Questions - The Millionaire Next Door

After reading The Millionaire Next Door, answer the following ten (10) questions and
compose your
Reflective Writing.

1. Explain the following two (2) concepts addressed in The Millionaire Next Door:

Big Hat, No Cattle

The phrase Big Hat, No Cattle refers to the life of an under accumulator of
wealth (UAW). Typically, a UAW is someone who can be identified by the
extravagant things they own and spend their money on. They also tend to live
a live-style of high consumerism and low accumulated wealth. They have a
low net worth (no cattle). The opposite of a Big Hat, No Cattle would be
considered a prodigious accumulator of wealth (PAW). A PAW would likely
be someone who blends into a crowd and doesnt see the need to show off
their wealth through the fancy attire and costly possessions. They have a high
net worth (lots of cattle).

Go to Hell Fund

A Go to Hell Fund refers to those who have the accumulated enough

wealth to be able to live without working for ten or more years.

2. In the examples of Mr. Richards (PAW) & Mr. Ford (UAW), both men are close in age
& yearly income. Explain why Mr. Richards has nearly five times the net worth of Mr.
Ford. (Be specific).

Mr. Ford is an attorney and is socially expected to support a life-style consistent

with his esteemed career. He would do this by spending significantly more by
living in an expensive neighborhood with other white-collar families. He would
be well dressed with tailored-made suits. He would likely have memberships to
country clubs and drive a luxury vehicle. This type of life-style would inhibit
his ability to save and invest his money.

However, Mr. Richards is a proprietor for a mobile-home dealership. The life-

style expectations for him would be significantly lower. He would be working a
blue-collar job and therefore wouldnt be under the same social pressure to
own and seek after luxury items. He would likely wear the same suit to work
everyday. Mr. Richards would be able to save more and invest more of his
income for the future.

3. Provide short answers to the following three (3) questions:

 Most people will never become wealthy in one generation if they are married to
people who are wasteful.

Upon giving his wife $8 million of stock, from taking his company public, what
did his wife continue doing?

His wife expressed her appreciation and simply continued clipping coupons
from her newspapers.

Why would someone who is a millionaire need to budget?

They became millionaires by budgeting and controlling expenses, and they

maintain their affluent status the same way.

A millionaire who keeps a budget will protect his wealth from the trap of
high consumption. His budget is his defense. Wealth is gained not only by
gaining a good productive income aka a good offense. It is protected by
good budgeting, aka a good defense. As described in the book, The
foundation stone to wealth accumulation is defense. Wise budgeting and
careful planning will prevent income gained to be lost with consumption.

4. In the example of Theodore Teddy J. Friend and his parents, answer the following
two (2) questions:

The book describes Teddy as being possessed by possessions. Explain this

comment.

Teddy measures his wealth by the number and grandeur of his possessions.
He feels the need to impress others by having expensive things such as two
boats, a vacation condo, a $5,000 dollar watch, and an expensive mortgage.
He focuses on symbols of success and the need to convince others of his
success and not focusing on becoming a true builder of wealth.

What was the small change Teddys parents could have made that would put
them in the millionaire category? (Be specific.)

Teddys parents didnt acknowledge that small expenses, such as buying and
smoking 3 packs of cigarettes a day, eventually would cost them roughly
33,000 dollars over the period of 46 years. There are a couple of things
included in the small change that would have put Teddys parents in the
millionaire category. Firstly, Teddys parents would have needed to give up
their smoking habit. After taking that step, they would have needed to invest
the money they were previously spending on cigarettes. If they would have
purchased shares in the Phillip Morris Tobacco Company, reinvested all
dividends and maintained those shares in that company for the time span of
 46 years. At the end of 46 years Teddys parents would have had a tobacco
portfolio worth over two million dollars.

5. Mr. Rodney is a high-income/low-net worth corporate manager. Explain why he is

described as having sold his financial independence.

Mr. Rodney had the opportunity to participate in a matching stock purchase

plan through his employer. Each year he could have purchased 6 percent of
his income in shares of the corporation and the corporation would match his
contribution of shares. However, Mr. Rodney would decline with the excuse
of not being able to afford to participate in the program. He explained that
his income went to paying for his $4,200 dollar mortgage, his vacation home,
club dues, leased vehicles and tuition payments. If he had made it a
priority to participate in the corporations program from the time he was
first employed he would be a millionaire today. Instead he trapped himself
on the treadmill of earning and consuming and therefore sold his financial
independence.

6. Why did Mr. W.W. Allan decline the gift of a Rolls-Royce?

Mr. Allan understands that the acquisition of a single status object can lead
to a change of lifestyle. An example of this is when parents purchase a home
for their children in an affluent community. This action would put pressure
on their children to match the lifestyle of the people living around them and
generally those that live in affluent communities have high consumption life
styles. Therefore, they could find themselves spending major amounts of
money to keep up with the Jones.

