Author Topic: The death of the 'Millionaire Next Door' dream  (Read 34631 times)

zephyr911

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Re: The death of the 'Millionaire Next Door' dream
« Reply #50 on: March 27, 2015, 07:36:48 AM »
Selection bias undermines the entire analysis.   This bias was pointed out in 2001.   

I enjoyed the book, it was quite entertaining.   But it is only a story, and not a very relevant one at that.   Most farmers and entrepreneurs who lived below their means,  shopped at JC Penny and drank Budweiser did not become millionaires.   Most went bust. 
These are not sour grapes as was suggested by someone upthread.  I am rich and I also live modestly.   But I'm not rich because I'm frugal,  I'm rich for a series of random things that worked in my favor.  In contrast,  most frugal people who live below their means are poor and they stay poor.  This has been true since the beginning of time, and it is true today.
So you feel that spending plays no role whatsoever in reaching FI?
I don't think anyone denies that earnings are important to the accumulation of wealth. But the idea that what you do with the money once you have it doesn't matter is sort of the opposite of why we're all here.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #51 on: March 27, 2015, 08:03:40 AM »
[ MND mythology is in our culture more than 14 years after it was debunked,  it is discussed as though it were legitimate.  It is to finance what homeopathy is to medicine.

Debunked? Please indicate anywhere with statistics or evidence. I would be very interested to read this.

Selection bias undermines the entire analysis.   This bias was pointed out in 2001.   

I enjoyed the book, it was quite entertaining.   But it is only a story, and not a very relevant one at that.   Most farmers and entrepreneurs who lived below their means,  shopped at JC Penny and drank Budweiser did not become millionaires.   Most went bust. 
These are not sour grapes as was suggested by someone upthread.  I am rich and I also live modestly.   But I'm not rich because I'm frugal,  I'm rich for a series of random things that worked in my favor.  In contrast,  most frugal people who live below their means are poor and they stay poor.  This has been true since the beginning of time, and it is true today.

We'll have to agree to disagree.

What you state is not fact.
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Re: The death of the 'Millionaire Next Door' dream
« Reply #52 on: March 27, 2015, 08:08:20 AM »
My brother was just going off about the impossibility of retiring based on an NPR article he found online, so I showed him the math that if he invested only $10,000 a year for 30 years, he would end up with over $1 million in retirement savings.  He then said it was impossible to save $10,000 a year on $40,000 in earnings per year.  I told him that if he cut back on eating out, buying new cars, going on expensive vacations, etc., it really wasn't that hard but he laughed in my face.  You can lead a horse to water but you can't make it drink. 

This is what I find the most frustrating. My friends' mindset is that going out to eat, going to expensive balls, and taking international vacations is "necessary". They just stare blankly at me if I ever bring up the possibility of retiring before 65. I really hate how people refuse to take responsibility for themselves. They just figure they'll declare bankruptcy if they get too far behind.

I've read "The Black Swan" and loved it. Yes, Taleb is probably an asshole, but he has good points to make that are useful and wrapped up in a fun to read book. I'll just pretend not to recognize him if I ever see him, which is not likely.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #53 on: March 29, 2015, 03:21:07 AM »
[ MND mythology is in our culture more than 14 years after it was debunked,  it is discussed as though it were legitimate.  It is to finance what homeopathy is to medicine.

Debunked? Please indicate anywhere with statistics or evidence. I would be very interested to read this.

Selection bias undermines the entire analysis.   This bias was pointed out in 2001.   

I enjoyed the book, it was quite entertaining.   But it is only a story, and not a very relevant one at that.   Most farmers and entrepreneurs who lived below their means,  shopped at JC Penny and drank Budweiser did not become millionaires.   Most went bust. 
These are not sour grapes as was suggested by someone upthread.  I am rich and I also live modestly.   But I'm not rich because I'm frugal,  I'm rich for a series of random things that worked in my favor.  In contrast,  most frugal people who live below their means are poor and they stay poor.  This has been true since the beginning of time, and it is true today.

Abraham Wald studied the damage dealt to bombers in WWII.  Others analyzing the same data had concluded that because planes returning to battle rarely had damaged engines, they need not worry about protecting the engines better.  Wald realized the sample of surviving planes was biased -- those with engine damage usually crashed -- and concluded that it was actually vital to protect the engines even though they appeared to be taking the least damage.  If the MND folks had written a book about these planes, they would have undoubtedly included a chapter about "not having bullet holes in your engine" in their first edition of "Still-Breathing Aircraft Pilot Next Door"

What Taleb points out in his criticism of MND isn't that any of the conclusions in MND are necessarily wrong (much of it is common sense financial advice like avoiding market timing and not spending all of the money you make, as I'm sure you know), but that they aren't sufficient alone to breed millionaires -- and more generally, that this type of study will never be able to distinguish necessary vs. sufficient.  In other words, "not getting shot in the engine" might be a key to surviving battle, but it alone is not sufficient: your wing might be taken off, the cockpit might get shot up, etc.  This is where the luck comes in.  He is not saying, "doesn't matter where you put the armor, it's all luck", or as you might say: " I'm not rich because I'm frugal,  I'm rich for a series of random things that worked in my favor."

