"Millionaire Next Door" Net Worth Formula

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hoops777
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Re: "Millionaire Next Door" Net Worth Formula

Postby hoops777 » Mon Mar 20, 2017 6:05 pm

I take back all of my negative comments.I just did the calculations and I am a PAW,by a wide margin!!!(honestly I do not care)
This formula is brilliant!Thank you Mr.Stanley because I now feel validated :D
K.I.S.S........so easy to say so difficult to do.

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knpstr
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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Mon Mar 20, 2017 6:18 pm

willthrill81 wrote:
knpstr wrote:
willthrill81 wrote: Taken together, it seems that the millionaires in Stanley's study were more affluent and successful in wealth building than most millionaires. That's not necessarily a fatal flaw to the research, but it certainly 'colors' his results.


It has been a while since I read this but, wasn't that his point though? to study those were more successful in wealth building?


The book was purported to be a profile of American millionaires (who are all clearly successful in wealth building), not just millionaires who were much more successful than most other millionaires.

Don't get me wrong; the books are good and so is the message. But the formula and several other aspects of the book overreach the research methods used.

That's not how I remembered the tone of the book...so, I had to grab my copy, just a quick skim on him talking about athletes:

"technically they may be millionaires but typically they are low on the PAW scale."

Then this plays into the theme of the book that the "millionaire next door" is a very frugal person driving a F-150 and wearing Wrangler jeans, and shopping at Sears.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: "Millionaire Next Door" Net Worth Formula

Postby willthrill81 » Mon Mar 20, 2017 6:44 pm

knpstr wrote:That's not how I remembered the tone of the book...so, I had to grab my copy, just a quick skim on him talking about athletes:

"technically they may be millionaires but typically they are low on the PAW scale."

Then this plays into the theme of the book that the "millionaire next door" is a very frugal person driving a F-150 and wearing Wrangler jeans, and shopping at Sears.


In my view, the "millionaire next door" would be construed by most readers as the 'typical millionaire', and that's definitely the tone I get from reading the books. But that's not who they sampled.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Mon Mar 20, 2017 6:56 pm

willthrill81 wrote:
In my view, the "millionaire next door" would be construed by most readers as the 'typical millionaire', and that's definitely the tone I get from reading the books. But that's not who they sampled.


Very interesting on how we have such different views. I don't get that connotation at all, (about the book being about the "typical millionaire"). In my view the book is about how the typical person can become wealthy (or a even a PAW) by being frugal, since they use many examples of high income people who look wealthy, but really aren't (given their age/income).

Paraphrasing, to shorten the excerpt, from the book:
How can someone be considered wealthy if, for example, he is only worth $460,000? After all, he's not a millionaire. The Bobbins have a combined income of $55,000 using our formula their net worth should be $225,500 but they are worth much more than others in their age/income category. Within their age/income category the Bobbins are wealthy.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: "Millionaire Next Door" Net Worth Formula

Postby willthrill81 » Mon Mar 20, 2017 7:09 pm

knpstr wrote:
willthrill81 wrote:
In my view, the "millionaire next door" would be construed by most readers as the 'typical millionaire', and that's definitely the tone I get from reading the books. But that's not who they sampled.


Very interesting on how we have such different views. I don't get that connotation at all, (about the book being about the "typical millionaire"). In my view the book is about how the typical person can become wealthy (or a even a PAW) by being frugal, since they use many examples of high income people who look wealthy, but really aren't (given their age/income).[/i]


Yes, we do have very different views of the books. I consider them to be largely an in-depth profile of a particular slice of American millionaires. As "how to" books, I think that they would fall short.

There are parts of the book that are very interesting from the "how to" angle though. For instance, the second book discusses how a large portion of the millionaires sample came from the ranks of entrepreneurs, but it seems that most of this group are fully aware that many other entrepreneurs were far less successful than they were and, consequently, they don't tend to recommend that route to their children. Instead, they generally recommend that their children go into professional services, especially those that serve the wealthy. This route is likely to generate significantly higher than average income (and the potential for wealth too), but it's also unlikely to lead to the wild success that many of the parents achieved as well.

Apart from that, however, it seems that the book suggests that living below your means is the primary ingredient to success. Almost everything else is negotiable, though this group of millionaires has a strong tendency to be very well educated, married, homeowners, hard working, and honest. But will being all of those things actually lead to you becoming a millionaire? Correlation does not equal causation, and that's where the "how to" angle would really fall short.

What I think would be a great followup to Stanley's work is for someone to actually look for the causal factors associated with becoming a millionaire. That would, in many ways, be more difficult than Stanley's research, but it would be far more valuable as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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knpstr
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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Mon Mar 20, 2017 7:21 pm

willthrill81 wrote:What I think would be a great followup to Stanley's work is for someone to actually look for the causal factors associated with becoming a millionaire. That would, in many ways, be more difficult than Stanley's research, but it would be far more valuable as well.


Yeah I have a totally different view, and I have never read the other book, just "next door", so that is all I'm speaking to.

It isn't, in my view, a howto book to become a millionaire. it is a howto book to become wealthy given your age/income. That howto, meaning simply to be frugal. And that the book wanted show that those that "look like millionaires", for example driving BMWs, often aren't the millionaires. The millionaires are often just "Joe the plumber next door".

But as far as your quote above I'm reminded of Munger to invert the question/statement.
I think it is better to show that if you do "this" you won't, or perhaps more accurately may have a harder time, becoming wealthy.
Things to avoid, high priced cars, over-sized houses, etc, etc, etc... which is exactly what, in my view, "next door" was all about.

