Jun 222020
 

This is the third and final post in this series where I discuss the most influential events of my personal finance journey. I like to save the best for last so today I’m discussing a book called, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” by Thomas Stanley and William Danko. 🙂

The Millionaire Next Door

A hundred years ago everyone owned a horse but only the rich had cars. Today the middle class drive cars and only the rich have horses. Oh how the stables have turned. 😎 The advantage of building wealth today is you don’t have to be smart, highly educated, inventive, or take precarious risks. There’s actually a rulebook – a set of specific guidelines that you can follow to reach millionaire status. It all comes down to practicing some simple habits. 🙂

saving like a millionaire next door

I read the Millionaire Next Door when I was 20 years old because I wanted to know how rich people live so that I can be like them one day. Or better yet – for the rest of my life. 😉 What I discovered from the book blew my mind. For some reason I had the misconception that most millionaires inherited their money, and enjoy spending it on lavish goods and luxuries. But instead, the book revealed that 80% of millionaires are self made. And most of them live a very low key lifestyle – known as stealth wealth. Your next door neighbor could be a millionaire, but you probably can’t tell just by looking. The book is essentially a compilation of behaviors and habits of rich people through academic surveys.

I decided to follow in the footsteps of the millionaires in the book. Since 4 out of 5 millionaires are first-generation affluent it gave me more confidence that I don’t need any financial help from my parents to reach a 7 figure net worth.

My plan was straightforward. I would simply behave like a millionaire until I became one. 😀 That’s literally all I did. Everything I needed to know to act like a millionaire was right there in the book. And believe it or not this actually worked! 13 years later I became a millionaire. 🙂 So let’s take a look at the behaviors I began to adopt back in 2007.

 

The Characteristics of a Millionaire

Here are 10 habits that I picked up from the book. Some of these behaviors I followed to a T in order to improve my chances of success.

  1. Millionaires spend twice as many hours per month planning their investments as other people.
    At first I didn’t know how this would actually help make me a millionaire. But I did it anyway. And it was pretty easy. I started to watch the performance of my investments more closely. To my surprise, what I paid attention to grew the fastest. For example, by focusing on my retirement plan, my RRSP has now grown to $150,000.
  2. Wealth accumulators don’t drink much, and spend less than $10 on average for a bottle of wine.
    Alcohol is often taxed more than other goods. An evening spent drinking can cost $50 or more, especially if you order the good stuff. But rich people usually don’t drink. And when they do it’s often something affordable. 🙂 I have followed this rule myself and have saved lots of money. There are tons of other activities in life to enjoy. Drinking alcohol doesn’t have to be one of them.
  3. The millionaire next door probably doesn’t smoke.
    The financial cost of smoking can be expensive. And it’s not good for your healthy either. Although I’ve heard it is good for curing salmon. 😎
  4. Most wealthy people own cars instead of leasing them. The millionaire’s car make of choice: Toyota.
    I bought a used Toyota in 2010. I’ve been driving it for the past 10 years. Amazingly it still works like new. 🙂 I could probably get another 10 years out of it. It’s fuel efficient, cheap to maintain, and easy to insure. I can see why millionaires like to drive these.
  5. Millionaires avoid buying status objects. They tend to reject status symbols whenever possible.
    You can either look wealthy or be wealthy. But it’s nearly impossible to do both. That’s why I don’t own luxury brands. This alone has saved me thousands of dollars over the years. I don’t even have any Apple products since there are always cheaper alternatives.
  6. Millionaires like to track their spending. 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 one-third of high-income non-millionaires answered yes to this question.
    I started to track my spending when I learned about this habit. It doesn’t take too much time with a spreadsheet. It really makes me feel in control of my budget and personal finances. 🙂
  7. Most millionaires work between 45 to 55 hours a week.
    I adopted a 50 hour work week in my twenties by taking up a part time job. It has worked out really well as the skills I’ve learned from the side job has given me the tools to advance my full time job. 🙂 The U.S. Bureau of Labor Statistics reports that the average person who works 13% longer earns 44% more pay. So there’s a nonlinear return on overtime.
  8. About 80% of millionaires have brokerage accounts. But they make their own investment decisions.
    I used to have a financial advisor in college. But after reading this book I took out all the money and started to invest it all myself. Best decisions I’ve ever made. Saved myself over $50,000 in management fees.
  9. The vast majority, (97%) of millionaire are homeowners. Most of them have lived in the same home for over 10 years. Thus, they have likely enjoyed significant increases in the value of their properties.
    This is why I’m a staunch proponent of real estate investing and saved up a downpayment ASAP when I was starting out. There’s a huge correlation between being rich and being a property owner. I’ve lived in my home for nearly 12 years now. The market value has easily doubled. 🙂
  10. On average, the wealthy invests nearly 20% of their realized income each year.
    My salary today is around $70K, the highest it’s ever been. But no matter how much I earn I always invest at least 20% of my income every year. Consistency is key. Making six-figures would be great, but it’s not required to become a millionaire.