Mr. Allan was able to see that if he accepted the gift of the Rolls-Royce, he
would be under social pressure to change his lifestyle. He loves to fish and is
accustomed to throwing bloody fish in the back of his vehicle. It wouldnt be
socially unacceptable to throw bloody fish into a Rolls-Royce. Also, Mr. Allan
would have to give up going to the crummy restaurants that he enjoys eating
at because a Rolls-Royce would be out of place at those places. This perceived
gift could also cause his employees to feel exploited based on the location of
his employment at an old industrial area thus also leading to his own
alienation.

Mr. Allan has no intention of changing his lifestyle and therefore he declined
the gift of the Rolls-Royce.

7. Regarding Economic Outpatient Care (EOC), answer the following four (4) questions:

Explain this statement: The more dollars adult children receive, the fewer they
accumulate.
 Children who are given money or grand financial gifts are not propelled to
earn money on their own. However, those who cant and dont rely on their
parents wealth are propelled to accumulate their own wealth. I am an
example of this. My parents are considered poor. They have always lived
paycheck to paycheck. While this was a difficult environment to grow up in it
has been a blessing to me. As a result of my parents inability to support me
financially as an adult Ive had to learn to provide for myself. This has
caused me to learn to work diligently so that I could rely on myself and pay
for my own housing, transportation, phone, bills and financial needs.

If I were accustomed to receiving EOC from my parents I would not have

developed the respect of those financial gifts and would likely have
squandered them. After all, it's much easier to spend someone else's money
than your own.

What is the likely financial outcome for Mary & Lamar once her Mother passes
away?

It is likely that if Mary and Lamar receive any part of Mothers estate, which
is likely, they will continue their spending habits and presumably quickly
deplete their inheritance. After they spend their inheritance there are a few
things that could happen. First, they could be forced into changing their
spending habits and change their lifestyle. Secondly, they could find someone
else to be their financial supporters such as Lamars parents. Thirdly, they
could continue their spending habits to maintain their lifestyle until they are
completely enveloped in debt and interest fees. This could lead them to
declare bankruptcy. Whatever happens to Mary and Lamar it is certain that
they have a consistent fear of the future.

The parents of Ms. BPF were determined to give their daughter every
advantage. After they created an ideal environment for her, what was the
result?

As a result of Ms. BPF being given every advantage from her parents she
became financial dependent on her parents economic inpatient care. Being in
her late 30s and she still lives at home and lives a lifestyle of high
consumerism. She had purchased luxury vehicles, expensive clothes and
accessories and pays major interest in credit card dues. She has expressed 4
times as many fears as financially independent business owners. Her
business has never grown beyond being a start-up because she lacks the drive
of financially backing her business with her own money and reputation.
Although Her parents believe that eventually she will change and become
financially independent it is unlikely that she will make those changes while
her parents continue to financially support her. Facing her fears and
stepping out on her own is the only way that she can truly master her fears.
 In the case of Laura (A Woman of Great Courage), explain the primary message
derived from her story?

Laura grew up in an environment that nurtured independence and

discipline. When her husband left her for his secretary she was required to
provide for herself and her three small children. After many discussions with
enlightened business owners in her community she decided to pursue a
career path in real estate. She exercised her courage to make cold calls and
do what she had to do knowing that she had to succeed for the sake of
providing for herself and her children. Even though misfortune smiled on
her, she exemplified courage to change her fortunes and become a person of
affluence. Her affluence didnt change her resolve to remain disciplined and
to live frugally by flying the red-eye and early bird flights. She is an example
of courage, discipline, and a person who resolves to be economically
productive.

8. Regarding Affirmative Action, Family Style, answer the following three (3) questions:

In the example of sisters Ann & Beth, describe the consequences to Beth & her
husband from receiving EOC?

Beth and her husband have become financially handicapped as a result of

receiving EOC from Beths parents. They both lack the confidence and
ambition to be financially independent. Beths father doesnt have much
respect for her husband and treats him like a busboy/ handyman. He has
been conditioned to accept that treatment. Neither Beth nor her husband has
much control of their lives. Beths mother had more of a say in choosing their
home than Beth did. They are dependent on the EOC to maintain a similar
lifestyle as Beths parents.

In contrast, Ann separated herself and her family by 1000 miles from her
parents. She and her husband are both respected and highly regarded. They
are determined to control their own lives and to never receive EOC from her
parents.

Explain the concept weakening the weak.

The concept of weakening the weak is referring to how a person can

exacerbate a weakness of another person by how they choose to address that
specific weakness. The following is a hypothetical example of this concept.

An 8-year-old child has demonstrated poor hand-eye coordination during

their gym class. This child avoids activity because they are clumsy and dont
excel when it comes to catching, throwing, hitting or kicking different balls
or athletic equipment. As a result of this childs struggles, this child has
grown to dislike gym and refuses to participate. The gym teacher could react
 to this situation in a few different ways. The teacher could ignore the
problem and therefore teach the child that they dont have to do things they
dont like or participate in activities they struggle with. This would weaken
the child in the long run. The teacher could take a different approach and
work with the childs parents to assist in helping the child one on one by
practicing throwing and catching, etc. This would strengthen the childs
weakness and help him/her improve their hand-eye coordination.