A fantastic book.

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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willthrill81
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Re: "Millionaire Next Door" Net Worth Formula

Postby willthrill81 » Mon Mar 20, 2017 7:29 pm

knpstr wrote:A fantastic book.

:beer


Totally agree. :beer And the market rewarded him very well for it. It's sad that a drunk driver ended his life. :(
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Millionaire Next Door" Net Worth Formula

Postby emoore » Mon Mar 20, 2017 8:33 pm

While I agree that keeping expenses down will help become a millionaire, I have a hard time with the BMW vs. F150. Has anyone looked at a new F150 cost? It's as much or more than a BMW so I don't think car choices matter that much. If you replace your car every 2 or 3 years then yes that does matter, but it could be a BMW or Ford truck and you would still be in financial trouble.

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Re: "Millionaire Next Door" Net Worth Formula

Postby randomguy » Mon Mar 20, 2017 8:51 pm

emoore wrote:While I agree that keeping expenses down will help become a millionaire, I have a hard time with the BMW vs. F150. Has anyone looked at a new F150 cost? It's as much or more than a BMW so I don't think car choices matter that much. If you replace your car every 2 or 3 years then yes that does matter, but it could be a BMW or Ford truck and you would still be in financial trouble.


Yep. Same thing applies to a bunch of SUVs and the like the honda pilot or 4 runner that push 40k. Some people will consider a bmw 3 series as a luxury but not even notice them.

A lot of the issues are expectations. What type of car do you think a 70 year old couple with 30k of SS and 1.5 million in assets should be driving? That is your average millionaire. That isn't a person who should be buying a 50k car.

You want to be wealthy? Get a high income. There are very few (yah I know about all the janitors and the like that saved millions) millionaires who got there working 20k/year jobs compared to the number from the people that made 200k. Picking a high income career covers a lot of financial sins. But it isn't something easy to do the way cutting spending is.

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Re: "Millionaire Next Door" Net Worth Formula

Postby hoops777 » Mon Mar 20, 2017 8:59 pm

I am honestly not being sarcastic or negative but I just do not get this.I mean is it not basic common sense that the more frugal you live the more money you will save?I can guarantee you all those millionaire next door types that are 70,80 years old now never needed a brilliant PHD to tell them if you work hard and spend less you will have more money later in life.
I also doubt very much that would have cared about his wealth formula.
K.I.S.S........so easy to say so difficult to do.

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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Mon Mar 20, 2017 9:24 pm

hoops777 wrote:I am honestly not being sarcastic or negative but I just do not get this.I mean is it not basic common sense that the more frugal you live the more money you will save?I can guarantee you all those millionaire next door types that are 70,80 years old now never needed a brilliant PHD to tell them if you work hard and spend less you will have more money later in life.
I also doubt very much that would have cared about his wealth formula.


You'd be surprised, common sense isn't that common.

A lot of people, especially in the US today, think that wealthy people were just "given it" or were lucky. They completely dismiss the notion that perhaps they sacrificed their present/past lifestyle in order to save and invest for their future. Or for example, many people think that it makes sense to buy a $50,000 car at 0% interest if you can manage the payments because "it's free money!" rather than just buy a "unreliable used car!" for half the price and invest the difference.

This book was to demonstrate that many millionaires (or more accurately people who are wealthy, given their income) got that way by living modest lifestyles and saving/investing.

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: "Millionaire Next Door" Net Worth Formula

Postby randomguy » Mon Mar 20, 2017 10:11 pm

knpstr wrote:
hoops777 wrote:I am honestly not being sarcastic or negative but I just do not get this.I mean is it not basic common sense that the more frugal you live the more money you will save?I can guarantee you all those millionaire next door types that are 70,80 years old now never needed a brilliant PHD to tell them if you work hard and spend less you will have more money later in life.
I also doubt very much that would have cared about his wealth formula.


You'd be surprised, common sense isn't that common.

A lot of people, especially in the US today, think that wealthy people were just "given it" or were lucky. They completely dismiss the notion that perhaps they sacrificed their present/past lifestyle in order to save and invest for their future. Or for example, many people think that it makes sense to buy a $50,000 car at 0% interest if you can manage the payments because "it's free money!" rather than just buy a "unreliable used car!" for half the price and invest the difference.

This book was to demonstrate that many millionaires (or more accurately people who are wealthy, given their income) got that way by living modest lifestyles and saving/investing.

:beer


There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.

It is easy to become well off by saving if you have a high paying job and save for 30+ years. Not very many people become wealthy by doing that. I have also met very few of the excessive spenders that everyone else seems to have. I would say it is 5-10% of the population in my experience (i.e. upper middle class, college educated people are way over represented). They are very visible though. Talking about your 10 year old civic isn't fun. Talking about the new Model S features is a lot more interesting.

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Re: "Millionaire Next Door" Net Worth Formula

Postby willthrill81 » Mon Mar 20, 2017 10:58 pm

randomguy wrote:
knpstr wrote:
hoops777 wrote:I am honestly not being sarcastic or negative but I just do not get this.I mean is it not basic common sense that the more frugal you live the more money you will save?I can guarantee you all those millionaire next door types that are 70,80 years old now never needed a brilliant PHD to tell them if you work hard and spend less you will have more money later in life.
I also doubt very much that would have cared about his wealth formula.


You'd be surprised, common sense isn't that common.

