Interested in reading this with me? Check it out here:
The Millionaire Next Door - https://amzn.to/2K1z0jt
Part of the process of building wealth and becoming financially independent is research. I would even argue that is a huge part of the process. To continue my personal researching efforts, I have decided to read some of the most discussed books related to personal finance, early retirement, and wealth development. The first book on this list is “The Millionaire Next Door”. This blog has my thoughts about my first reading session covering the entirety of the first part, and half of the second (of 8).
The first topic that caught my eye was the idea of a “Go To Hell Fund”. This is exactly what we were looking at with an emergency fund, but instead of 3-6 months, it is 10+ years. If you have 10 years worth of savings, your safety net is very comfortable, and you can basically tell any one to “go to hell” if they ask you to do something you do not want to do. This is a real position of power.
Some of the other general topics that caught my attention:
The average American millionaire works 45-50 hours a week.
However, there are 2 topics that I want to discuss further. The author mentions the concept of “Invest in what you know” it seems so obvious, but I have never even considered that. Basically, if you are in real estate, you spend your day researching real estate, when it comes down to it, perhaps invest in real estate. I am in IT, I work with a lot of IT companies and vendors, perhaps I should consider investing in a strong company with a good product. It just makes perfect sense.
Also, this is probably not a new concept, but is always important to reiterate. Pay yourself first! Basically, make sure your investment dollars are being allocated before they even truly hit your bank account. Invest that maximum $18,500 into your 401k, send it off to your brokerage account, do whatever you need to get it out of your immediate possession. This way, you cannot get used to having it around, and will not get used to spending it. Lifestyle inflation is an easy way to always be broke.
The author also lists this formula to determine if you are wealthy and I love it. It is a real simple way to quickly gauge where you are. It takes age, and annual realized income as inputs (so the older you are and the more you make, the more your net worth should be). If you have a greater net worth, odds are you are doing well, if you have less, then perhaps you are starting out but you would not be considered “wealthy”.
Wealthy = (Age * Realized Annual Income) / 10
That is it, super simple. How are you doing, do you fall into the “wealthy” category?
Honestly, this book so far has been a pleasure to read, the authors points seem well documented and researched, there is not a lot of fluff that gets in the way of consuming it, and it is a quick read. I look forward to getting part 2 out there.
I am just a regular guy who does far to much research on financial independence and early retirement (FI/RE). I look forward to sharing my journey with you all.