So, Taleb is right...the study design is very weak if you are trying to prove that the steps laid out within cause people to become millionaires.  It can say "Most millionaires did X and avoided Y" but it can't say "If you do X and avoid Y, you will become a millionaire."

Then again, most PF books are full of hucksterism based on little or no real data.  So, while people may have overstated the power of the MND dataset, it is still a lot better than most in that regard.

Personally, I thought the book was horrifically boring, but that's besides the point.



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Re: The death of the 'Millionaire Next Door' dream
« Reply #54 on: March 29, 2015, 09:30:06 AM »
The book was a bit dry, yes...

At least when I read it a decade or so ago, the biggest thing I got out of it was, "Your net worth is not how flashy you are."  I was a college student at the time, and without having spent any real effort on money, I'd absorbed the "If you have more money, you drive nicer cars/have a bigger house/have a nicer watch" stuff that our culture seems to believe.

Hearing that there were lots of high net worth people who didn't look like it, and arguably were high net worth simply *because* they didn't spend everything coming in, was a big shift for me to think about.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #55 on: March 29, 2015, 01:42:55 PM »
I know a number of high net worth people. Some are flashy, but most are not.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #56 on: March 29, 2015, 04:34:43 PM »
Selection bias undermines the entire analysis.   This bias was pointed out in 2001.   

I enjoyed the book, it was quite entertaining.   But it is only a story, and not a very relevant one at that.   Most farmers and entrepreneurs who lived below their means,  shopped at JC Penny and drank Budweiser did not become millionaires.   Most went bust. 
These are not sour grapes as was suggested by someone upthread.  I am rich and I also live modestly.   But I'm not rich because I'm frugal,  I'm rich for a series of random things that worked in my favor.  In contrast,  most frugal people who live below their means are poor and they stay poor.  This has been true since the beginning of time, and it is true today.
So you feel that spending plays no role whatsoever in reaching FI?
I don't think anyone denies that earnings are important to the accumulation of wealth. But the idea that what you do with the money once you have it doesn't matter is sort of the opposite of why we're all here.

We're all here because is satisfies our smug sense of superiority to read posts on the Antimustachian Wall of shame&comedy. 
Whydavid above gets it, re: Wald and the planes that didn't come back.  The evidence isn't limited to only what's in front of you, but also includes what is missing and why it's missing.   
What was missing from MND?  Blacks, Latinos,  Asian Americans and women who are something other than dutiful,  coupon clipping wives who may have worked as teachers.   If the authors were attuned to who was absent from their interview subjects,  they'd have recognized that their selection bias skewed towards a group that was far more fortunate than the population at large: straight,  white men born into the baby boom.  In the case of those who were farmers, (a frequent profession noted in their sample) they are the guys who had a II-C status, granting them deferment from a tour in Vietnam.  It should be clear that there were a few other differentiating characteristics that can't be attributed to thrift. 
Most of us here were born on third; we didn't hit a triple. 


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Re: The death of the 'Millionaire Next Door' dream
« Reply #57 on: March 29, 2015, 04:45:27 PM »
Most of their sample were not baby boomers - they were too young to be included

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Re: The death of the 'Millionaire Next Door' dream
« Reply #58 on: March 29, 2015, 05:56:00 PM »
Here's my luck. ... the lessons I learned. ... maximize my opportunities by carefully selecting my major and two related minors ... grad school ... Some with worse backgrounds than mine have been more successful financially. Many who had a "better" background have fared worse. I posit that luck had little to do with it.

I like your "luck" examples.  Many people confuse good luck with hard work to be prepared for an opportunity when it presents itself and then having the foresight to pursue it.

I also paid for college (undergrad and grad) myself by GI bill, working jobs, and getting merit based scholarships and fellowships.  Not only did I graduate debt free but my wife and I had saved the down payment for our first house (she was working.)  I just finished a 2nd master's degree and my employer paid for that one.  And I am FI right now and have chosen to keep working; using MMM's term I am in the SWAMI, not FIRE category.

So, it is disappointing to me to see that people are writing that the MND dream is dead.  As mentioned above, there are many different paths to get there and it is still possible!!!
« Last Edit: March 30, 2015, 09:29:01 PM by a1smith »

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Re: The death of the 'Millionaire Next Door' dream
« Reply #59 on: March 29, 2015, 07:46:04 PM »
 
I enjoyed the book, it was quite entertaining.   But it is only a story, and not a very relevant one at that.   Most farmers and entrepreneurs who lived below their means,  shopped at JC Penny and drank Budweiser did not become millionaires.   Most went bust. 
These are not sour grapes as was suggested by someone upthread.  I am rich and I also live modestly.   But I'm not rich because I'm frugal,  I'm rich for a series of random things that worked in my favor.  In contrast,  most frugal people who live below their means are poor and they stay poor.  This has been true since the beginning of time, and it is true today.