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Dec 022019
 

Best Bull Market Ever

Stock markets are at record highs. The year to date return of the S&P 500 is 25% – a staggering performance! But of course making money from companies isn’t just about percentages. Otherwise everyone would simply invest in hard liquor. Because where else can you get 40%? 😎

In 2008 my net worth was $0. But thanks to the strong market performance over the last 11 years I’m finally a legit millionaire! Hurray! 😀

I’m currently worth $1,024,500 😀.  Apparently only 1% of self-made millionaires become wealthy before the age of 40. So I feel very fortunate to have this experience now. But my journey is far from over. In about 3 years I will be 35 yrs old. By then I hope to realize my ultimate goal of becoming financially free – hence this blog’s name. 😀

Every few years I update my financial freedom progress. The last time I fully inspected my finances was in 2017. During that update I calculated my net worth to be $610,000. I guess I should post another update soon to see if I’m still on track.

In terms of which investments got me to where I am, the biggest heavy hitters I have in my portfolio are stocks and real estate. 🙂 Both asset classes have performed tremendously over the last decade. That’s the wonderful thing about investing. You don’t have to be highly educated or technically skilled. You can simply buy something and wait for it to go up. Then you automatically go along for the ride and watch your money grow. 😉 As a buy-and-hold investor of dividend stocks and real properties I’m able to keep my trading and management fees to a minimum. Here is my current asset allocation breakdown.

Why have investments gone up so much in value since the great recession? It’s primarily thanks to the central banks. Around the world they have quadrupled the money supply in the financial markets from $5 trillion, to over $19 trillion. Apple cannot issue shares via a new IPO, and nobody is making new land out there. So nearly all the newly printed money is chasing after existing, finite resources. The result? Investors win. Investors who use other people’s money to invest win more. And savers lose.

Although my wealth hasn’t changed much month over month, there’s something visceral about that $1 million figure that makes me feel like a proper Bourgeoisie. 🙂 Maybe it’s all in my head. But it feels pretty amazing to have this level of financial security.

However I have to be careful. With great wealth comes great temptations. The average millionaire goes bankrupt at least 3 times, haha. Both Henry Ford and Walt Disney lost all their money and filed for bankruptcy before achieving a more permanent level of success. I hope I can keep the moment going and continue to build up my portfolio. 😀 It would be nice to eventually earn a six-figure passive income from my investments.

Liquid’s Financial Update November 2019

*Side Incomes: = $3,200

  • Part time job =$800
  • Freelance = $500
  • Dividends =$1200
  • Interest = $700

*Discretionary Spending: = $2,400

  • Food = $400
  • Miscellaneous = $700
  • Interest expense = $1300

*Net Worth: (ΔMoM)

  • Total Assets: = $1,406,600 (+22,100) 
  • Cash = $13,200 (+4100)
  • Canadian stocks = $200,500 (+5400)
  • U.S. stocks = $140,500 (+5600)
  • U.K. stocks = $22,700 (+800)
  • Retirement = $143,000 (+5300)
  • Mortgage Funds = $37,700 (+600)
  • P2P Lending = $37,000 (+300)
  • Home = $367,000 (assessed land value)
  • Farms = $445,000
  • Total Debts: = $382,100 (-3,000)
  • Mortgage = $185,600 (-500)
  • Farm Loans = $161,900 (-500)
  • Margin Loans = $34,600 (-200)
  • Line of Credit = 0 (-1800)

*Total Net Worth = $1,024,500 (+$25,100 / +2.5%)
All numbers are in $CDN at 0.75/USD

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Dec 012016
 

More Millionaires 

The best way to make a lot of money is to work for the mint. 😄 But even if you don’t, chances are your finances have been improving. About 25,000 Canadians became millionaires in the past year according to a report released last week by Credit Suisse. The bank claims that there are currently 1,117,000 individual adults with net assets exceeding US $1,000,000. 😀 We normally see studies of Canadian millionaires based in $CAD, but this study uses $USD to define millionaire status. These kinds of wealth studies are telling, but they tend to underestimate real net worth because participants may forget, or choose not to disclose particular assets such as their precious metals, art, collectables, jewelry, etc. Many of these items such as gold can be acquired anonymously with no paper trail. I think the real number of millionaires is quite a bit higher.