A lot of people, especially in the US today, think that wealthy people were just "given it" or were lucky. They completely dismiss the notion that perhaps they sacrificed their present/past lifestyle in order to save and invest for their future. Or for example, many people think that it makes sense to buy a $50,000 car at 0% interest if you can manage the payments because "it's free money!" rather than just buy a "unreliable used car!" for half the price and invest the difference.

This book was to demonstrate that many millionaires (or more accurately people who are wealthy, given their income) got that way by living modest lifestyles and saving/investing.

:beer


There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.

It is easy to become well off by saving if you have a high paying job and save for 30+ years. Not very many people become wealthy by doing that. I have also met very few of the excessive spenders that everyone else seems to have. I would say it is 5-10% of the population in my experience (i.e. upper middle class, college educated people are way over represented). They are very visible though. Talking about your 10 year old civic isn't fun. Talking about the new Model S features is a lot more interesting.


Case in point. A family member has a supervisor, and between that supervisor and his wife, their annual income is probably around $350k and has been high for years. The cost of living in their area is very low. They are approaching 70 but complain that they'll have a hard time retiring because their adult children and grandchildren have become dependent (and whose fault is that?) on their "economic outpatient care" as Stanley called it. They pay for their kids' mortgages, their car notes, the tuition for their grandchildrens' private schools, and so on. :oops:

In his second book, Stanley talked about a similar person who was a physician making well over $500k a year but couldn't see how he could ever afford to stop working.

People looking from the outside in think that wealth means consumption. But consumption is, in many ways, antithetical to building wealth.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Millionaire Next Door" Net Worth Formula

Postby lazydavid » Tue Mar 21, 2017 7:08 am

emoore wrote:While I agree that keeping expenses down will help become a millionaire, I have a hard time with the BMW vs. F150. Has anyone looked at a new F150 cost? It's as much or more than a BMW so I don't think car choices matter that much. If you replace your car every 2 or 3 years then yes that does matter, but it could be a BMW or Ford truck and you would still be in financial trouble.


No kidding. We're recently-minted millionaires, and I can't afford a pickup. My preference would actually be an F-250 to get the big diesel, and a well-equipped one tips the MSRP scales at more than $75k. A similarly-equipped Ecoboost F-150 gets well into the $60s. Granted, no one pays MSRP. Meanwhile, I'm on my second consecutive BMW 3-series, paid $35k for the 2000 (New, 34 miles on the odo), and $38k for the 2011(demo, 9k miles).

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Re: "Millionaire Next Door" Net Worth Formula

Postby CyclingDuo » Tue Mar 21, 2017 7:25 am

knpstr wrote:Then this plays into the theme of the book that the "millionaire next door" is a very frugal person driving a F-150 and wearing Wrangler jeans, and shopping at Sears.


As mentioned in the last few posts, you'll pay $55K - $65K for a F150 (unless you get the bare bone model, stripped down, with some incentives).

Our family owns and drives 4 cars with a combined purchase price and value for all 4 that is well less than one F150. :D

And we wear Levi's.

And the local Sears store was closed and boarded up last year.

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Re: "Millionaire Next Door" Net Worth Formula

Postby randomguy » Tue Mar 21, 2017 8:20 am

willthrill81 wrote:Case in point. A family member has a supervisor, and between that supervisor and his wife, their annual income is probably around $350k and has been high for years. The cost of living in their area is very low. They are approaching 70 but complain that they'll have a hard time retiring because their adult children and grandchildren have become dependent (and whose fault is that?) on their "economic outpatient care" as Stanley called it. They pay for their kids' mortgages, their car notes, the tuition for their grandchildrens' private schools, and so on. :oops:

In his second book, Stanley talked about a similar person who was a physician making well over $500k a year but couldn't see how he could ever afford to stop working.

People looking from the outside in think that wealth means consumption. But consumption is, in many ways, antithetical to building wealth.


And if you survey 1000 people making 350k/yr and doctors making 500k+, how many people are in that boat? These people obviously exist. I just don't get the impression that they are more than 10% or so of the population. Other people might make bad choices,but they aren't hugely bad ones.

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Re: "Millionaire Next Door" Net Worth Formula

Postby nova1968 » Tue Mar 21, 2017 8:24 am

randomguy wrote:
emoore wrote:While I agree that keeping expenses down will help become a millionaire, I have a hard time with the BMW vs. F150. Has anyone looked at a new F150 cost? It's as much or more than a BMW so I don't think car choices matter that much. If you replace your car every 2 or 3 years then yes that does matter, but it could be a BMW or Ford truck and you would still be in financial trouble.


Yep. Same thing applies to a bunch of SUVs and the like the honda pilot or 4 runner that push 40k. Some people will consider a bmw 3 series as a luxury but not even notice them.

A lot of the issues are expectations. What type of car do you think a 70 year old couple with 30k of SS and 1.5 million in assets should be driving? That is your average millionaire. That isn't a person who should be buying a 50k car.

You want to be wealthy? Get a high income. There are very few (yah I know about all the janitors and the like that saved millions) millionaires who got there working 20k/year jobs compared to the number from the people that made 200k. Picking a high income career covers a lot of financial sins. But it isn't something easy to do the way cutting spending is.


While your point makes sense not everyone can be a Doctor, Lawyer etc. Most Doctors after 15 years of medical education don't have a clue on how to manage their wealth, while lawyers spend a large chunk of their assets trying to impress clients. A person who makes modest wages and saves 10 to 20 percent can have several hundred thousand dollars by retirement. You could pay me $50,000 a year for 25 years and your average Joe $150,000 (BHs not included) and I guarantee you I would have a higher net worth than 99% of them, and I would not have to live like a peasant to accomplish this. Its a matter of savings and compound interest and being practical with expenses like not buying a new car every year, or spending $20 a day for lunch etc.

