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Old 12-27-2010, 01:11 AM
 
Location: Troy, Il
764 posts, read 1,386,545 times
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Because they can, one example from the book is people with scottish heritage. Modest incomes but unusually frugal. And they pass their fruglaity down with their inheritance so the money is less likely to disperse. As far as not being scientific enough....you may be right, i dont know the details of their study, but they did say they checked peoples assetts to make sure they were really millionaires. On top of that, they mntioned how that have been in the business of studing millionaires for large advertising companies who wanted their business. They have been doing that for 20 years. So i think they have a good handle on what they are talking about. When i read the book i dont feel that it is biased, but i aggree with a lot of what they say.

 
Old 12-27-2010, 10:11 AM
 
Location: Moscow
2,078 posts, read 2,905,128 times
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Quote:
Originally Posted by user_id View Post
The book is the millionaire next door and I'm talking about millionaires as well, someone with say $80 million in net worth is far from a billionaire.
Simply put, there is room here for all viewpoints to be correct. There are levels of rich, just like everything else.

If user_id is limiting his/her comments about millionaires to those with 10s of millions, of course user_id is correct. You can't get 80 million by being frugal.

But.

You can get a few million by being frugal. I know my odds of raising 80 million are low. But my frugality greatly increases my odds of raising 2-3 million. That's more than enough to live a comfortable life in retirement for me!
 
Old 12-27-2010, 10:23 AM
 
Location: Moscow
2,078 posts, read 2,905,128 times
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Quote:
Originally Posted by user_id View Post
You can call it whatever you like, but its not a "study" in any serious sense. The samples were not random, the samples were too small, there was no fact checking, there was no effort to further research to deal with completing hypothesis of the data, etc. The authors interpreted the data as they wanted.
...
Anyhow, you don't make money by being frugal. I can make more in a single business deal than the average Joe can gain from a lifetime of frugality.
Not sure if we're discussing the same book. The book I read was conducted by a couple of PhD's with years of experience in the field, and is considered a classic. It led to several best selling sequels. Personal interviews and focus groups for 500. Surveys of 11000 high income and high net worth individuals. They don't discuss how these individuals were determined. However, 11k should yield statistically significant results.

I certainly agree that you don't make money by being frugal. Frugality stops the hemorrhaging. The best offense is a good defense.

Glad you can make good money in a single business deal... Not all of us are in such a position. But most of us can easily be more frugal. Every little bit helps!

Last edited by Keim; 12-27-2010 at 10:43 AM..
 
Old 12-27-2010, 10:40 AM
 
Location: Moscow
2,078 posts, read 2,905,128 times
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Quote:
Originally Posted by user_id View Post
My calculations already consider the compounding of interest, why wouldn't they after all?
Guess you'll just have to trust me, then. As there is no way to prove the accuracy of my statements short of bank statements. My frugality has led to mid-six figures in savings (incl. paid off house) before the age of 40. All on a mid 5 figure family income.


Quote:
Originally Posted by user_id View Post
They don't need to save a higher percentage of their income. My point before was that someone with a high income can both save a much higher percentage of their income yet still vastly out-spend someone with a modest income. Yet, most of the frugality crowd would speak poorly of them because they purchased luxury cars, etc.
We generally agree here. I offer one point of clarification. I didn't say higher percentage of their income. I said they would need to save a larger amount.


Quote:
Originally Posted by user_id View Post
When people talk about being frugal its never relativistic, just take your own comments. You owe a old home, drive old cars therefore you are frugal. The guy with a $10 million dollar home, $200k car, etc is not going to be considered frugal even though he may have a net worth of $100 million. This frugality stuff is primarily applicable to low to modest income individuals, once you go beyond that it all breaks down.
We see things differently here. I know an individual with 3 homes, all in paradisical spots. Yet, when I consider his networth I view him as frugal. Too me frugal=living well/under your means. At my level that means I have an older home and cars so that I can save for the future. At his level it means he can have several homes. It's all relative.



Quote:
Originally Posted by user_id View Post
The millionaire next door paints a very inaccurate picture of the world, but that is what happens when you cherry pick examples and write a book about them. Someone with a modest income is not going to accumulate a lot of wealth by simply being frugal and saving money, serious wealth is generated in business. The formula you cited is useless, wealth is often built very quickly in a matter of years not over a lifetime.

A serious book about accumulating and building wealth would be a book about business.
Depends on your definition of "a lot of wealth." If you stick with the 80 million you mentioned later, I agree. Frugality won't get you there. But, for the vast majority of the world 1 million is more than they will ever see. For those seeking to live a financially independent middle class lifestyle while retired 2 million is enough with a 4%swr. I think both meet a reasonable definition of wealthy. Frugality can get you to these lower numbers.

It is slowly working for me.
 