Based on its forecasts in the growth of Canada’s GDP and equity market capitalization, Credit Suisse expects the number of millionaires to increase by 50% to 1,680,000 in 2021. I hope one of those new entrants will be me. 🙂

But 2021 is still five years away and a lot can happen since then. I believe low interest rates are the main cause of asset price inflation which has resulted in so many new millionaires in recent years. But a pull back could be right around the corner. Let’s take a look at history.

16-12-snp-500-index-chart

Between 1988 and 1990 much of the world was in recession with riots breaking out in the UK. 10 years later between 1998 and 2000 we had the Asian financial crisis and the dot-com crash. 10 years after that between 2008 and 2010 we had the great recession with the Lehman and AIG panic, and European banking crisis. They say history doesn’t repeat itself, but it rhymes. And I am certainly seeing a pattern here. 🙂

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Sep 012016
 

Millionaire Status

After checking my balance sheet for the month of August I realized that the value of all my assets is worth $1,006,200. Great Scott! For the first time in my life I own a million dollars worth of stuff! 🙂

According to the official Oxford Dictionaries website, a millionaire is “a person whose assets are worth one million dollars or more.” The word “assets” is commonly defined as any owned items or properties that have financial value. So according to this official definition I am now technically a millionaire! ? Gosh almighty! Below is my reaction right now.

16-08-owl-smile-aww-yeah-millionaire

I started investing about 8 years ago. I mostly just buy a wide range of investments and use diversification to lower my risk. I also intend to hold my investments until I retire. It sounds like a simple strategy, but it works for me. 🙂 Some readers may think I’m a good stock picker. But that’s not true.

In the last 7 years falling interest rates have pushed up asset prices across the board for stocks, bonds, and real estate. The S&P 500 index in the U.S. returned over 150% to investors since 2009. 😀 Good heavens!

My point is anyone could have randomly invested in a basket of different securities starting in 2009 and would likely see similar appreciation in their assets as I have. 😉 So I didn’t get lucky choosing stocks. But I am lucky to have started investing near the bottom of the great recession in 2008.

Continue reading »

Nov 032013
 

In 2011 Asia overtook North America as the region with the most High-Net-Worth-Individuals in the world. A HNWI is someone who has at least $1 million of investable assets, not counting primary residence. But last year in 2012 there were more new millionaires in North America than in Asia and we pulled into the lead again according to a study by Capgemini and RBC Wealth Management. Fantabulous! 😀 We now have a total of 3,730,000 HNWI on this continent. We’re number 1 🙂 And Asia follows closely behind in second place with 3,680,000 HNWIs. Europe is ranked 3rd with 3,400,000.

However Asia is set to retake the top spot again by as early as 2014, the report’s researchers predict. Oh man, it seems to be a neck-and-neck millionaire race between us and Asia. C’mon fellow North Americans. We can’t let them out rich us 👿  By the way the Asian countries in this study include Australia. Sorry my Aussies friends, you guys are involved in this matter whether you want to be or not 😉

One of the reasons for the large influx of new Asian millionaires over the last decade is because of high wage inflation in most Asian countries. Right now the Asian region, including Australia, is growing their economy faster than us Westerners. Below are charts showing income growth in China and Australia.13-11-asian-wage-inflation

Can you imagine working in China where your wage increases by over 10% EVERY year! Holy habanero sauce! Similar deal in Australia where if you made $1,000 a week in 2012, then chances are you’ll be making over $1,100 a week today! What?! 😯 That’s very improbable for the average North American worker. So unfortunately for us the long term trend does not look promising for Canadians and Americans 🙁 Hopefully we can find new ways to improve our competitiveness and create more millionaires!

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Random Useless Fact: The older you get, the better you get. Unless you’re a banana