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Re: "Millionaire Next Door" Net Worth Formula

Postby BW1985 » Tue Mar 21, 2017 8:54 am

randomguy wrote:
willthrill81 wrote:Case in point. A family member has a supervisor, and between that supervisor and his wife, their annual income is probably around $350k and has been high for years. The cost of living in their area is very low. They are approaching 70 but complain that they'll have a hard time retiring because their adult children and grandchildren have become dependent (and whose fault is that?) on their "economic outpatient care" as Stanley called it. They pay for their kids' mortgages, their car notes, the tuition for their grandchildrens' private schools, and so on. :oops:

In his second book, Stanley talked about a similar person who was a physician making well over $500k a year but couldn't see how he could ever afford to stop working.

People looking from the outside in think that wealth means consumption. But consumption is, in many ways, antithetical to building wealth.


And if you survey 1000 people making 350k/yr and doctors making 500k+, how many people are in that boat? These people obviously exist. I just don't get the impression that they are more than 10% or so of the population. Other people might make bad choices,but they aren't hugely bad ones.


It doesn't have to be people making $350-500k a year though, the same principle applies to anyone with disposable income really, just with the outgo scaled down.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Tue Mar 21, 2017 8:58 am

randomguy wrote:There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.


If you have net worth of $1,000,000 you are certainly in the top 10% of the country... that is wealthy. For example, according to Wikipedia HNWI is $1M in assets, *excluding one's primary residence. It goes on to say HNWI made up 1.09% of the US population in 2012, World Wealth report 2013.

What you think what most people think is wealthy, is nearing the definition of UHNWI - Ultra High Net Worth Individuals ($30M).

If you are a millionaire, you certainly are wealthy when compared to the US population as a whole, even today.

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: "Millionaire Next Door" Net Worth Formula

Postby willthrill81 » Tue Mar 21, 2017 9:08 am

knpstr wrote:
randomguy wrote:There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.


If you have net worth of $1,000,000 you are certainly in the top 10% of the country... that is wealthy. For example, according to Wikipedia HNWI is $1M in assets, *excluding one's primary residence. It goes on to say HNWI made up 1.09% of the US population in 2012, World Wealth report 2013.

What you think what most people think is wealthy, is nearing the definition of UHNWI - Ultra High Net Worth Individuals ($30M).

If you are a millionaire, you certainly are wealthy when compared to the US population as a whole, even today.

:beer


If I recall, the median net worth of Americans aged 65-69, including their home equity, is about $190k. So being a millionaire, even if you include home equity (I think you should), puts you more than 5 times ahead of the wealthiest age group of Americans.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Millionaire Next Door" Net Worth Formula

Postby sreynard » Tue Mar 21, 2017 9:11 am

knpstr wrote:
willthrill81 wrote:
In my view, the "millionaire next door" would be construed by most readers as the 'typical millionaire', and that's definitely the tone I get from reading the books. But that's not who they sampled.


Very interesting on how we have such different views. I don't get that connotation at all, (about the book being about the "typical millionaire"). In my view the book is about how the typical person can become wealthy (or a even a PAW) by being frugal, since they use many examples of high income people who look wealthy, but really aren't (given their age/income).

Paraphrasing, to shorten the excerpt, from the book:
How can someone be considered wealthy if, for example, he is only worth $460,000? After all, he's not a millionaire. The Bobbins have a combined income of $55,000 using our formula their net worth should be $225,500 but they are worth much more than others in their age/income category. Within their age/income category the Bobbins are wealthy.


That's probably why they titled it, "The Millionaire Next Door" and not "The Millionaire at the Top of the Hill". The book always seems to offend top of the hill millionaires for some reason. :twisted:

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Re: "Millionaire Next Door" Net Worth Formula

Postby sreynard » Tue Mar 21, 2017 9:20 am

knpstr wrote:
hoops777 wrote:I am honestly not being sarcastic or negative but I just do not get this.I mean is it not basic common sense that the more frugal you live the more money you will save?I can guarantee you all those millionaire next door types that are 70,80 years old now never needed a brilliant PHD to tell them if you work hard and spend less you will have more money later in life.
I also doubt very much that would have cared about his wealth formula.


You'd be surprised, common sense isn't that common.

A lot of people, especially in the US today, think that wealthy people were just "given it" or were lucky. They completely dismiss the notion that perhaps they sacrificed their present/past lifestyle in order to save and invest for their future. Or for example, many people think that it makes sense to buy a $50,000 car at 0% interest if you can manage the payments because "it's free money!" rather than just buy a "unreliable used car!" for half the price and invest the difference.

This book was to demonstrate that many millionaires (or more accurately people who are wealthy, given their income) got that way by living modest lifestyles and saving/investing.

:beer


I don't remember where I read it, it may have even been in Next Door, but someone said, "The wealthy buy a BMW after they are wealthy, the poor before."

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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Tue Mar 21, 2017 9:26 am

CyclingDuo wrote:As mentioned in the last few posts, you'll pay $55K - $65K for a F150 (unless you get the bare bone model, stripped down, with some incentives).


Remember this book was published in 1996.

In 1996 (and earlier) the Ford F-150 was a still very much a "work truck" and very different from today's trucks 20 years later with all the bells and whistles.

