I’m not a big sports guy. Those who know me can attest to that. I do love the analogies though. Organized sporting teams, just like the military or well run corporations understand one fundamental principle – in order to be successful (in anything) you need to develop a strong offence and a strong defense.
Offense is sexy. Offence is what gets high television ratings. Spectacular touchdowns, bat-smashing home runs and giant corporate sales are exciting. But without a strong goalie, your team is destined to be caught in a perpetual game of “catchup”. The goals become less about getting ahead and more about staying in the game. Put all. your resources into your defense however, neglecting your offence completely, and the game suddenly becomes a stressful string of reactions; the game is taking place virtually outside of your control. The key, of course, is having both.
The Millionaire Next Door was written in 1990, yet it’s financial advice and insight is no less relevant today. The numbers may have changed, but the message stays the same – making lots of money is great, but in the game of life, running an intelligent defense is as important as the offense.
In order to adequately prepare for their book, authors Thomas Stanley and William Danko spent over 20 years interviewing and researching hundreds of the 3.5 million Millionaires in the United States. Compiling their research into one well thought out book, the author duo uncovered some fascinating insight into the minds and lives of affluent America.
The Big Idea
Who Do You Report To?
Perhaps not surprisingly, a majority of the millionaires who resided in the US in 1990 were entrepreneurs and business owners. Not all, mind you, but a significant chunk. As the authors discovered though, it wasn’t necessarily their income that allowed business owners to become wealthy, but rather their attitude towards money.
“Tabulating helps control consumption. Mrs. Rule has always tabulated expenditures for her business. She realizes the same system she used for business accounting can be used for domestic purposes.”
The Millionaire Next Door, page 42
Entrepreneurs have one distinct advantage over the rest of the population – they understand how a business functions. They know, from experience, that a successful business focuses on simultaneously building income while minimizing unnecessary expenses.
Regardless of whether or not you currently run or have aspirations to run a formal corporation, the biggest message from The Millionaire Next Door is that you already own the most important business you can; your life.
Insight #1
Build a Good Offense
“People who become wealthy allocate their time, energy, and money in ways consistent with enhancing their net worth.”
The Millionaire Next Door, page 71
Here’s the thing about money – you are going to spend time thinking about it in one of two ways. You’re going to be planning, or you’re going to be worrying. Not only is planning more productive, it’s also more fun.
What’s your game plan for building wealth this year? Not all of us are fortunate enough to have jobs that allow us unlimited income potential. That doesn’t mean we can’t all build wealth however. Regardless of your income level or type of work, your offence should be focused on building wealth. The key here is to invest, not spend. Whether it’s in the stock market, real estate, business ventures or hard money lending, if you want to build wealth, you need to spend time thinking about and planning how to best utilize your existing time, money and energy. Use your resources to build wealth.
Insight #2
Play a strong defense.
“If you cannot increase your compensation significantly, become wealthy some other way. Do it defensively.”
The Millionaire Next Door, page 131
Having a budget is not the same as being cheap. It’s about being proactive. Consider the following story about the wealthy Dr. North:
“He stated emphatically, for instance, that he never bought a suit that was not offered at a discount or special price. This is not to suggest that Dr. North is poorly dressed. Nor does he wear cheap suits. Rather, he purchases quality clothing, but never at full price and never on impulse.
The Millionaire Next Door, page 79
Like offence, a strong defense is also about strategy. It’s about planning the year ahead and, yes, even doing a little bit of budgeting. Do you know how much you spent on clothes last year? Vacations? Meals out? The vast majority of millionaires do. They know because they planned for it. Big secret here – they don’t like budgeting either. Author Mathew Kelly has an expression, “Say no by having a bigger yes.” This is how the millionaires interviewed in The Millionaire Next Door play strong defense. They say “no” to the impulse buys by understanding what their end game is – real financial freedom. Just like a successful business has a CFO or controller to monitor and report on company expenditures, so should you be keeping a close eye on where your hard earned money goes. Be a responsible business owner.
The Millionaire Next Door is an engaging read; one that I believe can be inspiring if appreciated for what it is. This is a book about millionaires; not rockstars, not super-athletes making $5 million a season. This is about the other 95% of Americans who have a net worth of $1 million dollars or more (in 1990 money). They didn’t win the lottery and most didn’t inherit fortunes. Instead, these are regular people who lived a diligent lifestyle and kept “building wealth” as their primary goal. It’s not sexy, but then again, there’s nothing sexy about working to 80 either.
By all means, go for the big money; make the big plays. Just make sure you keep an eye on your defense too – they’re going to be the difference between true wealth and 15 seconds on the highlight reel. Build a legacy.
