At the recommendation of some personal finance blogs, I recently read this book. It is a relatively easy read but can be rather long winded at certain parts. Many of points raised are.. well... quite common sense actually, hence its "surprising secrets" is quite well named i guess...
The book categorises people into Underaccumulators of Wealth (UAWs) and Prodigious Accumulators of Wealth (PAWs). Essentially UAWs are spenders and spend more than they earn (many on credit) while PAWs are savers who save more than they spend. I prefer to use the term "spenders" and "savers" for this post as "UAWs and PAWs" is a mouthful and it is also easier to understand.
Some of the key takeaways from the book for me are below:
1. Meet the Millionaire Next Door- Essentially living well below your means.
So it does not quite matter if you are a farmer (blue collar) or doctor (white collar professional), so long as you live well below your means, you can become a millionaire. Book shared the example of a farmer (saver) who drives a modest family sedan / truck, wears a cheap watch, and totally do not look like anything near a millionaire and lives well below his means.
This farmer could be wealthier than a doctor (spender) who earns perhaps 3-4 times the farmer's annual income but spends a whole lot more. One of the reason is the societal pressures associated with their social standing as professionals forces them to spend on houses in expensive neighborhoods, drive luxury cars, and send their kids to private schools (essentially keeping up with the Joneses). This need to keep up means they spend so much more to maintain their outward appearances but in fact have little to no savings of their own.
So between looking rich and being rich, I would prefer the latter. 😃 This has in fact got a lot to do with our upbringing as our children will most certainly take after ourselves in our spending and saving habits. So being a new parent to a one year old girl, this has certainly given me pause and strive to be more prudent in my spending as it would certainly have a lasting effect on my kid (when they become more aware at least).
2. Frugal Frugal Frugal- Your lifestyle will decide if you can become a millionaire.
This sorts of expands on point 1 (where it gets long-winded) where savers go for off the rack clothes, shoes, cheap watches instead of custom made and bling bling watches. The affluent also tend to have frugal parents (hence upbringing is important), frugal spouse and are also frugal themselves. So there is no leaky tap in that sense (book called it Playing Great Defense). The affluent usually spend considerable time planning their budget / finances, uses the "pay yourself first" strategy, hold many discount cards and credit cards (for discounts to certain supermarkets) and set clearly defined set of goals.
3. You Aren't What You Drive (or live in): Simple. Do not buy new. Given that cars are a depreciating liability (not asset), buy second hand cars so the first owner helps take a heap of the depreciation out first.
This is set in the US context, so it might not be as applicable to Singapore since we have many special conditions on car ownership and its lifespan with COEs. While buying second hand will help take off some of the "new car" cost, Singaporeans also need to bear in mind the decreasing COE lifespan where you can get to use the car as well. But all in, Singapore is still one of the most expensive places to own a car, so... better to not own a car if one is able to...
As for houses, the author shared that living in a expensive neighborhood will cost you more and also tend to have really nice houses around (which will make you compare more). Therefore, living in an average neighbourhood is your best chance to becoming a millionaire. 😆 It also means you will not need to overspend on your housing mortgage and pay too much interest. I think this is also quite applicable in Singapore. While living in non mature estate does have its inconveniences e.g. lack of amenities and infrastructure, houses are cheaper in these areas and the prices should eventually appreciate as well as the town matures. I personally feel it is a better bet for price appreciation.
4. Economic Outpatient Care (EOC)- EOC refers to handouts / economic gifts and "acts of kindness" which parents give their adult children / grand children. The key point is "The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more."
So essentially, what they are advocating is not spoon-feeding your adult children and let them fend for themselves. This, i think is quite applicable in our Asian contexts as well. As parents, we always want to give the best to our children and provide them with a head start but sometimes when we gift them so easily, we take the fighting spirit away from them and in the process, they become complacent. So giving them too much is actually taking away more from them.
I think the tough part to this is knowing where to draw the line so that we give them a fair enough start in life and not disadvantage them by withholding resources where we can help with.
Many other parts of the book provide more examples of living well below your means, do not spoil your kids, make them earn their keep, and its not that difficult to become a millionaire after all!
Do check out the book if you are interested!
Frugal Singa
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| Looks rich, but not quite... |
2. Frugal Frugal Frugal- Your lifestyle will decide if you can become a millionaire.
This sorts of expands on point 1 (where it gets long-winded) where savers go for off the rack clothes, shoes, cheap watches instead of custom made and bling bling watches. The affluent also tend to have frugal parents (hence upbringing is important), frugal spouse and are also frugal themselves. So there is no leaky tap in that sense (book called it Playing Great Defense). The affluent usually spend considerable time planning their budget / finances, uses the "pay yourself first" strategy, hold many discount cards and credit cards (for discounts to certain supermarkets) and set clearly defined set of goals.
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| Mouthwash hacks! |
This is set in the US context, so it might not be as applicable to Singapore since we have many special conditions on car ownership and its lifespan with COEs. While buying second hand will help take off some of the "new car" cost, Singaporeans also need to bear in mind the decreasing COE lifespan where you can get to use the car as well. But all in, Singapore is still one of the most expensive places to own a car, so... better to not own a car if one is able to...
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| Is your ride more attas than Warren's? You must be wealthier than Warren! |
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| Many millionaires hidden within! |
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| Nay? I know its a beautiful house, not a fair comparison. |
4. Economic Outpatient Care (EOC)- EOC refers to handouts / economic gifts and "acts of kindness" which parents give their adult children / grand children. The key point is "The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more."
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| Give them more by giving them less! |
So essentially, what they are advocating is not spoon-feeding your adult children and let them fend for themselves. This, i think is quite applicable in our Asian contexts as well. As parents, we always want to give the best to our children and provide them with a head start but sometimes when we gift them so easily, we take the fighting spirit away from them and in the process, they become complacent. So giving them too much is actually taking away more from them.
I think the tough part to this is knowing where to draw the line so that we give them a fair enough start in life and not disadvantage them by withholding resources where we can help with.
Many other parts of the book provide more examples of living well below your means, do not spoil your kids, make them earn their keep, and its not that difficult to become a millionaire after all!
Do check out the book if you are interested!
Frugal Singa
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