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: "Millionaire Next Door" Net Worth Formula

Postby orca91 » Tue Mar 21, 2017 9:44 am

willthrill81 wrote:
knpstr wrote:
randomguy wrote:There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.


If you have net worth of $1,000,000 you are certainly in the top 10% of the country... that is wealthy. For example, according to Wikipedia HNWI is $1M in assets, *excluding one's primary residence. It goes on to say HNWI made up 1.09% of the US population in 2012, World Wealth report 2013.

What you think what most people think is wealthy, is nearing the definition of UHNWI - Ultra High Net Worth Individuals ($30M).

If you are a millionaire, you certainly are wealthy when compared to the US population as a whole, even today.

:beer


If I recall, the median net worth of Americans aged 65-69, including their home equity, is about $190k. So being a millionaire, even if you include home equity (I think you should), puts you more than 5 times ahead of the wealthiest age group of Americans.


Isn't it funny how some on Bogleheads are soooo far from the common man, they don't even know it?

Having 2-3 million is a long way from being wealthy..... Are you kidding me?! The real "most people" out there would consider that uber rich.

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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Tue Mar 21, 2017 9:50 am

orca91 wrote:Isn't it funny how some on Bogleheads are soooo far from the common man, they don't even know it?

Having 2-3 million is a long way from being wealthy..... Are you kidding me?! The real "most people" out there would consider that uber rich.


+1
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Re: "Millionaire Next Door" Net Worth Formula

Postby avalpert » Tue Mar 21, 2017 10:34 am

knpstr wrote:
orca91 wrote:Isn't it funny how some on Bogleheads are soooo far from the common man, they don't even know it?

Having 2-3 million is a long way from being wealthy..... Are you kidding me?! The real "most people" out there would consider that uber rich.


+1

That isn't a function of being a boglehead - that is a common problem across the spectrum. It's why most people like to consider themselves middle class whether they are living off of $25k or $250k.

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Re: "Millionaire Next Door" Net Worth Formula

Postby dave_k » Tue Mar 21, 2017 11:51 am

orca91 wrote:
randomguy wrote:There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.

Isn't it funny how some on Bogleheads are soooo far from the common man, they don't even know it?

Having 2-3 million is a long way from being wealthy..... Are you kidding me?! The real "most people" out there would consider that uber rich.

Maybe "most people" would consider 2-3 million uber rich without understanding the implications, because it's so much more than their own savings. However, randomguy said that it's "a long way from the lifestyle that most people would consider wealthy", and I agree. That money would generate a sustainable $100k/year perhaps, which is a good upper middle class income, but would not sustain the lifestyle I think "most people" associate with being wealthy. That's the point he was making.

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Re: "Millionaire Next Door" Net Worth Formula

Postby orca91 » Tue Mar 21, 2017 12:29 pm

"Most people" would slap some of you across the face for thinking $100k a year off their savings/investments doesn't make one very rich. I.E. just sitting back and letting $2-3 million sustain you...

Many Bogleheads are pretty out of touch with reality. I'm reminded of threads where folks couldn't stand living paycheck to paycheck on their $300k/year salary, saving over $100k/year, and paying down the mortgage aggressively. :confused

Congrats to Bogleheads for some of the achievements reached. But, don't think you know what "most people" would consider wealthy.

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Re: "Millionaire Next Door" Net Worth Formula

Postby dave_k » Tue Mar 21, 2017 12:46 pm

orca91 wrote:"Most people" would slap some of you across the face for thinking $100k a year off their savings/investments doesn't make one very rich. I.E. just sitting back and letting $2-3 million sustain you...

Many Bogleheads are pretty out of touch with reality. I'm reminded of threads where folks couldn't stand living paycheck to paycheck on their $300k/year salary, saving over $100k/year, and paying down the mortgage aggressively. :confused

Congrats to Bogleheads for some of the achievements reached. But, don't think you know what "most people" would consider wealthy.

Setting aside this discussion, if someone asked you to describe a wealthy lifestyle, what would you say?

The point is about the typical perception of a wealthy lifestyle. I suspect that most people don't realize what it takes to sustain that, and assume 2-3 million would go farther than it really would. Lottery winners that win that kind of money feel they are suddenly rich but often end up broke, and I think that's partly because of this misconception.

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Re: "Millionaire Next Door" Net Worth Formula

Postby eog » Tue Mar 21, 2017 12:48 pm

orca91 wrote:"Most people" would slap some of you across the face for thinking $100k a year off their savings/investments doesn't make one very rich. I.E. just sitting back and letting $2-3 million sustain you...

Many Bogleheads are pretty out of touch with reality. I'm reminded of threads where folks couldn't stand living paycheck to paycheck on their $300k/year salary, saving over $100k/year, and paying down the mortgage aggressively. :confused

Congrats to Bogleheads for some of the achievements reached. But, don't think you know what "most people" would consider wealthy.


Couldn't have said it better myself...

Most people wont be making 100K/year salary in their lifetime.

I read an article this morning that said 25% of all working people have less than $1000 saved for retirement and 50% have less than $25000.

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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Tue Mar 21, 2017 12:53 pm

dave_k wrote:Setting aside this discussion, if someone asked you to describe a wealthy lifestyle, what would you say?


Being able to live/maintain a comfortable life without having to work.

Given our current lifestyle (which is comfortable) that would take about $1.67M if all in portfolio income (at an extra safe 3% rule) or about $800K portfolio with including current rental income.

But beyond your lifestyle qualifier, I'd say having more wealth than 99% of the people in one's country would be quite wealthy which again was $1M in net worth in 2012.