Abraham Wald studied the damage dealt to bombers in WWII.  Others analyzing the same data had concluded that because planes returning to battle rarely had damaged engines, they need not worry about protecting the engines better.  Wald realized the sample of surviving planes was biased -- those with engine damage usually crashed -- and concluded that it was actually vital to protect the engines even though they appeared to be taking the least damage.  If the MND folks had written a book about these planes, they would have undoubtedly included a chapter about "not having bullet holes in your engine" in their first edition of "Still-Breathing Aircraft Pilot Next Door"

What Taleb points out in his criticism of MND isn't that any of the conclusions in MND are necessarily wrong (much of it is common sense financial advice like avoiding market timing and not spending all of the money you make, as I'm sure you know), but that they aren't sufficient alone to breed millionaires -- and more generally, that this type of study will never be able to distinguish necessary vs. sufficient.  In other words, "not getting shot in the engine" might be a key to surviving battle, but it alone is not sufficient: your wing might be taken off, the cockpit might get shot up, etc.  This is where the luck comes in.  He is not saying, "doesn't matter where you put the armor, it's all luck", or as you might say: " I'm not rich because I'm frugal,  I'm rich for a series of random things that worked in my favor."

So, Taleb is right...the study design is very weak if you are trying to prove that the steps laid out within cause people to become millionaires.  It can say "Most millionaires did X and avoided Y" but it can't say "If you do X and avoid Y, you will become a millionaire."

Then again, most PF books are full of hucksterism based on little or no real data.  So, while people may have overstated the power of the MND dataset, it is still a lot better than most in that regard.

Personally, I thought the book was horrifically boring, but that's besides the point.

If I remember rightly, Stanley also helped himself to another dose of selection bias by sending the questionnaire out and offering something like a $100 reward for answering it. By doing this, he was in effect selecting for those extremely rich people who are cheap enough to spend the time filling out a questionnaire for $100.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #61 on: March 30, 2015, 07:19:32 AM »
http://www.mrmoneymustache.com/2011/10/07/how-to-tell-if-youre-a-complainypants/

This is a funnier retort than you realize.   It isn't those who can see the flaws in MND who are defensive.   It's those who consider the book to be a sacred text of personal finance who are defensive.   They are the sore winners.   But that's unsurprising.   People tend not to like criticism of their religion. 

Like I said,  I'm rich.   Not because it took any particular discipline to save or because I worked all that hard.  I'm humble enough and observant enough to recognize how much the outcomes I enjoy have to do with my random good fortune.   I may have earned good grades and earned my wages, but I didn't earn the IQ that made them possible.   Random sperm met egg, and this conferred advantages to me that are incalculable.   On the flip side, I didn't save my money out of a disciplined program of avoiding hookers & cocaine, as it wasn't in my nature to want those things.  So, again, I'm not reigning in my wants at all.  There's little to do with my excess earnings but invest, and lo & behold,  I've lived during stable sociopolitical times in a long running bull market.   That's the trifecta right there.  No complaints on my part. 

Here's a tip:  when someone points out inequalities in life, don't reply by calling them "complainypants."  Racism & sexism are relevant and have consequences.  Consequences persist for generations.   Physical & mental health are taken for granted by those who have them, but their absence is costly to those who suffer.   For all that is great about the ACA, it doesn't close the gap.  You can disagree and call names.  But I think you'd do well to take a broader view of history. 

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Re: The death of the 'Millionaire Next Door' dream
« Reply #62 on: March 30, 2015, 09:50:47 AM »
Oh, I agree that the people in MND had large benefits that got them there, and there are many systemic problems for many minority groups.

That doesn't mean there aren't significant lessons to take from it, and that doing nothing but complaining about how he selected his interviewees gets anyone anywhere.

How would you suggest people who want a comfortable life (say, 1-2MM banked up) live, if not frugally ala MND?

In other words, rather than complain, I'd love a solution.  As I stated earlier, MND has a selection problem, in that all the failures aren't counted.  But the successes still had those things in common, so doing them is more likely to get you there than other methods, even if it's not a guarantee or even if you're still more likely to fail.

But if you disagree, what's your solution that people can implement?
« Last Edit: March 30, 2015, 09:52:38 AM by arebelspy »
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velocistar237

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Re: The death of the 'Millionaire Next Door' dream
« Reply #63 on: March 30, 2015, 10:34:19 AM »
These articles are claiming that the stories in MND have become irrelevant because it's just too hard to do that anymore, but then they make claims that are at least as problematic as their critiques. For example, they suggest that it's impossible for someone to accumulate $1 million because it's unlikely for a janitor to accumulate $8 million. In another article, the writer pointed to statistics that "around a third of Baby Boomers worth more than $3 million claim to have grown up in a lower middle class home, versus 18 percent of Generation Xers, and 12 percent of Millennials." It's not surprising that it takes longer for someone who comes from a lower income home to reach $3 million, or that someone from a lower income home would stop before $3 million. These writers just don't have any quality data to back themselves up.

I'll agree that there's a selection bias, mostly about the survival of small businesses. What happens when you correct that bias? Does anyone have any better data on millionaires than MND? If better statistics continue to reflect MND profiles, then the argument is moo. Also, the results of a high savings rate are pretty mechanical.

