Tuesday, February 05, 2008

Millionaire Next Door: Living Below Your Means

The Millionaire Next Door is a must read for those of you who are working to make a change to your financial situation. Below are the 7 common denominators among those who successfully build wealth, which I’ll be discussing over the next several posts.

1. They live well below their means.
2. They allocate their time, energy and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

They live well below their means
This is so basic, yet it eluded me for years. The more money we brought home, the more we spent. At first we lived about equal to our means. Then as our cars got fancier, our closets became fuller, our toys became more expensive, and our vacations more costly, we slowly watched our savings account start to drop and it became apparent that we were living above our means. Not only was our “nest egg” savings account balance dropping, but the amount of debt we had started to get higher.

It’s so simple that it’s laughable that people don’t follow this. But I can’t laugh because I lived that life for years. We always knew there was money in the bank so we never kept track of how much we were spending.

I can’t tell you the day it hit me, because it was kind of gradual. Those checks I wrote every month for the car payments really bothered me. We were paying $455 per month on Pool Boy’s truck and $535 per month on my Yukon. Yes, almost $1000 per month just on cars! Then we installed the swimming pool, so we had that monthly payment. Not to mention the mortgage and heloc we already had. Plus we had several little loans to Best Buy, a carpet company, a furniture store, and on and on. Even though this is considered “normal”, I was no longer comfortable being “normal”.

The “what ifs” of our situation scare the hell out of me. What if I hadn’t stumbled upon Dave Ramsey’s podcast on iTunes that day? What if we kept living as we had been and never realized what our situation truly was? What if our kids went to college fully funded by student loans, and started their lives deeply in debt? What if we had no money saved back for retirement other than my 401K and my husband’s retirement? What if we were still trying to “look” good instead of actually BEING good? What if we never realized how horrible debt is?

Please don’t let my “what ifs” listed above be your reality.