:beer
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Re: "Millionaire Next Door" Net Worth Formula

Postby orca91 » Tue Mar 21, 2017 1:05 pm

dave_k wrote:
orca91 wrote:"Most people" would slap some of you across the face for thinking $100k a year off their savings/investments doesn't make one very rich. I.E. just sitting back and letting $2-3 million sustain you...

Many Bogleheads are pretty out of touch with reality. I'm reminded of threads where folks couldn't stand living paycheck to paycheck on their $300k/year salary, saving over $100k/year, and paying down the mortgage aggressively. :confused

Congrats to Bogleheads for some of the achievements reached. But, don't think you know what "most people" would consider wealthy.

Setting aside this discussion, if someone asked you to describe a wealthy lifestyle, what would you say?

The point is about the typical perception of a wealthy lifestyle. I suspect that most people don't realize what it takes to sustain that, and assume 2-3 million would go farther than it really would. Lottery winners that win that kind of money feel they are suddenly rich but often end up broke, and I think that's partly because of this misconception.


Someone who wonders if their millions are enough to sustain their nice lifestyle is certainly wealthy.

Most people can't even imagine just living off the income from their investments, let alone wonder how many millions equals being actually wealthy.

If this conversation has turned to wealthy meaning living off one's investments, doesn't that actually mean FI? Is that not wealthy? Just because someone is not FI means they aren't wealthy??

Honestly, to me wealthy can be as simple as someone being able to keep the roof over their head, feed the family, keep the lights on, have a little fun, and save some on top of all that. But, I'm nowhere near the status of having trouble deciding if 2 million or 20 million makes one wealthy.

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Re: "Millionaire Next Door" Net Worth Formula

Postby BW1985 » Tue Mar 21, 2017 1:22 pm

"Wealthy" and "rich" are relative terms not absolutes.

To someone making $25k/year, they may see someone making $100k/year as wealthy.

To someone making $100k/year, they may see someone making $250k/year as wealthy. And so on..

You could apply the same to net worth as well.
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Re: "Millionaire Next Door" Net Worth Formula

Postby BW1985 » Tue Mar 21, 2017 1:26 pm

knpstr wrote:
dave_k wrote:Setting aside this discussion, if someone asked you to describe a wealthy lifestyle, what would you say?


Being able to live/maintain a comfortable life without having to work.

Given our current lifestyle (which is comfortable) that would take about $1.67M if all in portfolio income (at an extra safe 3% rule) or about $800K portfolio with including current rental income.

But beyond your lifestyle qualifier, I'd say having more wealth than 99% of the people in one's country would be quite wealthy which again was $1M in net worth in 2012.

:beer


+1. I tend to agree with everything you write. We are fellow Spartans after all. :beer
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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Re: "Millionaire Next Door" Net Worth Formula

Postby sambb » Tue Mar 21, 2017 1:26 pm

outside of massive changes in income or life events, I find the formula to be reasonable. Not perfect, but not bad.

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Re: "Millionaire Next Door" Net Worth Formula

Postby randomguy » Tue Mar 21, 2017 1:40 pm

dave_k wrote:
orca91 wrote:
randomguy wrote:There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.

Isn't it funny how some on Bogleheads are soooo far from the common man, they don't even know it?

Having 2-3 million is a long way from being wealthy..... Are you kidding me?! The real "most people" out there would consider that uber rich.

Maybe "most people" would consider 2-3 million uber rich without understanding the implications, because it's so much more than their own savings. However, randomguy said that it's "a long way from the lifestyle that most people would consider wealthy", and I agree. That money would generate a sustainable $100k/year perhaps, which is a good upper middle class income, but would not sustain the lifestyle I think "most people" associate with being wealthy. That's the point he was making.


Exactly. As the people to describe wealthy lifestyles and you will here things about million dollar houses, 50k+ cars, first class vacations, country clubs, private schools and trust funds for the kids, and so on. That isn't stuff you are doing with 100k/year. That is the 300k+ lifestyle.The problem is that 3 million sounds like a lot of more money than 120k/year. As income goes up lifestyle inflation can go up fast. Spend that first 100k/yr on housing/food/clothers and the rest of the basics and that next 40k funds a lot of fancy cars, trips and so on.

ANd yes ahve 3 million means you have done well. But the difference from being say top 1% and .1% is a huge.

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Re: "Millionaire Next Door" Net Worth Formula

Postby dave_k » Tue Mar 21, 2017 1:41 pm

I agree that having a few million in net worth and being able to live comfortably off investments alone can reasonably be considered wealthy, and puts you near the top 1% (in the top few percent in the US) by wealth.

However, there is a big difference between that and living the obviously wealthy lifestyle that I think "most people" would identify with being "very rich" or "uber rich" (terms used above to describe 2-3 million). Having a few million will not buy you a Lambo, a yacht, a mansion, a private jet, etc. With careful budgeting maybe it could buy a nice house (in L-MCOL areas), a BMW, a 20' boat, and a 4 seat Cessna in early retirement, but is that really what people think of as "very" or "uber" rich?

