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Questions The Millionaire Next Door

1. Explain the following two (2) concepts addressed in The Millionaire Next Door.
Big Hat, No Cattle: This concept refers to a type pf person that looks like a
millionaire with expensive, luxury items but does not have actual wealth. They
spend money and does not save or invest. For example, they build a big, fancy
farm but do not have cattle to support the farm. Cattle provide income.
Investments provide dividends or something similar. Hence, they have fancy hats

but no cattle.
Go to Hell Fund: This concept refers to the accumulation of wealth that is
enough for someone to live on without working for more than ten years. For
example, a person with an annual income of $25,000 and an actual net worth of a
$1 million can live on the money without working for 40 years as long as they
live under their means and manage their finances well.

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).
Richards and Ford have an annual income of about $90,000-92,000. They are
expected to have a net worth of about $450,000-470,000. The rule for being a
prodigious accumulator of wealth (PAW) is that the person must be worth twice
the expected net worth. If the person is worth the half of the expected net worth,
they are considered as an under accumulator of wealth (UAW). In Richards case,
his actual worth is about a million, making him a PAW. In Fords case, his actual
worth is about $230,000, making him a UAW. Richards has almost five times the
net worth of Ford because he lives under the means while Ford lives above the

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means, which accounts for the huge gap between their net worth, despite having
similar annual income.
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?
She continued to cut out 25-cent and 50-cent coupons from the newspaper,
a chore she continued from when she started early in their marriage.
Defense is still important no matter how much money she has.

Why would someone who is a millionaire need to budget?

Budgeting and planning is the foundation stone of wealth accumulation
and defense. If a person have high income but dont budget well, they will
have hard times accumulating wealth, despite having high income.

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.
It means that Teddy works incredibly hard to attain many luxurious
material possessions to display his illusionary wealth status. He is solely
motivated by the idea of accumulating expensive items so he can feel
equal to those with a college degree and wealth he does not have. He does
not recognize that wealth means accumulating enough wealth that he can

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live on without working for more than ten years. His obsession with
gathering possessions comes from growing up with poor, shopaholic
parents with little financial skills and witnessing materialism from rich
high school kids. He feels a strong need to outperform these people and
have a better life. He is taught that one earns to spend. As a result, he's
possessed by possessions.

What was the small change Teddys parents could have made that would put
them in the millionaire category? (Be specific.)
Teddy's parents are smokers. They have smoked three packs of cigarettes a
day for 46 years, accumulating a total expense of $33,190. That is a lot
more than the price of their house. If they stop smoking, invest this
amount of money into buying Philip Morris shares, reinvest dividends into
the same company, and never sell shares for 46 years, they'd have shares
worth of over $2 million by then. Thats under $2 million of profit! This
small change alone will put them in the PAW category because this wealth
exceeds their annual income by miles.

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

described as having sold his financial independence.
Rodney has a $4,200 monthly mortgage payment, two leased vehicles, tuition
bills, club dues, vacation home repairs, and taxes to worry about. He is forced to
use almost all of his income just to make the ends meet, leaving very little money
for investing. He is trapped in the rat race. As a result, he is unable to afford
investing in his employers tax-advantaged matching stock purchase plan. He sold

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his financial independence because he earns and consumes first before anything
else. If he has invested in his employers stock purchase plan from the beginning,
hed become a millionaire and gain financial independence. If Rodney buys a
reasonably priced house and car instead, he might be able to afford investing. A
vacation home and leased cars keep him from moving forward financially.
6. Why did Mr. W.W. Allan decline the gift of a Rolls-Royce?
Owning a Rolls-Royce car will not fit into his lifestyle as a fisherman. He adores
living as a fisherman and does not want to change his lifestyle in order to
accommodate owning a Rolls-Royce car. For instance, he cant throw bloody fish
into the back seat of the Rolls-Royce and he loves to fish. Also, it wont be
efficient to operate two cars because a Rolls-Royce car has no place in the fishing
area. Lastly, he cant go to places with a Rolls-Royce like he can with his old car.
For instance, he works in the old industrial area. If he brings the new car to the
area, it will make his workers feel exploited and resentful of him.
7. Regarding Economic Outpatient Care (EOC), answer the following four (4) questions:

Define Economic Outpatient Care (EOC).

According to the book, economic outpatient care (EOC) refers to the
substantial economical gifts and acts of kindness some parents give
their adult children and grandchildren (Stanley & Danko 2010). For
example, Marys parents give her cash gifts worth more than $15,000
every year. Not only that, they also give their daughter stock every three
years. They even help out with buying houses, paying mortgage bills, and
more. In doing so, they have made Mary financially dependent because

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Mary and her husband are high-volume consumers that love to live large
and lavish, despite only having an annual income of $60,000. EOC can
also result in non-productivity in the children of the affluent because they
consistently have money handed to them and wont recognize the
importance of earning money with hard work.

Upon learning his parents were donating their property to the local private
college, describe Jamess reaction.
James gets upset because he considers the property also his. He does not
want the college to have the property. The property translates to money
that is his to spend. Jamess reaction is an example of the Montage Effect.
It means that hes not emotionally and financially independent from his
parents. This effect is common in gift receivers because they have
received monetary gifts from their own parents for years. As a result, they
feel entitled to their parents income and the like and consider them also
theirs.

