Alejandra Hernandez

FIN-1050

The Millionaire Next Door

1. Regarding the concept of Big Hat, No Cattle: Explain this concept. Address
why this concept is relevant to the idea of The Millionaire Next Door?

The concept of Big Hat, No Cattle refers to those people with big incomes who
spend great part of their money to keep a lifestyle above their economic
conditions, but they make a little effort to invest their money to be economically
independent in the future. They pretend they are rich, but their real net worth
reveal they are not.

This concept is relevant to the idea of The Millionaire Next Door because if you
only dedicate to spend without limits, if you dont invest your money thinking in
the future, it is impossible you can be millionaire, economically independent or
that you can retire in comfort.

One of the examples I liked about this concept is on pages 48-49: Mr. Petersen,
the marketing manager, has zero invested in stocks. He never invests any of his
income. But he lives in a $400,000 home that is surrounded by others in the high-
tech field who have big hats and bigger mortgages, but no cattle. Too many high-
income/low-net worth types live from paycheck to paycheck, fearing a sudden
downturn in our economy.

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. Richards has nearly five times the net worth of Mr. Ford because he has
clear objectives about how reach his economic independence in the future. He
keeps a frugal lifestyle which allows him to have extra money to invest. Also, his
business as proprietor of a mobile-home dealership or the fact of living in a
middle class neighborhood helped him to keep this kind of lifestyle.

On the other hand, Mr. Ford is an attorney and his profession push him to have a
lifestyle according to his field. As it is explained on page 15: Clearly, Mr. Ford,
the attorney, must spend significantly more of his household's income to maintain
and display his family's higher upper middle-class lifestyle. What make of motor
vehicle is congruent with the status of an attorney? Foreign luxury, no doubt.
Who needs to wear a different high-quality suit to work each day? Who needs to
join one or more country clubs? Who needs expensive Tiffany silverware and
serving trays?
 I consider that doesnt matter your work field if you have clear objectives about
what you want to reach in the future. If you live to pretend you are rich, but you
dont work to reach this objective, you always will be a UAM and your future will
be uncertain.

3. UAWS live beyond their means. PAWS are builders of wealth. Describe
someone you know who is either a UAW or PAW (or is headed in that
direction) & what can be learned from their example.

The father of a friend is the perfect example of a PAW. He was the vice-president
of a jewelry company and his annual income was approximately $250,000. In an
opportunity I visited his house and I was amazed of his frugal lifestyle. He and his
wife lived in a very modest house in the mountains with beautiful views, but
without neighbors around them. They didnt show they were rich, but surely they
were.

Now, they moved to other state, he is retired and they are enjoying a stable
future. After read this book and see their examples, I learned how important is
planning for the future and live below our means. If you want to be rich or retire in
conform, you have to be disciplined with your finances. There is no other way.

Also I learned about their examples how important is that a couple have the
same objectives and ideas about how to keep a frugal lifestyle and offer this
knowledge to their kids because in this way you will teach them that money
doesnt grow in trees. There is a lot of sacrifices, planning and hard work behind
it.

4. 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?
She did what she had been doing since the beginning of her marriage: finding
ways to save money by using coupons for groceries each week.

Why would someone who is a millionaire need to budget?

Because budget is the key to have a quality defense in wealth accumulation.

5. 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.
 This comment about being possessed by possessions describes how Teddy is
so focused to earn money to buy things that can impress other people and shows
his apparent wealthy lifestyle, but sometimes these people he want to impress
are product of his imagination. I like the suggestion on page 51 about people like
Teddy: Are you motivated by significant others? Perhaps you should consider a
different approach to life. Perhaps you should reorient yourself.
What was the small change Teddys parents could have made that would
put them in the millionaire category? (Be specific).
If they could have put into practice the importance of save for the rainy days and
invest, their economic situation could be totally different.
Their philosophy were: One earns to spend. When you need to spend more, you
need to earn more. Also they thought they could live in the future with their
pension and the equity of their modest home.
Another example of their mentality about investment was they thought that small
expenses like buying cigarettes didnt create a huge impact in their income, but
small expenses become big expenses over time. Small amounts invested
periodically also become large investments over time.

6. Mr. Rodney is a high-income/low-net worth corporate manager. Explain

why he is described as having sold his financial independence.

Mr. Rodney sold his financial independence because he didnt take wise
decisions about his finances even though he had opportunities to do it through
his job.

For example: Each year [he] could purchase the equivalent of 6 percent of his
income in shares of the corporation, which would reduce his realized taxable
income. Also, the corporation would match his purchase of company stock up to
a certain percentage of his income, but he didnt because the burden of their
expenses didnt allow him to have extra money to invest.

Although he wanted eventually to become financially independent, he could not

reach that goal with this kind of lifestyle and sadly he could finishing on the
perpetual earn-and-consume treadmill.

7. If your goal is to become financially independent, what should your plan

be? (Be specific).

If I have that goal I should be frugal and sacrifice high consumption today to have
financial independence in the future. It is so simple, but it requires planning and
budgeting, establishing clear goals about the future and getting more preparation
about finances and how invest my money.
 I liked the example on page 67: Earning $100,000 may be required to purchase
a $68,000 boat, for example. Millionaires tend to think this way. That's why only a
minority own boats. Do you plan to live on a boat after you retire? Or would you
prefer to live on a $3 million pension plan? Can you do both?

It is sad to have a good income and finishing without the possibility to retire in
comfort or without the hope to help your kids to go to college because you had
not the ability to control your spending.

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

He declined the gift of a Rolls-Royce for some reasons. The first one, and my
favorite, is he knows that products change people. If you acquire one status
product, you will likely have to purchase others to fill up the socially conspicuous
puzzle. Before long, your entire lifestyle will have changed.