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Re: "Millionaire Next Door" Net Worth Formula

Postby hoops777 » Tue Mar 21, 2017 1:51 pm

At age 42 I had a net worth of less than 5000 dollars.
The word wealthy is way too broad and futile to argue about.I will say there is a huge disconnect between people that have a good amount of money understanding those who do not as a general rule.I honestly find myself being unbelievably conservative with my investments now and feel so fortunate to be able to not worry very much about paying for a comfortable life.Compared to most people I am very wealthy and as crazy as it sounds to me to say it,it is a fact.If I compare myself to those that have double,triple or thousands times my money,I am still wealthy by any reasonable definition.
In the end it is just money, and if you have enough to live a comfortable life without worry of running out of it,I would say you are wealthy.
To all those super rich that need mansions and 3 vacation homes,Yachts,6 luxury cars,gold plated ceilings,whatever,that is a whole different story.I honestly can care less about them.
Last edited by hoops777 on Tue Mar 21, 2017 2:30 pm, edited 1 time in total.
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Re: "Millionaire Next Door" Net Worth Formula

Postby knpstr » Tue Mar 21, 2017 1:56 pm

hoops777 wrote:I honestly can care less about them.


Then you should care less about them. :mrgreen:
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Re: "Millionaire Next Door" Net Worth Formula

Postby tim1999 » Tue Mar 21, 2017 2:15 pm

Lol @ the F-150 talk, which is somewhat dated in the context of that book. Reminds me that my primary care physician drives a circa 2015-2016 F-150 Platinum 4x4 which is essentially a 60k truck with heated/cooled leather seats, power everything, Sony stereo, nav, sunroof, etc. I don't think you could even get a leather interior in a F-150 until the 1997 and later body style. The nicest F-150 of the early/mid 1990s (Lariat or Eddie Bauer trim) is pretty much equivalent to today's slightly below mid-range XLT trim, maybe even lesser.

Stanley's talk about millionaires preferring cars that offer the cheapest price per pound is a little ludicrous as well. I've never met anyone, millionaire or broke person, who wanted the most pounds of car for the dollar. I believe it was just a preference that 60s-70s millionaires in the late 80s/early 90s tended to like larger American luxury cars, which before today's fuel economy standards, tended to rely less on plastics and weight was no object.

"OK, Salesman Lou, that's a fair price overall on that Buick, but the pounds per dollar is still too high. Could you throw a few sandbags in the trunk and an anvil in the back seat? Then we have a deal." :oops:
Last edited by tim1999 on Tue Mar 21, 2017 2:19 pm, edited 1 time in total.

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Re: "Millionaire Next Door" Net Worth Formula

Postby bluebolt » Tue Mar 21, 2017 2:15 pm

BW1985 wrote:"Wealthy" and "rich" are relative terms not absolutes.

To someone making $25k/year, they may see someone making $100k/year as wealthy.

To someone making $100k/year, they may see someone making $250k/year as wealthy. And so on..

You could apply the same to net worth as well.

For a long time, I've defined wealth as "what I've got right now" and happiness as "satisfaction with where I am and what direction I'm headed right now."

That attitude has prevented me from trying to keep up with the Joneses and has had the side benefit of preventing a lot of stress and making my life much easier.

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Re: "Millionaire Next Door" Net Worth Formula

Postby hoops777 » Tue Mar 21, 2017 2:35 pm

knpstr wrote:
hoops777 wrote:I honestly can care less about them.


Then you should care less about them. :mrgreen:
:beer[/quote
Easier said than done with current conditions :D
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Re: "Millionaire Next Door" Net Worth Formula

Postby orca91 » Tue Mar 21, 2017 7:47 pm

randomguy wrote:
dave_k wrote:
orca91 wrote:
randomguy wrote:There is a confusion between being wealthy and being a millionaire. Having 2-3 million is a long way from the lifestyle that most people would consider wealthy. With an income of say 100-150k, you are defnitely well off. But you aren't remotely in the class that most people would consider wealthy (call it the 10-20 million range). People might not understand how little income that range of wealth provides but that is a different issue.

Isn't it funny how some on Bogleheads are soooo far from the common man, they don't even know it?

Having 2-3 million is a long way from being wealthy..... Are you kidding me?! The real "most people" out there would consider that uber rich.

Maybe "most people" would consider 2-3 million uber rich without understanding the implications, because it's so much more than their own savings. However, randomguy said that it's "a long way from the lifestyle that most people would consider wealthy", and I agree. That money would generate a sustainable $100k/year perhaps, which is a good upper middle class income, but would not sustain the lifestyle I think "most people" associate with being wealthy. That's the point he was making.


Exactly. As the people to describe wealthy lifestyles and you will here things about million dollar houses, 50k+ cars, first class vacations, country clubs, private schools and trust funds for the kids, and so on. That isn't stuff you are doing with 100k/year. That is the 300k+ lifestyle.The problem is that 3 million sounds like a lot of more money than 120k/year. As income goes up lifestyle inflation can go up fast. Spend that first 100k/yr on housing/food/clothers and the rest of the basics and that next 40k funds a lot of fancy cars, trips and so on.

ANd yes ahve 3 million means you have done well. But the difference from being say top 1% and .1% is a huge.


And, 99% would slap 'em all if they said they weren't wealthy. :happy

Yes, the word wealthy can mean many things. Seems some in here are arguing wealthy = financially independence. So, anyone who is still working because they can't easily live off their money alone isn't wealthy? I would strongly disagree. Someone with a high salary, with lots of nice things, and isn't financially independent is still wealthy, if you ask me.

