All about the challenges of Midlife Finance

Advice From A Millionaire

What if you had the chance to find out what dozens of bona fide millionaires really think about a wide variety of things, from basics to luxuries?

That’s the gist of Jeff Lehman’s survey bookThe Frugal Millionaires. Lehman did extensive interviews with 70 different people who were millionaires — but with an important proviso. “Those who have ‘lost it all and made it all again’ seem to have cemented themselves into the urban myth of being financial experts because they’ve been to the dark side financially,” Lehman points out. “Aren’t the millionaires who have kept and grown their net worth the ones you really want to learn from?”

THE GANG OF SIX

Six concepts form the backbone of this intriguing book:

1)  Delayed gratification is easy — if you discipline yourself.

2)  Resourcefulness in getting what you want is key to your success.

3)  Make living below your means painless.

4)  Don’t waste anything — especially money.

5)  Keep your sense of self-entitlement highly minimized.

6)  Spending is ok… depending on what you’re buying. 

             (Or, in other words – make sure it’s worth buying, if you’re going to spend.)

These are people who don’t purchase, just because they can. Nor are they pennypinching misers. Repeat this mantra:

     “Being frugal is more important than being cheap.”

GETTING DOWN TO BASICS

More than 800 suggestions, covered in 24 different subject areas, make this a book worth wading through. Just a few of the more interesting subjects:

Buying stock.  Have a plan, don’t invest in anything you don’t understand, and only risk what you can afford to lose. Stock options are a great way to increase value — but not necessarily by hanging onto them: “Assume, for the sake of argument, that you did sell the options/stock, and had the cash. Would you take that cash and buy the stock back? If yes, then hold the stock. If not, then get rid of it.” But they don’t advocate selling them all at once — if done in sections, any negative cost is minimized. (“Don’t get greedy on these. Remember: 50% of a lot is much more than 100% of nothing. Options are always risky, and their value is not guaranteed to go up.”)

     Index funds are a surprisingly strong favorite — but if you read MLF’s recent post on these, you already know why.

Mortgages. This is one of the few subjects the millionaires disagree on, though they do argue for not being a “slave to your mortgage.” Some say pay it off — others prefer to use the money elsewhere, though they may argue they could pay it, if they wanted to. (Tax advantages are always cited here.)

Eating out. Although the vast majority do it regularly, for a variety of reasons, they’re not necessarily pro-restaurant – only one of those polled eats out all the time. They argue for eating (and preparing) better food at home, but also acknowledge they don’t always do it — seems to be more the time/effort issue getting in the way here.

Tricks to keep their bill low include drinking only water; buying day-old bread — from the best bakery in town; coupons (of course!) and bringing your own wine (Or skip dinner altogether, and order a beer, instead.) This tip is a practical one: “Take home half of what you order and have it the next day. It’s like getting a 2:1 dinner deal. Plus – you don’t gain weight.”

Clothing. After a cynical intro (‘Fashion models, movie starsand lot of famous people get their clothing for free. Everyone who wants to look like them pays through the nose.’), we get straight to the point: quality counts. So does weight gain — if you stay the same size, you can wear all of your clothes. Stay fit, buy classic, well-made piecesand you can be wearing them for decades to come.

You do have to take Lehman’s word for it that we’re listening to millionaires — they’re listed anonymously, initials only, with no way to check. (The vast majority seem to be male, based on their responses — and it’s a safe bet that most have had decades in business and investments, in order to grow their wealth.) Having said that, their advice is eminently practical, straightforward – sometimes almost too blunt – and very useful.

If you haven’t absorbed enough advice from your new buddies after reading this book, visit them (and learn some more) at the Frugal Millionaires website. While you’re there, take Lehman’s Frugal Testand see how you measure up.

7 Responses to Advice From A Millionaire

  1. I am going to have to check out the book. Thanks for sharing it. All of the tips they offer make sense and seem to go along with Stanley’s Millionaire Next Door book. I’ve started to incorporate some of the tips into my daily life – especially when eating out. My wife and I favor BYOB’s more since we can drink without paying a mark-up and we tend to bring home leftovers for lunches/dinners the next day.

  2. How very interesting! These six points are spot on, I believe. As to my position on the rest, I’ve change most dramatically about paying off the mortgage. I know many people who make it their priority; used to be one of them and dream about life without mortgage. Now, the mortgage is left to one side – it is the cheapest borrowing around after all – and all goes on investments.

  3. The mortgage issue seems like an easy one…until your job suddenly ends…or you have health problems…or some other catastrophic life event occurs. I can tell you, from personal experience, that no longer having to make mortgage payments during that stressful time is invaluable!
    Also…if we’d put that same money into the stock market, instead of paying off the house, we would have lost a truckload of it. So much for the financial advisors who advised us to put that money in the stock market — they got very, very quiet.
    So I’d still pay off the mortgage – or at least keep paying it down. We couldn’t have paid it off without those months and months of extra $$.
    Thanks so much, everyone, for writing and contributing. Your comments are read and very much appreciated!

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