The fact is, despite its flaws, MND shows that a lot of people became well off by earning enough and not wasting their money. That's a very valuable message, and a lot of people would benefit immensely by paying attention to these MND stories, even if they never achieve high earnings.

http://www.mrmoneymustache.com/2011/10/07/how-to-tell-if-youre-a-complainypants/

This is a funnier retort than you realize.   It isn't those who can see the flaws in MND who are defensive.   It's those who consider the book to be a sacred text of personal finance who are defensive.   They are the sore winners.   But that's unsurprising.   People tend not to like criticism of their religion.

I don't know, did you read the complainypants article? It talks about people who are critical of examples of success when the examples don't apply to all cases or take everything into account. Why would you call MND "not a very relevant" story when it illustrates the absolute best way to do well financially, absent very improbable scenarios? To boot, it catches people's attention because it talks about being rich.

The death of the MND is greatly exaggerated, and these authors are doing people a disservice to say otherwise.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #64 on: March 30, 2015, 10:38:47 AM »
It's been a few years since I've read MND and it was on audio cd so I listened to it while driving so I may not have paid as much attention but I didn't take MND as

Do A, add B, subtract C=MILLIONAIRE!

To me it was more of a guideline towards living below my means and looking for opportunities to build wealth. It described how many of the wealthy don't outwardly show it. My goal isn't to be rich or poor, but to have enough and not need to worry about money.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #65 on: March 30, 2015, 10:45:03 AM »
I know that MND is gospel truth because I read a bunch of Horatio Alger stories.  Bootstraps! [/sarcasm]

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Re: The death of the 'Millionaire Next Door' dream
« Reply #66 on: March 30, 2015, 10:55:22 AM »
...
Like I said,  I'm rich.   Not because it took any particular discipline to save or because I worked all that hard.  I'm humble enough and observant enough to recognize how much the outcomes I enjoy have to do with my random good fortune.   I may have earned good grades and earned my wages, but I didn't earn the IQ that made them possible.   Random sperm met egg, and this conferred advantages to me that are incalculable.   On the flip side, I didn't save my money out of a disciplined program of avoiding hookers & cocaine, as it wasn't in my nature to want those things.  So, again, I'm not reigning in my wants at all.  There's little to do with my excess earnings but invest, and lo & behold,  I've lived during stable sociopolitical times in a long running bull market.   That's the trifecta right there.  No complaints on my part. 

...

To address the paragraph in your comment, I think you're right that there is a luck factor in whether you end up rich or not, and some people are just not born in a position to reach that status.  Its still possible probably with a lot of luck, but the cards are stacked against them.  I just finished MND less than a week ago, and I feel like you have to keep in mind that their book is not a guide for becoming a millionaire or anything.  Their book is just a look at current millionaires (high income, affluent people) vs the high earners who are not millionaires (high income, not affluent).  I think you have to consider their intended audience as people who could be millionaires, as in they have the income to become one, but have not because of their spending decisions.  I'd argue that because the authors are comparing millionaires vs high income non millionaires then luck is not a significant factor since everyone they included has already proven "lucky" enough to have a high income.  As people have said, this book does not do any justice to scenarios where people are going 0 to hero, but I don't think that's what the book is trying to do anyway.

Also, I don't understand how not interviewing people who failed at business would be relevant to their book.  All the example scenarios I remember from the book compared a millionaire with another high income person who was not a millionaire which I feel was the whole premise.  Why would including low income, low wealth individuals (people with failed businesses) be relevant?  On the other hand, there are plenty of people in this country who are high income but are not wealthy, and I think anyone who is in the MMM forums would agree.  These are the people who the MND dream is still alive for, myself included.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #67 on: March 31, 2015, 09:38:13 AM »
I've only read excerpts and commentary, so by all means facepunch me if I'm wrong.

The basic premise is to highlight ways in which people can, and do, increase their odds of becoming millionaires, as indicated by studies of actual millionaires.

I don't take it as a prescription, and I don't see it as a premise that is in any way undercut by the existence of external factors. Isn't the point of MMM, or MND, or any self-actualization advice, to do what you can about the things you can?

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Re: The death of the 'Millionaire Next Door' dream
« Reply #68 on: March 31, 2015, 10:05:17 AM »
The basic premise is to highlight ways in which people can, and do, increase their odds of becoming millionaires, as indicated by studies of actual millionaires.

Right.  So the failure cases, while relevant in that "this won't work every time" are irrelevant if it's still the most reliable way compared to others.

And frugality and LBYM seems to me to be that way.
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Re: The death of the 'Millionaire Next Door' dream
« Reply #69 on: March 31, 2015, 10:12:16 AM »
The basic premise is to highlight ways in which people can, and do, increase their odds of becoming millionaires, as indicated by studies of actual millionaires.

Right.  So the failure cases, while relevant in that "this won't work every time" are irrelevant if it's still the most reliable way compared to others.

And frugality and LBYM seems to me to be that way.

Right.  Regardless of my past luck/circumstances/choices, given my current situation, I can highlight two paths:

1.  Spend 95% of my income on cars, vacations, clothes, electronics, housing and invest 5%.
2.  Spend 40% of my income and invest 60%.

One path will lead to higher net worth than the other. 

Cathy

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Re: The death of the 'Millionaire Next Door' dream
« Reply #70 on: March 31, 2015, 10:15:30 AM »
... most frugal people who live below their means are poor and they stay poor.  This has been true since the beginning of time, and it is true today.