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Re: "Millionaire Next Door" Net Worth Formula

Postby dave_k » Tue Mar 21, 2017 9:28 pm

The original point was about a wealthy lifestyle, and I don't think a middle class lifestyle would typically be considered wealthy, certainly not "very" or "uber" wealthy even if work is not necessary. Of course someone can live a wealthy lifestyle with little or no net worth if their income is high enough, and they would be perceived as wealthy, but it would be very precarious. So to me, someone who can be called truly (or "very" or "uber") wealthy is someone who could live a wealthy/upper-class lifestyle (even if they choose not to), and could sustain it for a while without employment (longer when older, and through retirement if retired). Wealth and financial independence are related, in that someone who is truly wealthy as I defined it should be able to live comfortably (say a middle class lifestyle) with no further employment, even if it means downsizing and a reduction in expenditure.

Yes, it's all relative, and I don't expect everyone to have the same notions about it that I do. However, it would be interesting to do a survey asking many people with various backgrounds how much money (net worth) someone would need to have at a minimum to be considered wealthy, and then ask what their perception of a wealthy lifestyle is (what sort of houses, cars, luxuries, vacations, etc. are involved). I wouldn't be surprised if in many cases the net worth amount would not sustain the lifestyle described for very long without significant income, and is less than what most people with that lifestyle have. Or maybe my perception of wealthy (especially very wealthy) people as those that can afford exotic cars, mansions, and yachts is really that much different than most.

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Re: "Millionaire Next Door" Net Worth Formula

Postby orca91 » Tue Mar 21, 2017 10:21 pm

And there's the disconnect... lifestyle doesn't matter. The real "most people" can't even fathom having 2-3 million in investments to live off of. Heck, the real "most people" won't ever make that in a lifetime. The thought of having that much money equals wealthy. Whether they drive a 1980's Yugo or a Porsche.

And, those that make a high salary and live it up are still wealthy... human capital wise.

That some Bogleheads thing uber and very rich only means yachts and private jets, which are few and far between, shows how out of touch some are.

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Re: "Millionaire Next Door" Net Worth Formula

Postby dave_k » Tue Mar 21, 2017 11:01 pm

I don't dispute that most people can't imagine having a few million. I also think it's reasonable to consider someone with that much money at least somewhat wealthy, but I do dispute whether it can sustain without working a lifestyle that would be easily recognized as wealthy (aside from not needing to work, which is the same as being retired - early or otherwise), and that's what what randomguy was pointing out.

It's not so much out of touch as a different definition. I understand that a very small fraction of people have mansions, yachts, and private jets, but there are still many thousands that do. If not "very" or "uber" rich, what would you call them?

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Re: "Millionaire Next Door" Net Worth Formula

Postby orca91 » Tue Mar 21, 2017 11:47 pm

Ultra rich? :happy

Seems some are arguing appearances and some are arguing numbers. I guess my point is a known $2-3 million in savings/investments is very or uber rich to most people... the real most people. What they can live on is secondary. Again, the real most people have no thoughts of living off their money alone. So, right there....

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Re: "Millionaire Next Door" Net Worth Formula

Postby bluebolt » Wed Mar 22, 2017 8:51 am

An interesting thought experiment. If you had enough money to be FI and wealthy, let's say $10MM, how would your lifestyle change?

For me, not much. I'd live in the same house, drive the same car, work in the same field. I'd create a DAF and give more to charity.

I'd probably retire sooner than I would otherwise and would travel more in retirement (maybe even splurge on business class!).

But there aren't many things that I would change. That tells me that I'm wealthy. Because I can afford to do the things that I want and have the things I need & want now. Adding several million to my nest egg wouldn't materially change that.

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Re: "Millionaire Next Door" Net Worth Formula

Postby BrandonBogle » Wed Mar 22, 2017 9:14 am

bluebolt wrote:An interesting thought experiment. If you had enough money to be FI and wealthy, let's say $10MM, how would your lifestyle change?

For me, not much. I'd live in the same house, drive the same car, work in the same field. I'd create a DAF and give more to charity.

I'd probably retire sooner than I would otherwise and would travel more in retirement (maybe even splurge on business class!).

But there aren't many things that I would change. That tells me that I'm wealthy. Because I can afford to do the things that I want and have the things I need & want now. Adding several million to my nest egg wouldn't materially change that.


For the most part, this describes me. I'm not even targeting that high. I would be happy with 20% of that to retire today (in my lower 30s). Travel is one area I would indeed change. Yesterday I was looking at tickets for a trip with some friends later this year. I could spend $1,150 and flight with two stops, making it a 16 hour trip there and 28 hour trip back (overnight stay at one of the stops). Or I could pay $1,650 and fly non-stop. I really want to fly non-stop and would if I was FI, but have a hard time justifying that much of a price difference. So I totally see that aspect changing as a FIRE.

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Re: "Millionaire Next Door" Net Worth Formula

Postby randomguy » Wed Mar 22, 2017 9:23 am

bluebolt wrote:An interesting thought experiment. If you had enough money to be FI and wealthy, let's say $10MM, how would your lifestyle change?

For me, not much. I'd live in the same house, drive the same car, work in the same field. I'd create a DAF and give more to charity.

I'd probably retire sooner than I would otherwise and would travel more in retirement (maybe even splurge on business class!).

But there aren't many things that I would change. That tells me that I'm wealthy. Because I can afford to do the things that I want and have the things I need & want now. Adding several million to my nest egg wouldn't materially change that.


Until you have the money, it is really hard to say. It also depends on how you get the money. Getting 10 million at 25 is radically different than getting it as 75 in terms of how much you are going to change your life.

You can define wealthy however you want. But if you want to talk about why people don't have material possessions that you consider signs of wealth, saying you are happy driving a civic versus a lambo isn't very useful.


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