hundreds of people.

The authors divided the sample into two groups, based on this formula:

Expected net worth = age x income x 0.10. So a 40-year-old with an
annual income of $100,000 a year has an expected net worth of $400,000.
That is a rough and raw way to look at it, but it can be useful when
thinking about whether you are “behind” in building for your own
financial independence.

In my first article based on the original book, I discussed how best to
use tax-deferred retirement accounts and how to greatly decrease your
total expenses for a home purchase.

In “The Next Millionaire Next Door,” Fallaw works through education and career choices, household management and investment choices people are
faced with as they plan to build wealth.

During an interview, she shed light on important ideas you might not
have considered, especially if you are trying to encourage someone else
along their own path to financial independence.

Q&A with Sarah Stanley Fallaw
When we spoke on Dec. 11, Fallaw said that what hasn’t changed since her father co-wrote the first book in 1996 was that “people who decide to
become financially independent when they are really young have a mindset
of not doing what others are doing around them.”

MarketWatch: What changes have made it necessary to write “The Next Millionaire Next Door?”

Sarah Stanely Fallaw: The main change was the idea that has been pushed
by some that you cannot do this now, and perhaps can never do it. The
new book demonstrates the timelessness of the original findings
regardless of the economy and technology.

And it’s not the job title or industry you’re in, or the type of car,
but instead acting in a way that often goes against what everyone is
doing that makes you a “millionaire next door” — a contrarian.

MarketWatch: In the book you try to encourage people to stop believing
their chances of financial success are limited by demographics and to
stop blaming others for their own lack of success. Can you elaborate?

Fallaw: It’s so much easier to take demographic characteristics about ourselves and make excuses for why things are not going they way we
want. I might say I am not doing well in the financial-technology
industry because I am a woman. Or I might say I am a Gen X-er so my
opportunity for financial success is not greater than it was for my parents.

When you have that sort of viewpoint and attitude, it excuses bad
behavior. I am not going to be wealthy anyway, so I might as well rack
up debt. You forget that it is behavior that leads to wealth. There are certainly disadvantages because there are biases against certain groups,
but there are things we can do about it in the way we live our lives.

MarketWatch: What about housing? Prices in many cities have been
soaring, relative to income levels, for a long time.

Fallaw: I have the same kind of answer here. With rising costs in
housing and elsewhere, you have to make difficult choices to reach your ultimate objectives — not the choices that everyone around you are making.

For some it might mean renting for some time, for others it might mean
finding a house that isn’t move-in ready so that you’re not burdened
with a mortgage payment that would be difficult or impossible to make if
your income were to dry up for some reason. Again, it goes back to understanding where you and your household are heading, and being
willing to make decisions in line with those goals. Some of us struggle
with this more than others, but those who are economically successful
will continue to do things differently regardless of the economic
conditions.

Those who are financially successful become that way through a
disciplined focus on their own goals. This is extremely difficult if
you’re trying to mimic the lifestyle of the people who you live near or
work with, especially if they’re playing the part of being wealthy but
have little to show for it in the bank.

MarketWatch: What can parents do to help their children make decisions
that enable them to build wealth?

Fallaw: Someone who experienced their parents having a lot of financial
success might be leaving [their parents’ home] saying, “I cannot go to a starter house.” We have to do a better job as parents explaining that
this is where we are today, as opposed to where we were when we started out.

We as parents are not doing a fabulous job explaining what it takes to
live in the location we are living in today. Young people are
stretching, trying to live in something similar to what their parents
live in. It is part of our jobs as parents to explain what that process
looks like.

Conclusion
Did you grow up listening to your grandparents tell stories about how
little money they had when they started out? Did your children grow up
amid plenty? Maybe you are raising young children right now and have
noticed that they are “sitting pretty” with plenty of material
possessions and opportunities to learn. That’s wonderful. But it’s also important to explain to them how hard you had to work to get where you
are, so that they will have reasonable expectations when they strike out
on their own.

“The Next Millionaire Next Door” covers the thinking, the discipline and patience required to build wealth, but also shows how it’s possible to achieve financial success no matter the economic conditions or what you
do for a living.

Create an email alert for Philip van Doorn’s Deep Dive columns here.
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The book is at: https://www.amazon.com/dp/B07G5HHFW6/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1

One reviewer from Amazon
IowaRulesOK?
2.0 out of 5 starsDisappointing Follow Up to Millionaire Next Door
October 9, 2018
Format: HardcoverVerified Purchase
I read and loved the original Millionaire Next Door with its ground
breaking (well, at least to me) findings that ordinary Americans can
achieve riches using the American way of hard work and a frugal life
style (and a bit of luck too!). Finding, for example, that people who
drive flashy cars may well be living paycheck to paycheck and from lease payment to lease payment, made me view conspicuous consumption in a new
light. It seemed to me that Dr. Stanley was intrigued by his research
into wealthy people and by the paradox he found that wealthy people
often didn't give the impression that they were wealthy, frequently
being particularly frugal, while people who did give the impression of
being wealthy (flashy cars etc) often had very little wealth, frequently
having negative net worth due to debt.
In the original book, a clear path ahead was laid out to becoming
wealthy by spending less that you earn and investing savings in
appreciating assets. These findings have been echoed by many others
since the original book was published. If you haven't read the original Millionaire Next Door, then I would suggest that you do so, even though
some of the data are out of date. I did follow the advice in the
original book (and advice in other books) and I am now a
multi-millionaire so I can vouch for the validity of the ideas in the
original Millionaire Next Door.
Dr. Stanley was tragically killed in an auto accident and his daughter
has now undertaken to carry on her fathers work and has published this book. Sadly this book does little to advance the themes of the original
Millionaire Next Door. There have been a number of potentially
significant changes since the original book was published including the increasing concentration of wealth into the top few percent, the
stagnant or decreasing wages of those without a college degree, and the increasing college debt of younger people. How has all this affected how ordinary working Americans can achieve wealth? Few new ideas are
presented. Consequently I am unable to recommend spending the money on
it. Perhaps if we follow the advice of the original Millionaire Next
Door of being frugal, frugal, frugal then maybe borrow it from you local library and put the money saved in appreciating assets.

(Hey! I'm agreeing with that! It is currently $14.00)

If you read the first book (The Millionaire Next Door), this new one
provides a valuable update with new research to help understand a few
things that have changed over the past 20 years as well as what has
stayed the same. This book will “FIRE” you up (pun intended) and will continue to reinforce the LBYM (live below your means) mantra.

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