The Millionaire Next Door

1. Explain the following two concepts addressed in The Millionaire Next Door.
a. Big Hat, No Cattle
i. Big Hat, No Cattle is describing those who put on the show of
money. They wear the expensive clothes, drive the fancy cars,
have the huge houses. But they are in extreme debt, and are
what the book called UAWs.
b. Go to Hell Fund
i. This pertains to someone who has accumulated enough wealth
to live for 10 years without working. And they plan to use it all.
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.
a. Mr. Richards lives below his means. Although he makes a good
income, he lives a blue collar lifestyle. He doesnt have a luxury car, or
have to wear fancy suits. This allows him to live below his means. Mr.
Ford has a luxury vehicle, an expensive suit for each day of the week,
country club memberships. He has a propensity for spending that
PAWs do not have.
3. Provide short answers to the following three questions.
a. Most people will never become wealthy in one generation if they are
married to people who are wasteful.
b. Upon giving his wife $8 million of stock, from taking his company
public, what did his wife continue doing?
i. She continued cutting her $0.25 and $0.50 coupons.
c. Why would someone who is a millionaire need to budget?
i. They became millionaires by budgeting and controlling their
expenses. They are able to maintain, and continue to grow their
affluent status by doing the same.
4. In the example of Theodore Teddy J. Friend and his parents, answer the
following two questions:
a. The book describes Teddy as being possessed by possessions.
Explain this comment.
i. He works for things. He is focused on economic success, and
needs everyone to see that. So, he buys a lot to show that he
is successful.
b. What was the small change Teddys parents could have made that
would put them in the millionaire category.
i. They could have been frugal and budgetary with their meager
income, rather than spending more than they had. They could
have invested when they had extra, rather than splurging every
time they had a little extra. Small change can be transferred in
to significant wealth. If they had invested or saved even small
change they would have not only been better off themselves,
but taught their son some very valuable lessons.
5. Mr. Rodney is a high-income/low net worth corporate manager. Explain why
he is described as having sold his financial independence.
a. Mr. Rodney chose to have more cash in his paycheck, and refused the
stock options offered by his company. This does two things, the cash
will be taxed now, and he wont have those stock options at all in the
future.
6. Why did Mr. W. W. Allan decline the gift of a Rolls-Royce?
a. He declined the Rolls-Royce because there is nothing that it represents
that is important in his life. He didnt want to have to start living up to
the expectations that owning such a car would imply.
7. Regarding Economic Outpatient Care (EOC), answer the following four
questions.
a. Explain this statement: The more dollars adult children receive, the
fewer they accumulate.
i. When these weakened children become adults, they lack
initiative. They are most likely economic underachievers, and
are likely to be high spenders. They need economic subsidies to
maintain the lifestyle that the enjoy, and arent willing to give
up. It is much easier to spend other peoples money than
dollars that are self-generated.
b. What is the likely financial outcome for Mary & Lamar once her Mother
passes away?
i. They are likely to be in a heap of trouble. They are already
desperate for her trust fund since they are living way above
their means, and that is including the money they get regularly
from Marys Mother. They would probably blow through any
inheritance that they receive, and then continue their bad habits
right down the road to bankruptcy.
c. The Parents of Ms. BPF were determined to give their daughter every
advantage. After they created an ideal environment for her, what
was the result?
i. She is in her late thirties, and still lives at home. She has no
commercial debt, and her business earned almost as much as
her parents give her every year. Her parents still think she will
become independent, someday. Yet in the last year she has
purchased a new $45000 car, a $5000 watch, spent more than
$20000 on clothes, has high credit card balances and paid over
$7000 in interest, and paid more than $10000 for country club
fees. She fears losing the gravy train that her parents provide,
not whether or not she succeeds at her business.
d. In the case of Laura (A Woman of Great Courage), explain the primary
message derived from her story.
i. Laura is a woman of great integrity, who when left by her
husband, used her various skill sets to work hard in the real
estate business. She didnt accept help from her family, she just
got to work. She was able to advance to the point of starting
her own real estate business. She has become very affluent,
and is financially more better off than she ever was with her ex-
 husband. However, she can be seen flying on red-eye and early-
bird flights. She definitely has a PAW mentality. She became so
successful, out of necessity.