Forgetting about everything else you said, this specific claim is a bit silly. The economic environment at "the beginning of time" has pretty much zero connection to life in modern times in a developed country. It's important to remember that capitalism is a relatively recent invention. Historically, control of assets and land was based on war. Between wars, ownership was based on a grant from the local king or other authority. Capitalism may not have completely extinguished either of those systems, but it's certainly a big step forward.

It's patently silly to make a point about modern times based on a claim about the ability to accumulate assets through frugality at "the beginning of time", or indeed any time before the advent of modern free market capitalism.

Under capitalism, it's pretty obvious that if you don't spend money, it will accumulate. Where else would it go that would force you to stay poor? Is it just going to evaporate? In pre-capitalist societies, you have to worry about arbitrary government confiscation, rogue gangs and other forms of outlaw violence, and various other threats. Under capitalism, however, your money doesn't just disappear if you don't spend it. It accumulates. This certainly was not true at the beginning of time, but it is very true today, assuming you live in the US or Canada.

No one will disagree with you that there are various challenges in life that different people face. But your core claim -- that if you don't spend money, it will somehow disappear and prevent you from accumulating assets -- is pretty much complainypants.
« Last Edit: March 31, 2015, 10:29:51 AM by Cathy »

zephyr911

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Re: The death of the 'Millionaire Next Door' dream
« Reply #71 on: March 31, 2015, 10:29:21 AM »
^^Yes.
I don't dispute for a second that there are unique challenges to rising above the very bottom strata for income.
Exhibit A
We as a society should at least ensure a level playing field.
But, level field or no, most people do have options. I have a friend who gets by on around a grand a month between SSI, food stamps, and the occasional help from his parents, who spends more on convenience/luxury food than I do. To be truly powerless is one thing; to take your limitations as an excuse for making no effort whatsoever is another.

vivophoenix

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Re: The death of the 'Millionaire Next Door' dream
« Reply #72 on: March 31, 2015, 10:41:48 AM »
has this topic seriously devolved into a debate about the use of the phrase "since the beginning of time"?

 poor people remain poor, its true.  everyone can't be rich, everyone can't be in the middle. there are tons of factors. i think we can all agree that spending less than you earn is helpful.

but it is also true that racism, sexism, and classism and other 'isms' hold people back. people want to pretend that they "boot-strapped" themselves up, in particular, people  in America. IN particular people, in America,  in these forums.

if hard work made millionaires, brown female blue collar laborers would be millionaires.

guess what,  if you are a white male in America,  you are standing here on generations of brown people and women.

and saying its complainy pants is a bs cop out.

 its easy to call people whiners, when your people weren't systematically screwed over at every turn.

and sure,  some white guy is gonna turn up after my post, talking about how poor his family was, and how he was the first in his generation to do x, y, and z. and thanks to his hard work and scrimping and saving, he's the man he was today. and someone is gonna whine about how the "Irish", "polish", "insert white immigrant here" had it hard too at some point.

but seriously,  is it so hard for you to just acknowledge that you received the advantage of looking exactly like the people that run the system!?

 from the job interviewer, to the teacher at your school, to review board of what ever college you attended, to the boss you work for,
the person who rents or sells to you. the person that makes the banking decisions for your loans.

redlining is real

Cathy

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Re: The death of the 'Millionaire Next Door' dream
« Reply #73 on: March 31, 2015, 10:48:35 AM »
It always amuses me how pro-capitalist posts on this forum attract invitations to play the Oppression Olympics. As usual, I will decline.

I like capitalism. And I don't think that is inconsistent with feminism, or with any other social justice ideal. But unfortunately I don't know whether to consider myself a feminist these days, because most feminists I know are socialists, and I don't fit in well with them. I consider it somewhat unfortunate that a hatred of capitalism among some feminists is expelling people who would otherwise be allies.

odput

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Re: The death of the 'Millionaire Next Door' dream
« Reply #74 on: March 31, 2015, 10:49:36 AM »
poor people remain poor, its true.  everyone can't be rich, everyone can't be in the middle. there are tons of factors. i think we can all agree that spending less than you earn is helpful.

"Everyone can't be rich" is only true is you measure "rich" against everyone else.  So while it is true that everyone can't be a 1%er, in first world countries it is absolutely false that everyone can't be rich, since in many ways rich means all your basic needs are met and you have friends and family to make your life fulfilling.

ETA: before we get into a silly side argument, let's not conflate that everyone CAN be rich in this sense with everyone IS rich in this sense in first world countries.  I'm not naive enough to think that homeless people in the US are rich, but more I'm pointing out that everyone CAN be rich in this construct.
« Last Edit: March 31, 2015, 10:54:11 AM by odput »

zephyr911

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Re: The death of the 'Millionaire Next Door' dream
« Reply #75 on: March 31, 2015, 10:57:41 AM »
poor people remain poor, its true.  everyone can't be rich, everyone can't be in the middle. there are tons of factors. i think we can all agree that spending less than you earn is helpful.