He wanted to keep his lifestyle as it was, he wanted to go to fish and this kind of
car didnt allow him to do some of the things he really enjoyed. He also knew that
show this car in his business could give the wrong impression to their employees.

As it is explained on page 112, Mr. Allan recognizes that many status artifacts
can be a burden, if not an impediment, to becoming financially independent. Life
has its own burdens. Why add excess baggage?

9. Regarding Economic Outpatient Care (EOC), answer the following three (3)
questions:

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

I consider the financial outcome for Mary & Lamar will be really bad because they
didnt take advantage of the Economic Outpatient Care they received from
Marys mom to invest. This money only helped them to keep a facade of
lifestyle they cannot afford by their own means. They was taught to be
dependent, they see is easier to spend without control the money of others and
sadly although they receive a large amount of money by inheritance, they will
continue with this lifestyle until they dont have a cent.

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?

The result of the ideal environment is she always will have fear to take risks by
her own because she had the economic support of her parents. She didnt have
to work hard to see the outcomes of her business. She didnt invest her own
money and for this reason she didnt know what means losing it product of bad
 decisions. This ideal environment only leads to failure because as it is explained
in the book: The most successful business owners are the ones who put much
of their own resources behind their ventures. Many succeed because they have
to succeed. It's their money, their product, their reputation. They have no safety
net. They have no one else to rely upon for their success or failure.

In the case of Laura (A Woman of Great Courage), explain the primary

message derived from her story?

The primary message of Lauras history is her courage to face adversity. The
situation with her divorce helped her to see other opportunities of career to
provide for her and her kids. In that time of adversity, she shown the talents she
had been developed in the past. Also her integrity allowed her to succeed in the
real state field and even though of her economic reality, she continued with her
frugal lifestyle. I liked this quote at the end of the letter: As we have often
agreed, appearances are much less important than the courage, discipline, and
resolve of people who are economically productive.

10. Regarding Affirmative Action, Family Style, answer the following two (2)
questions:

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

One of the most significant consequences to Beth and her husband from
receiving EOC is they were losing their dignity. They became so dependent of
the money from Beths parents that they have to tolerate teasing against Beths
husband. He was considered as an employee of Beths parents.
On the other hand, living close of her parents allowed them to give opinions
about the life of this family.

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

For me, this rule is the most important: No matter how wealthy you are, teach
your children discipline and frugality. This rule can be applied to any people. I
consider the world could be a better place if we receive this teaching in our
homes.

The main responsibility of parents is to teach their children to be independent,

productive and good people for the society because they dont go to be eternal to
provide with constant help to their kids.

If children see their parents apply this rule in their own lives, they surely will
follow their examples and will put it in practice in all aspects. I believe this rule is
important not only in terms of money. Life is so complex and we add it more
 problems when we dont have control of our actions. Discipline and frugality can
provide us of the necessary self-control to be successful with our finances and
with many other goals we have in life.

11. 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 was that the residents of the vacation condominiums didnt like
Mr. W because he and his family didnt try to look like rich people as them.

He and his family were not what some would consider to be beautiful people. In
contrast, the complex was filled with (in Mr. W.'s parlance) the best-scrubbed
condominium owners one could ever imagine.

12. Now that you have finished reading The Millionaire Next Door, answer the
following three (3) questions in a minimum of three (3) paragraphs. (12 pts)
What are the two (2) concepts you found most useful? Explain why.
Give a specific example of one small change you can make to improve your
financial well-being.

The two concepts I found more useful in this book were be frugal and be
financially independent. Why? Because I consider all people have the desire to
retire in comfort and to dedicate the last years of their lives to enjoy after a long
period of hard work, but this only can be reached with discipline in our spending.

In this country you have to learn to be frugal if you dont want to be paying debts
until the rest of your days. In the United States is so easy to get material things
and to create the stereotype you are a rich person.

I am from Venezuela and my parents were very frugal to allow to my brother and
I to go to private schools and even private colleges. I dont remember we could
take vacations each year, but in my home there was always money for our basics
needs and for private education, and only my father worked.

I consider the small change that I can make to improve my financial well-being is
planning and budgeting. This is the beginning of a frugal lifestyle because if you
see how much you earn and how much you spend, you can distinguish where
you have to make changes or apply more control.

This knowledge also will allow me to plan ways to invest my money and work
toward financial goals in the future. The discipline is key to have a frugal lifestyle
and I believe is possible to reach any goal in life. Each person is the architect of
his or her future. Nobody else go to take decisions for you.

If you want that your kids go to college and they have more opportunities in the
future, you have to decide now if you wish to save money and invest to reach
that goal or buy a new car to impress your friends or neighbors. At the end, they
dont really worry about your life and your possessions and they dont go to help
you to reach your financial goals. Our future only is in our hands.

Reflective Writing

I found really interesting the reading of the book The Millionaire Next Door
because allowed me to understand the essential principles for the creation of
wealth in this country and how important is to have clear objectives about
personal finances with the purpose to reach economic independence in the
future.

I consider this assignment gave me the opportunity to communicate effectively

my ideas because I had to read this book and later organize my thoughts in order
to offer the adequate response to each of the 12 requested questions. Also I had
to publish this assignment in my e-portfolio and this allows me to reach different
audiences interested in this topic.

Another Learning Outcome I used to complete this assignment was think

critically and creatively because each of the questions required reasoning
effectively from available evidence, engaging in creative thinking, expression, and
application and engaging in reflective thinking and expression. I really appreciated
the opportunity to read this book, analyze its content and find ways to put in practice
its teachings in my own life. One of my favorite quotes from this book was: Wealth is
more often the result of a lifestyle of hard work, perseverance, planning, and, most of
all, self-discipline.