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The Millionaire Next Door

We have decided in our household to start cutting back and to be more mindful of our spending.  There are some things that I am not willing to cut back on but there are other things that are easy cuts.  Things that are easy cuts for us:

  1. Eating out a lot:  There are seven of us in our family so going out to eat adds up.  We used to go out to eat all of the time but now we go out about one time every two weeks.  The freezer meal club is one reason for the cutback.  We really enjoy the meals that we have from the club.  The other reason is having a small one.  It is just not as much fun with a screaming baby.

  2. Personal trainer:  Corrin and went in on personal training sessions to cut the cost. (Training with two or three people at a time is much cheaper than one on one training).  It was completely worth it to get a jump start on our weight loss.  I just cut out the personal training sessions because I feel that I now know what I can do on my own to keep up my workouts.  The trainer Deborah’s knowledge was invaluable and it was completely worth it for the five months that I did it. 

  3. Cleaning lady:  I had a cleaning lady that came two times a month and did a deep cleaning of my house.  It was worth it for me because Charlotte is into everything so keeping up the house is a hard task.  Now that Charlotte is getting older, it is easier to clean while I have her.  I invested in a Roomba (best purchase ever) and cut the maid to one time a month.  The Roomba makes all of the difference.  I don’t have to worry about sweeping/ vacuuming my floors every day. 

  4. Cart Wheel App:  We shop at Target and use the cartwheel app.  Download it on your phone.  While you are at target, scan all of your items to see if they are on sale or have a coupon.  When you check out, give your phone to the cashier to scan the barcode.  Your savings will be deducted from your purchase.  I have saved a lot of money using cartwheel.

  5. Coupons and Lists:  I have started cutting coupons and sticking to a list at the grocery store.  You save a lot of money by sticking to your list and using your coupons.

  6. Laundry detergent:  I was at my friends house and she was telling me how she makes her own laundry detergent.  Because we have seven people in our household, we do laundry ALL OF THE TIME.  ALL OF THE TIME…I mean really…ALL OF THE TIME.  This means that we use a ton of laundry detergent.  My friend told me that it is VERY easy to make your own detergent and very cheap.  It ends up being about four cents a load.  That is crazy cheap.  This would also save me from having to buy a big bucket of detergent every time I am at the store.  Here is the recipe that I plan on using. 

Laundry Detergent 1 Box of Super Washing Soda 3 lb. 7 oz. ($3.24) 1 Box of Borax 4 lbs 12 oz. size ($3.38) 1 Box of Pure Baking Soda 4 lb. ($2.12) 3 bars of Fels-Naptha 5.5 oz. or you could also use Ivory soap ($0.97 x3) 1 container of Oxy-Clean 1.3 lb ($3.86) *optional: Purex Crystals 28 oz. for scent (or you could use Downy unstoppables ) ($5-$6)

Things that I am not willing to cut back on:

  1. Dry cleaning for husband

  2. YMCA membership

  3. Highlights in hair (I will go longer between times)

  4. Taking a vacation

There is a very interesting book called The Millionaire Nextdoor.  The authors give some interesting tips after researching thousands of millionaires.  I think the jist of the book is that most millionaires become millionaires by living below their means.  It is interesting because the book states that most of the people driving the luxury vehicles are non millionaires. 

This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the adviser for The Motley Fool’s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

Lesson #1: Income Does Not Equal Wealth Yes, higher-income households tend to have more wealth than lower- and middle-income households. But the size of a paycheck explains only approximately 30% of the variation of wealth among households. What really matters is how much of the income is invested. On average, millionaires invest nearly 20% of their income.

Lesson #2: Work That Budget The majority of millionaires have a budget. Of those who don’t, they have what the authors called “an artificial economic environment of scarcity,” more commonly known as “pay yourself first.” In other words, they invest a good chunk of their income before they can spend any of it.

Lesson #3: Know Where Your Dough Doth Go Similar to the previous point, almost two-thirds of millionaires can answer “yes” to this question: “Do you know how much your family spends each year for food, clothing, and shelter?” In contrast, only 35% of high-income non-millionaires answered yes to this question. Millionaires are more likely to track their spending.

Lesson #4: Know Where You Want Your Dough to Go Another two-thirds of millionaires answered in the affirmative to this question: “Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?”

Lesson #5: Time Is Money All this budgeting and goaling takes time, but millionaires are willing to spend it. Prodigious accumulators of wealth spend nearly twice as many hours per month planning their investments as under accumulators of wealth. The majority of PAWs agreed with the following statements, while the majority of UAWs did not:

Lesson #6: Love the Home You’re With Your choice of home — and how often you choose a new one — will determine your ability to accumulate wealth. According to The Millionaire Next Door, that wealthy family has been next door for quite a while. Half of millionaires have lived in the same house for more than 20 years.

Nothing has a greater impact on your wealth and your consumption than your choices of house and neighborhood. If you live in a high-price home in an exclusive community, you will spend more than you should and your ability to save and build wealth will be compromised….People who live in million-dollar homes are not millionaires. They may be high-income producers but, by trying to emulate glittering rich millionaires, they are living a treadmill existence.

He cites several statistics to back this up, including:

  1. Ninety percent of millionaires live in homes valued below $1 million; 28.3% live in homes valued at $300,000 or less.

  2. On average, millionaires have a mortgage that is less than one-third of the value of their homes.

  3. If you really want to reduce your housing bill, join the 67,000 millionaires who live in mobile homes. (Side note:  This is hilarious to me)

Lesson #7: Love the Spouse You’re With The majority of wealthy people are married and stay married to the same person. Of course, marriage shouldn’t be just about money. We’re sure that 24-year-old Crystal Harris has other reasons for being engaged to 84-year-old Hugh Hefner; perhaps she loves his pipe. But several studies have shown that people who are married accumulate more wealth than those who are single or divorced.

However, it’s important to marry someone with the right financial habits. In the majority of millionaire households studied by Danko and Stanley, the husband is the main breadwinner and tends to be frugal, but the wife is even more frugal. As they wrote, “A couple cannot accumulate wealth if one of its members is a hyperconsumer.”

Lesson #8: Don’t Drive Away Your Wealth The majority of millionaires own their cars, rather than lease. Approximately a quarter have a current-year model, but another quarter drive a car that is four years old or older. More than a third tend to buy used vehicles. What is the most popular car maker among millionaires, according to Stop Acting Rich? Toyota.

So who’s driving all those BMWs and Mercedes-es? Not millionaires. Eighty-six percent of “prestige/luxury” cars are bought by non-millionaires. In fact, Stanley writes that “one in three people who traded in their old car for a new one were upside down and owed more on the trade-in than its market value.” It’s tough to get wealthy doing stuff like that.

Lesson #9: The Rich Are Different — They’re Happier At this point, you might be wondering whether all this living below your means is worth it. Sure, millionaires having bigger portfolios — but are they happier? Danko and Stanley’s research indicates that they are. According to their research, “Financially independent people are happier than those in their same income/age cohort who are not financially secure.”

First of all, PAWs worry less than UAWs. There’s a peace of mind that comes from living below your means and having money in the bank. But they also don’t expect “status” purchases to improve their happiness, because evidence shows it doesn’t happen. Among the people surveyed, those who drive a BMW and wear a Rolex are not happier than those who drive a Honda and wear a Timex.

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