"Everyone can't be rich" is only true is you measure "rich" against everyone else.  So while it is true that everyone can't be a 1%er, in first world countries it is absolutely false that everyone can't be rich, since in many ways rich means all your basic needs are met and you have friends and family to make your life fulfilling.

I'm not sure what is meant by "poor people remain poor" if you're talking about actual quality of life.
Entire nations and socieites quite clearly can and do, at times, raise the standard of living for even the poorest of the poor.
There is nothing preventing everyone from living better, regardless of your percentile. Most of the world has been on that trajectory pretty consistently, starting with the invention of tools, proceeding through the Agricultural and Industrial Revolutions up through today. The average human being is much higher on Maslow's hierarchy of needs than we were as hunter-gatherers.
Of course, whether the average human is actually happier as a result is a complex question, made more so by our obsession with comparing ourselves to each other. But we do have much longer, safer lives. Hell, in the US we have categorized certain material pleasures that ancient kings didn't have as basic human rights.

kite

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Re: The death of the 'Millionaire Next Door' dream
« Reply #76 on: March 31, 2015, 01:53:04 PM »
"The idea that the average guy can become rich via hard work and rigorously virtuous thrift is one of the compelling myths of the American experience.

But for the most part,  myth it is."

So begins the linked article.  This is the myth I'm talking about.   It's not close to complainypants to point out the problems with the myth.
  Far from it.  If you believe it, because of a best selling book based on decades old market research,  you have been misled by sampling bias and a nicely spun yarn with some colorful characters.
Even Stanley&Danko's own research doesn't support the hypothesis that thrift was the #1 contributing factor to their subject's wealth.   They (the millionaires) had median wage of 4 times the US median.  Dig further.   They saved around 20% of their income.   That's wonderful,  but it isn't especially thrifty.  In today's economy,  it's putting aside 40k on a 200k income.  I'd expect any hardcore mustachian to say, nice try, but what is wrong with you that you're still wasting another 100 grand?!?!?!?!?  The face punches would be flying.

The most significant differentiator between the MND profilees and regular guys is wages.   They were in the top 5% of all earners.   No chance that all, or even most of us can have top 5% earnings.   Even for white guys, this is rare. 

Implicit in the MND myth is that if you aren't rich,  it's because you weren't frugal enough or made some poor decisions along the way.   Far from it.  Despite best efforts,  most will fall short, no matter how frugal, because of that pesky wage problem.  But this thinking (that anyone could if they tried hard enough and sacrificed enough) pervades the electorate and it shapes public policy.   It's impact over the years may have factored into our current situation with polarizing inequality.   "The reason "they" have fallen so far behind must be something "they" have done wrong.  Me, I made my own luck, worked hard, scrimped and saved, yadda, yadda..."   Open your eyes.  It's all been random.
Why should any of my fellow capitalists actually care?  Because the race to the bottom threatens to undermine capitalism.   The very thing that keeps the equity markets humming along and delivers a modest return on your index funds requires capitalism that thrives.  This isn't an endorsement to spend unnecessarily,  but there isn't room for too much more packing of lunches and turning down thermostats in the average poor person's financial life.  Can the middle class do with a bit of belt tightening?   Certainly.  No argument there.  They'll be better off for having done so.  But they won't get rich.  This is the painful honesty that doesn't sell books. 

odput

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Re: The death of the 'Millionaire Next Door' dream
« Reply #77 on: March 31, 2015, 02:35:25 PM »
Me, I made my own luck, worked hard, scrimped and saved, yadda, yadda..."   Open your eyes.  It's all been random.

Why is it so hard to realize that we are saying that both of these factors are at play here, and that they aren't mutually exclusive.  Even people born on third have to run home, and to call the effort that it takes to get home (no matter how much less effort it is from third than from first) random is absurd.  People born on third get tagged out all the time...

kite

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Re: The death of the 'Millionaire Next Door' dream
« Reply #78 on: March 31, 2015, 04:22:38 PM »
^
Good job.
Here, have a cookie.

velocistar237

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Re: The death of the 'Millionaire Next Door' dream
« Reply #79 on: March 31, 2015, 05:35:16 PM »
^
Good job.
Here, have a cookie.

No need to be patronizing. It was a decent response.

One Noisy Cat

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Re: The death of the 'Millionaire Next Door' dream
« Reply #80 on: March 31, 2015, 08:36:53 PM »
has this topic seriously devolved into a debate about the use of the phrase "since the beginning of time"?

 poor people remain poor, its true.  everyone can't be rich, everyone can't be in the middle. there are tons of factors. i think we can all agree that spending less than you earn is helpful.

but it is also true that racism, sexism, and classism and other 'isms' hold people back. people want to pretend that they "boot-strapped" themselves up, in particular, people  in America. IN particular people, in America,  in these forums.

if hard work made millionaires, brown female blue collar laborers would be millionaires.

guess what,  if you are a white male in America,  you are standing here on generations of brown people and women.

and saying its complainy pants is a bs cop out.

 its easy to call people whiners, when your people weren't systematically screwed over at every turn.

and sure,  some white guy is gonna turn up after my post, talking about how poor his family was, and how he was the first in his generation to do x, y, and z. and thanks to his hard work and scrimping and saving, he's the man he was today. and someone is gonna whine about how the "Irish", "polish", "insert white immigrant here" had it hard too at some point.