8. Regarding Affirmative Action, Family Style, answer the following three
questions:
a. In the example of sisters Ann & Beth, describe the consequences to
Beth & her husband from receiving EOC?
i. Beths parents had more input on the house that Beth and her
husband purchased than they did. Beths husband is the Bozo
and is often treated like a waiter. They have very little
confidence, and have not earned the respect of Beths parents.
Beth and her husband are left to feel as though they arent
capable of taking care of themselves.
b. Explain the concept weakening the weak.
i. Its basically when we coddle our children. Rather than
challenging them and teaching them that they can do hard
things, we do it for them, or try to get them out of it. An
example that I see as a substitute teacher, is when a child with
an Individualized education plan uses that as an excuse not to
do his work. If we dont help our children (adult or not) learn
that they can do hard things, they never will. They will be
weakening their weaknesses, rather than strengthening them.
c. Select one of the Rules for Affluent Parents & Productive Parents &
explain why you think this rule is the most important.
i. This one was hard, I felt like all the rules had merit. However, I
decided to go with number three: No Matter How Wealthy You
Are, Teach Your Children Discipline and Frugality. I feel like
teaching them than can do nothing but benefit you and your
children. Growing up, I wouldnt say my parents were affluent,
but they were well enough off. I remember about a year after
moving into our new home that they had built (on property that
my dad would inherit), my dads accounting firm did a lot of
work that they never got paid for. My dad, along with the other
partners had to skip paychecks to pay their employees. This
lasted about six months. My parents sat us down, and made
sure we understood that we had to tighten the belt. They were
never very extravagant, but we now wouldnt have the
occasional milkshake night at Take Five, or get McDonalds for
dinner as a surprise. The few splurges they allowed, would be
gone. Because of this tightening combined with the saving
that my dad had always done, we got through it without going in
to debt or losing the house. This taught me something that has
stuck with me, and thats to live within my means. I may not
always make the best choices financially, but I think I do better
because of what my parents taught me as a kid.
9. Explain the root cause for the conflict between Mr. W & the residents of the
vacation condominiums.
 a. The root cause comes from Mr. W and his family living conservatively,
and simply. They dont dress fancy, or drive luxury cars. They dont
show their wealth. They are the typical PAW. The owners of the
other condos are the type that must look a certain way. They want the
world to see their wealth. They want to portray that they are the
upper-middle class and have the things to show for it. They do not
want a blue collar family sharing space with their luxury condos. So,
they used the dog as an excuse to try and get rid of the family. Right
up until Mr. W proposes the idea that his blue-collar employees could
vacation at the condo.
10.Now that you have finished reading The Millionaire Next Door, answer the
following questions in a minimum of three paragraphs.
a. What are the two concepts you found most useful? Explain why?
b. Give a specific example of one small change you can make to improve
your financial well-being.
One of the concepts I found the most useful, is simply the whole book. I
mean, the concept of a millionaire living in my neighborhood because he is frugal,
and makes wise choices. He saves and invests and chooses to continue living just
like me. I may even attend a couponing class with his wife. I love the concept that
it could be anyone. The appearance of wealth doesnt necessarily mean that
someone has it.
The other concept I found most useful is that of EOC. I never really thought
much about this concept until reading this book. I have parents that are fairly well
off. Because of this, they chose to help myself and each of my brothers with the
purchase of our first homes. We each got $5000 towards a down payment,
furnishings, fixing it up, whatever we decided we needed it for. However, I wouldnt
call them parents that provide economic outpatient care. That was a one-time thing
that they wanted to offer their children. I could see, however that if that was
something that they continued to do on a regular basis, it could be crippling. It
would become easy to rely upon that, rather than using it wisely to grow our own
wealth.
On minor change that I have made this semester, mostly thanks to this class,
is that I opened a Stash account. I dont have the kind of money to invest a lump
sum into the stock market, but the idea that a little change can grow into great
wealth showed me that I can afford to invest $5 a week. So now I do. Its growing
slowly, but I dont miss the $5. Im able to continue to grow that account every
week. Every week I choose what mix to add that $5 to, and I watch it go up and
down. Im hoping that this experience also allows me to learn more about investing,
so I can become better at it.