Old 12-27-2010, 12:59 PM
 
Location: Conejo Valley, CA
12,476 posts, read 16,972,235 times
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Quote:
Originally Posted by Keim View Post
If user_id is limiting his/her comments about millionaires to those with 10s of millions, of course user_id is correct. You can't get 80 million by being frugal.
No I'm not, that was in response to the "rich circles". People with a mere $1 million in net worth aren't really in "rich circles", many middle-class folks are able to achieve a net worth of $1 million towards the end of their life, its largely their retirement nest-egg.

That is another problem with the book though, its very anti-youth and anti-college. All its "formulas" favor oldsters and people that don't spend much time in college.

Quote:
Originally Posted by Keim View Post
You can get a few million by being frugal.
I don't know about a few million, but someone with a decent salary can have a net worth of ~$1 million by the time they are 50~60. But this really isn't saying much, $1 million in 20 years isn't going to be worth that much. In fact since the "research" in the book, $1 million is worth around 35% less in inflation adjusted terms.
 
Old 12-27-2010, 01:20 PM
 
Location: Conejo Valley, CA
12,476 posts, read 16,972,235 times
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Quote:
Originally Posted by Keim View Post
Not sure if we're discussing the same book. The book I read was conducted by a couple of PhD's with years of experience in the field, and is considered a classic. It led to several best selling sequels. Personal interviews and focus groups for 500. Surveys of 11000 high income and high net worth individuals. They don't discuss how these individuals were determined. However, 11k should yield statistically significant results.
Yep, discussing the same book. The authors of the book have no real experience in the field they are attempting to research which is in reality sociology, not business. The book is not considered a "classic" in any academic field, its a pop-culture book.

Also, a sample needs to be sufficiently big and random, a large non-random sample is useless. Furthermore, part of doing research is following up on hypotheses, statistics are just statistics. If you want to make a causal claim you have to do further research and appropriately screen-out variables. To use an example from the book, the authors suggest that giving money to adult children makes them worse off, their evidence for that is based on their "research" they found that statistically adult children that were given money were on average worse off then those that weren't. The authors are making a very fundamental mistake here, one that any real researcher wouldn't make, they are implying causation from a correlation. An alternative explanation would be that parents tend to give more money to adult children that are less financially savvy, that is to say the causation goes the other way. To see which picture is indeed true, you'd have to run a new study and control for the financial abilities of the children.


Anyhow, the book focuses almost entirely on penny-pinching and ignores the revenue side of things, yet increasing revenue is a far more pleasant way of building wealth than being a skinflint. Penny-pinching isn't any easier than making attempts to increase your revenue, business isn't the only option here. There are many things the average-Joe can do to increase his revenue.
 
Old 12-27-2010, 04:06 PM
 
Location: Troy, Il
764 posts, read 1,386,545 times
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I think penny pinching is equally or more important than increasing revenue. If someone makes 100K a year and spends it all without saving anything, then they still have no wealth. While someone who makes 25K a year saves 2k a year would have more. In our society, penny pinching is becoming more and more rare. So thats why it is the main point behind the book. Doing both is of course the way to build substantial wealth.
 
Old 12-27-2010, 04:40 PM
 
12,671 posts, read 20,493,570 times
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Quote:
Originally Posted by ragnarkar View Post
My folks, with an estimated net worth a little over 1 Mil. Not exactly "rich" but..

their monthly spending is only about $1000 (house paid off.) Frugality has been a lifelong habit for them and it's difficult to break!
That is rich based on their spending. Are they going to leave the money to their beneficiaires?
 
Old 12-27-2010, 04:46 PM
 
12,671 posts, read 20,493,570 times
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Thats an health issue which means cheaper health insurance and fewer health issues, living longer also to take advantage of the money.

Tech what?
Then these people complain about not earning enough and/or not having enough money. The problem is actually that individual.

Many Americans do not know about Investments and/or not willing to take the risk.


Quote:
Originally Posted by Jerksticks View Post
If you don't drink, smoke, or use much tech then you'll probably become pretty wealthy.

I feel sorry for all the people that have to buy a case of beer every weekend night, man does that stuff add up. Then you lose the next day of productivity as well. Wow. That's money that could have been reinvested in yourself down the toilet, literally.
 
Old 12-27-2010, 04:59 PM
 
12,671 posts, read 20,493,570 times
Reputation: 2618
I think the person who started from ground zero and/or middle class values money more then someone who had a head start already.

First generation;s Old money?

Thomas J. Staley is a good author.

Well you have to be cheap in business to cut down costs and maximize profits.




Quote:
Originally Posted by rfr69 View Post
I'm not going to read this whole thread but yes its true to an extent. People with family money ie paris hilton aren't frugal and dont value money but the average person who built a successful small business and is a first generation millionaire probably is frugal.

There's an interesting book called the milllionaire next door thats basically about how the guy next door driving a toyota camry and living in a modest house is a millionaire while the guy in the not giant but upscale neighborhood driving the beamer is more likely to be the one in debt.

My buddy who owns/runs a business is cheap when it comes to ordering supplies, reusing things, etc but thats why his business is so profitable and why he is doing well though he's not a millionaire.
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