but seriously,  is it so hard for you to just acknowledge that you received the advantage of looking exactly like the people that run the system!?

 from the job interviewer, to the teacher at your school, to review board of what ever college you attended, to the boss you work for,
the person who rents or sells to you. the person that makes the banking decisions for your loans.

redlining is real

Of course for decades Asian Americans have had higher incomes than white Americans and now it's Desis (Indians). But sure as April follows March, you will scream "don't confuse me with the facts!".  And for almost 40 years since Bakke, it has been legal for colleges to discriminate based on race (which hurts Jews and Asians).  Of course the biggest factor in determining a child's future is both parents remaining together...something which in the Black community has declined dramatically the last half-century.
   Far better to whine and moan about racism and class fantasies.

a1smith

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Re: The death of the 'Millionaire Next Door' dream
« Reply #81 on: March 31, 2015, 10:06:35 PM »
What was missing from MND?  Blacks, Latinos,  Asian Americans and women who are something other than dutiful,  coupon clipping wives who may have worked as teachers.

Well, they might be missing in MND but they aren't missing in the people I know who are MND's.  One of my best friends at work is black and he is certainly a MND.  There is a high percentage of Asian Americans in my city and many of them are MND, one of which is a best friend.  Another friend of mine at work is from Brazil; he is younger so I don't think he is a MND yet but is certainly on that path.  My manager is a woman and she is also a MND.  These are just a few examples; I could list many more.

Want to know what I see in common with all of these people?  They came from stable families which, as mentioned above, is a big indicator of future success.  Also, they all have advanced degrees (MS, PhD) which allow them to have a nice income.  The advanced degree is not an advantage they were born with on third base; they worked for it.  And there are lots of people who didn't have the advantage of having their whole education paid for either; there are many who have worked to pay for it or have loans that they need to pay off.

Someone else mentioned IQ as an advantage that you are born with.  I was an undergraduate teaching intern and in the classes where I was the TA the "smartest" person did not always get the best grade.  The person that got the best grade is the one who studied (worked) the most and applied themselves.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #82 on: April 01, 2015, 12:47:32 PM »
Here's a nice article describing a couple who are MND's.  She's a Taiwanese woman who wasn't a teacher and the article didn't mention any coupon clipping!  :-D

http://www.msn.com/en-us/money/news/how-this-couple-retired-in-their-30s-to-travel-the-world/ar-AAacOgr

A classic story of two people who did many of the things discussed in this forum and elsewhere and succeeded.  Sounds like they are having a great time.

MgoSam

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Re: The death of the 'Millionaire Next Door' dream
« Reply #83 on: April 01, 2015, 12:55:14 PM »
Here's a nice article describing a couple who are MND's.  She's a Taiwanese woman who wasn't a teacher and the article didn't mention any coupon clipping!  :-D

http://www.msn.com/en-us/money/news/how-this-couple-retired-in-their-30s-to-travel-the-world/ar-AAacOgr

A classic story of two people who did many of the things discussed in this forum and elsewhere and succeeded.  Sounds like they are having a great time.

A friend of mine just emailed me that article and I loved it! This friend thinks of my plan to retire in 8 years (age of 35) is ridiculous but I think that she may be coming aboard.

Luck12

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Re: The death of the 'Millionaire Next Door' dream
« Reply #84 on: April 01, 2015, 01:08:01 PM »
Want to know what I see in common with all of these people?  They came from stable families which, as mentioned above, is a big indicator of future success.  Also, they all have advanced degrees (MS, PhD) which allow them to have a nice income.  The advanced degree is not an advantage they were born with on third base; they worked for it.  And there are lots of people who didn't have the advantage of having their whole education paid for either; there are many who have worked to pay for it or have loans that they need to pay off.

Oh please, both of these things can be considered luck.  Nobody controls what type of family they are born into and the type of intelligence needed to get MS or PHD in something like engineering, medicine, etc is largely inborn.     

I think Kite covered much of what I was going to post.   Basically, MMND is classic necessary, but far from sufficient. 

Just look at this forum: I bet the vast majority here come from at least a middle class, stable background and/or have at least slightly above average IQ. 

a1smith

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Re: The death of the 'Millionaire Next Door' dream
« Reply #85 on: April 01, 2015, 01:36:42 PM »
MMM's 4/1 blog post is a great response to this thread!

Early Retirement is an Impossible Dream for Most

http://www.mrmoneymustache.com/2015/04/01/impossible-dream/
« Last Edit: April 01, 2015, 02:30:58 PM by a1smith »

a1smith

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Re: The death of the 'Millionaire Next Door' dream
« Reply #86 on: April 01, 2015, 02:29:53 PM »
Want to know what I see in common with all of these people?  They came from stable families which, as mentioned above, is a big indicator of future success.  Also, they all have advanced degrees (MS, PhD) which allow them to have a nice income.  The advanced degree is not an advantage they were born with on third base; they worked for it.  And there are lots of people who didn't have the advantage of having their whole education paid for either; there are many who have worked to pay for it or have loans that they need to pay off.

