Living Below Your Means
Re: "Millionaire Next Door"...

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By 2gifts
January 20, 2005

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There is little to no reward for working hard for others. I know from my personal experience (20 years in the labor market.) Military? Give me a break. You might get a certificate of achievement. Large corporation? Sure, work long hours (usually unpaid overtime) and you "might" get a promotion. But in 15 years I never saw anyone get one based on their long hours or devotion to the Co.

I am the millionaire next door, and I got here by hard work. I do work in high-tech, so that has helped, but I live in MA, which has a ridiculously high cost of living. We are a 2-income family, but I have always made multiples of what DH makes, and he has spent years being unemployed if you string it all together simply because of the industry he likes to work in. He is now self-employed and does OK, but it's nothing to write home about.

Here are our 'secrets':
- We have never taken on debt except for mortgages to buy a house. That means that we have always saved up cash first for everything including cars, and contrary to popular opinion, we've tended to buy those new. We've also always run them into the ground and seldom move on to the next vehicle unless the current vehicle has at least 200k miles on it.
- We have always paid ourselves first. That means that we have always maxed out our retirement accounts, but I have never considered that to be sufficient. We always save in addition to retirement accounts for things like our retirement, the kids college, the next car, and something for what I consider slush fund for those other wants along the way. So in reality, we have typically been able to save all of DH's salary plus a portion of mine.
- I have moved up through the ranks, and it has been on hard work. It has most certainly not been on working tons of hours as I have never worked more than a 40-hour week, but I'm fairly efficient and have also always been replaced by at least 2 people and sometimes 3 people whenever I have moved on from a job. There is something to be said for working smarter and not harder or longer.
- We know our priorities and have set goals for ourselves. That includes retiring somewhere before 60, and probably much closer to 55 as well as being able to put the twins through the college of their choice. We don't care what anyone else is doing or has. We only care about what we want and need, and that's how we set our goals.
- Unlike my parents, our savings has gone into investments, most of which are stocks right now, so the performance and growth has been reasonable over the years.
- Our first house was in Boston, but because we couldn't afford a single family, we bought a fixer-upper multi-family, lived in the worst apartment, and did all the work ourselves. That house quadrupled in value in the first 4 years, so we leveraged it to have down payment money for our own single family. And that house continued to have positive cash flow over the 16 years that we owned it.
- I do live in one of those custom-built houses, but we did it with a few key ground rules including that it would not impact our retirement or the kids' college savings and that we could still do it on my paycheck alone. We did that, and 5 years after we built it, this house is worth slightly more than twice what we have into it, but again, we did the General Contracting and quite a lot of the work ourselves, so the additional value is from our sweat equity as well as some appreciation.

Everyone seems to like to think that you just can't get to that millionaire next door status, but you can, and I am not the only one on the boards who has done it, but it's always dull and boring, so no one wants to do that or wait for the rewards to come in. Patience is a virtue and is very much rewarded financially if you are willing to wait. The problem for a lot of people is that they simply do not want to wait, so they figure there must be this magic formula, or that short of hitting the lottery, you'll never get anywhere, and that becomes a nice excuse for spending money they don't have and digging that hole deeper.

We set our goals, and put a plan in place that has worked well for us. We are well on the road to early retirement, and the only thing really keeping me working right now is that I'd prefer to have the kids out of college before I retire so that I have a more predictable cash flow.

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