One of the best books I’ve ever read on personal finance is The Millionaire Next Door. It was first published in 1996, at a period in time when the accumulation mindset was in full force throughout American society. Without discussing it in great detail here (if you’ve not yet read it, I would certainly recommend doing so), the book emerged as the result of work done by two credentialed business academics, Dr. Thomas J. Stanley and Dr. William D. Danko, who studied the lifestyles of “typical” millionaires…the ones who work at fairly regular kinds of labors…to identify the patterns and common denominators that define them. First and foremost, the book emphasizes the chronic frugality of the “millionaires next door,” and it is this theme that comes up most frequently throughout the book, even when other topics related to achieving millionaire status are at issue. Does this mean that living substantially within one’s means is the most important component to growing one’s net worth to a significant size? I would say, “Yes.”
The reason for this is fairly simple and straightforward: the further inside your means you live, the more money you have to set aside into savings and investment accounts, as well as to apply toward any of the existing debts you have that serve to diminish your net worth. The budget allows you to clearly define your spending boundaries, and begin to work toward further distancing yourself further from them for the purpose of creating even more disposable income. There’s nothing exotic about the task of creating a budget and ensuring that you stay within the guidelines it establishes, but it may well be the single most important component to realizing financial independence. After all of these years and after all of the supposedly “new and improved” ways of getting things done that have evolved, it is still the time-honored principles of financial planning that best serve the vast majority of us.
Jim Paris and I just recorded a 2 hour video covering all aspects of budgeting and the variety of methods that are now available to set up and track your spending. If you are struggling to make progress in growing your net worth, you should grab a copy. The cost of the download is just $15, but it is free for members of ChristianMoneyPlus. If you are serious about taking control of your financial life, once and for all, this video will prove to be a great foundation of information and training.
Robert G. Yetman, Jr.
Managing Editor, The James L. Paris Report