Typically affluent parents will give more financial support to their children
who struggle financially learn to depend on their parents for financial
subsidies. Children of the affluent who have successful careers and are
financially independent generally dont receive such financial gifts or
support.

Select one of the Rules for Affluent Parents & Productive Children & explain why
you think this rule is most important.

I see each of the 10 rules as extremely important. If I had to choose one as the
most important I would have to choose number two. I believe that no matter
how wealthy you are, it is crucial to teach your children discipline and
frugality. I believe that these two values will shape children into being self-
sustaining individuals. Frugality is essential to building wealth and financial
literacy. If a child is taught discipline and frugality it is unlikely that the
child will unwisely use their money. They will budget and save for the future.
I believe this rule is the foundation to all of the other rules explained. If a
child is frugal and disciplined they will build their own wealth and not
depend on EOC.

9. Explain the root cause for the conflict between Mr. W & the residents of the vacation
condominiums. (HINT: Its not because of his dog.)

The root cause of conflict in this case study is centered on the difference of
life-style, appearance and social status of Mr. W. (including his family and
close friends) in comparison to the life-style, appearance and social status of
the residents of the vacation condominiums.

Mr. W. described the residents of these condos as the best-scrubbed

condominium owners one could ever imagine. However, Mr. W. and his
family were not considered to be beautiful people.

The residents of these condominiums are typical upper-middle-class UAWs.

Their primary focus is on displaying their high-status lifestyles. Mr. W. is
considered a typical PAW. He lives the middle class life-style and isnt
concerned with impressing others around him through fancying living. The
residents of these condominiums were attempting to use Mr. W.s dog as
leverage to push Mr. W. into selling his condo.
 They were given the option of sharing the complex with Mr. W and his
family or sharing it with assembly-line employees of the blue-collar nature.
Upon receiving this offer, the residents reevaluated the situation and decided
they would be accommodating to Mr. W. and his family.

10. Now that you have finished reading The Millionaire Next Door, answer the following
questions in a minimum of three (3) paragraphs:

What are the two (2) concepts you found most useful? Explain why.

I have come to the awareness that I have desired to be in the social ranks of
the upper middle class and live a life of high consumption. However,
although I like nice things and like to rub shoulders with people who have
these things, it is more important to me to become a prodigious accumulator
of wealth (PAW). It is a sacrifice that I have to make. I want my children to
grow up to be (PAWs) and I know that if I am an example of high
consumption they will likely follow in my footsteps.

The second concept I find to be the most useful is the importance of

allocating my time, energy and money effectively and in a manner conducive
to building wealth. Budgeting time and money is the vehicle that can help me
become affluent. I know that time is require to research and find ways to
make my money work for me. As I live within a set budget I will be able to
become more frugal in my purchases and therefore allocate more of my
income into wise investments thus increasing my net worth.

Give a specific example of one small change you can make to improve your
financial well-being.

The most important change I want to make since Ive read this book and
taken this course is to financially prepare for the future. I have been
contributing to a 401(K) for the last two years. Upon recent discovery Ive
learned that I have 3000 dollar just sitting and collecting dust. I have
decided that I want to be more proactive in my investments. I am starting
the process of researching my different investing options. I want to create a
diverse portfolio that will help me prepare and obtain the kind of retirement
I desire. This book has taught me that time invested in researching and
making wise investments can help me become an affluent member of society.

Reflective Writing

Compose 2-3 paragraphs explaining how completing this assignment helped you achieve
at least two (2) of the SLCC Learning Outcomes:
 Learning Outcome #1 (Paragraph #1)

This assignment has enhanced my ability to think critically and creatively.

As I have completed this project Ive had the opportunity to examine my
personal beliefs regarding money and finances. Ive discovered that I have
been patterning my life after the manner of my parents. I have come to the
conclusion that I dont want to follow in their footsteps any more. I have had
to evaluate my personal finances and change the way I handle my finances in
order to obtain my financial goals.

The ability to think creatively is required when it comes to stretching one

dollar into two. I am learning how to invest my money. This process is long
and tedious because there is a lot of information available. I am striving to
reach out to people I know and trust to help me discover the best ways I can
make my money work for me.

Learning Outcome #2 (Paragraph #2)

This assignment has helped me to improve my ability to communicate my

financial goals more effectively with both my spouse and employer. For a long
time Ive desired to no longer work part-time at my job but to obtain a full-
time position instead. I recently decided to communicate this desire with my
boss. Thankfully I made a positive impression on my boss and recently have
been promoted to a full time position. I have also have been able to share my
financial goals with my spouse and as a result we are starting to build up a
savings account that will help us build an investment portfolio.