Why was Jamess response predictable?

Jamess response is predictable because he is a gift receiver throughout his
life and does not recognize his parents wealth as separate from his own
wealth. He is financially dependent on his parents. He anticipates
receiving monetary gifts every year because it is a constant in his life. As a
result, he does not worry much about working for money, overspending,
and living on credit and with debt. That explains why he gets upset with

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his parents for giving away the property to the college because hes
worried about losing money that is his to spend.

As illustrated in the example of Henry & Josh, what is the fundamental rule
regarding wealth building? (Be specific.)
Whatever your income, always live below your means. It means living
frugally so you can invest and build wealth you can live on for years.

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?
The parents gave Beth and her husband Robert subsidized housing and
annual $20,000 cash. They live close by to the couple to watch over and
control them. For instance, Beth's mother come to the house whenever she
wants, invited or not. They chose the house, not Beth and Robert. The
house is owned by the parents, not the couple. The father gave Robert a
job as a way of controlling him. The parents do not respect Robert by
seeing him as a bozo. Beth is a housewife, has children, and do not have a
job. Because the couple are high consumers, they are heavily depending
on Beth's parents for financial support. The parents are too controlling.
Under these conditions, it's extremely difficult for the couple to develop
ambition, economic self-confidence, and independence.

Explain the concept weakening the weak.

Weakening the weak means that someone intervenes on the behalf of a
person and ends up preventing this person from developing confidence,

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ambition, and independence on their own. For instance, a person has
problems saving money. Instead of teaching them how to save better, they
give them money instead. As a result, a person still do not know how to
save money better and ends up depending on the parents for money.
Weakening the weak means that they weakened the weak to the point that
they end up developing financial and emotional dependence instead of
skills necessary to overcome financial adversity.

What did Kens father tell him often? (Be specific.)

Kens father often tells him that he is impressed with what people achieve,
not what they own. Also, it is important that they become the best in the
field they choose, that they are proud of their work, and not chase the
money because being the best will bring the money to them. Achievements
are more important than material possessions.

9. Explain the root cause for the conflict between Mr. W & the residents of the vacation
condominiums. (HINT: Its not because of his dog.)
Mr. W has sold all but one unit to the beautiful residents and use the remaining
unit for vacation purposes. He has a 35-pound dog he loves. Then the residents
passed a dog law that stated that dogs above 15 pounds are not allowed. It looks
like that the residents of the vacation condominiums tried to get rid of the dog. In
reality, they indirectly tried to evict Mr. W and his family because they are not
beautiful. So, getting rid of the dog will get rid of the family because they knew
how much Mr. W loves his dog. The attempts are not successful but Mr. W ends
up selling the unit because they dont want to stay with people that hate dogs.

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

How has your perception of millionaires changed?

I dont really have any solid perception of a millionaire to begin with. To
me, a millionaire makes more than a million dollars annually. Isnt that
why a millionaire is a millionaire? Now, after reading the Millionaire Next
Door, I understand that there is a lot more to being a millionaire than meet
the eye. A millionaire accumulates wealth that is enough to live on for
many years, not luxurious material possessions. Normal people can live
frugally and become rich.

What are the two (2) concepts you found most useful?
One of the two concepts I have found most useful is that it's important to
pay yourself first by saving and investing at least 15% of income before
paying the bills and the like. At this point in my life, it will be difficult at
first because of loans and debt but I will get there eventually. The earlier I
start saving and investing, the more wealth I can build. The other concept I
have found most useful is that it's important to allocate time, energy, and
money wisely. It means more financial planning than usual. According to
the book, PAWs allocate twice the planning the UAWs have done. So, it
pays a lot more to research and plan more than not. In the past, I was not
productive with my time. Now that I have a part-time job, I will use time,
energy, and money more effectively so I can create more wealth.

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Give a specific example of one small change you can make to improve your
financial well-being.
To begin improving my financial well-being, I will pay off credit card debt
and loans first so I can put the extra money aside for savings and
investing. From there, I can do a lot more to prepare for future retirement.

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: Communicate Effectively

This book helps me understand better how to communicate financial
matters more concretely and in specific ways. The book have multiple
terms I'm not familiar with but the concepts have been explained and
understood. For instance, a go to hell fund means that accumulation of
wealth that is enough to live on for many years. I now feel confident that I
can discuss financial matters with others and give examples or stories

from the book so we can move forward in our financial goals.

Learning Outcome #2: Think Critically & Creatively
This book helps me recognize the importance of living frugally so it inspires my
mind into high gear. Already, I have thought of ways I can cut down expenses
like going to thrift shops for shoes and clothes more often. The most memorable
items I have acquired from thrift shops are ski equipment, clothes, and boots. All
of them only costs $10 each and are in excellent condition. I used them on a
discounted ski trip with my boyfriend years ago and it was one of the best trips
ever. One of the best parts is that I dont have to spend a lot of money for a great

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time! I imagine that a millionaire next door can live frugally and still have fun
just like that.