Oh please, both of these things can be considered luck.  Nobody controls what type of family they are born into and the type of intelligence needed to get MS or PHD in something like engineering, medicine, etc is largely inborn.     

I think Kite covered much of what I was going to post.   Basically, MMND is classic necessary, but far from sufficient. 

Just look at this forum: I bet the vast majority here come from at least a middle class, stable background and/or have at least slightly above average IQ.

The main point of my post was to provide examples of MND people I know from groups of people that kite says are missing in the book.  He is implying that those groups of people are not MND's and thus there was selection bias.

My other point was to show some common traits in my friends/acquaintances that were helpful for MND status without any mention of whether those traits were necessary, sufficient, or neither.

An MS or PhD is certainly helpful but absolutely not necessary to succeed.  However, hard work is!!  In fact, google "too many university graduates" for some interesting reading.  There are many careers where you can make a great living that do not require an advanced degree, or even a bachelor's degree.  Just to cite one example, there is a shortage of welders right now (especially in TX) and they can have annual salaries over $100K in the oil industry after trade school and some experience.

Being on this forum is not a necessary condition for MND status, nor is it sufficient.  I'm sure there are plenty of successful business owners out there who have never even been on this forum.  An advanced degree is also not a requirement for owning a business; it is neither necessary nor sufficient. From www.census.gov/econ/sbo/02/cbosof.html , "Just under 1-in-4 of all owners of employer firms had a high school education or less, compared to 28 percent of the owners of nonemployer firms."

My comments in this thread are not specifically addressing the book, per se, but the general idea of being able to become a millionaire.  The MND book is only one source of information for that.  My opinion is that the "dream" of being able to become a millionaire (a MND) is far from dead.




a1smith

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Re: The death of the 'Millionaire Next Door' dream
« Reply #87 on: April 01, 2015, 03:08:30 PM »
One comment about all of this necessity and sufficiency discussion:

It seems to me that the ONE and ONLY necessary and sufficient condition for MND is that your net worth is greater than or equal to $1M.

Can anyone else think of another condition which is both necessary and sufficient?  If not, then why so much heartache about conditions which are necessary but not sufficient?  If you know they are necessary to get there, then why not just start doing them?  Who cares if you are not guaranteed to get there?  Is that going to stop you from trying?  I hope not!

For anyone wanting a refresher on necessity and sufficiency see this primer.
« Last Edit: April 01, 2015, 03:25:39 PM by a1smith »

Tallgirl1204

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Re: The death of the 'Millionaire Next Door' dream
« Reply #88 on: April 01, 2015, 03:45:43 PM »
I read the MND many years ago, and perhaps there are some flaws in the research.  But here is my take-away that the book gave me, and I think it holds: 

People who spend below their means, and who do not aspire to "look" wealthy, are more likely to pile up a nice cache (or 'stache) than people who spend more than they make, in the pursuit of appearing wealthy. 

I'm not sure how this is "luck."  Maybe a person never reaches the magic million dollars.  But surely a person who lives below his/her means is going to be better off in the long run than one who doesn't.  In what universe does that math not work?   

Yes, there is always the situation (and I've been in it) where every penny goes to keeping one's head above water.  And if one is in that situation and reaches for a credit card to make that situation more comfortable, the water is only going to get deeper and more turbulent.  I spent years wearing second-hand clothes and considering Taco Bell a high-end restaurant.  Even if this was where I had spent my career and life, I would still be better off than the person who digs that credit card hole deeper and deeper, or has to spend every penny to show off his/her wealth.  When social security time kicked in, I would already know how to pinch a nickel until it pooped a dime.   

This was what I took from MND when I read it in my twenties. 

Now that I am approaching retirement, I recognize that what 'stache I accumulated (not a million, but probably enough) was thanks to embracing a moderately (not extremely) frugal mindset.  How is that luck? 

darkadams00

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Re: The death of the 'Millionaire Next Door' dream
« Reply #89 on: April 01, 2015, 07:26:09 PM »
"Redlining is real," "whites make it/made it on the backs of minorities," "if someone is successful, it was luck/random chance." This is not pointing out flaws. It's repeating the same themes as Al Sharpton et al. No matter what evidence to the contrary, if I demonstrate  100 cases of mixed races, sexes, backgrounds, education achievement matched to a positive outcome, and then do the same with 100  who have a negative outcome, does that not even make a person think about it?

My grad department had fellowships for minority and female students--white males need not apply. And more than one year, there was money unspent. My department at work is highly technical, over 50% female and minorities, not all Asian by a long shot. Of the nine managers in my dept, only 3 were born as English-speaking white Americans. My first landlord back in the day was an African American who owned seven homes. I live in a neighborhood of mixed ethnicities and incomes.

We don't pick our ethnicity, our family, our childhood financial status, our health, our abilities etc. If that's the luck described, that was my original post response. The first base/third base analogy was good. Some of these other posts are just complaineypants not matter how it's spun.

a1smith

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Re: The death of the 'Millionaire Next Door' dream
« Reply #90 on: April 01, 2015, 09:21:45 PM »
Speaking of redlining, here is an interesting article:

LA Times (2/21/2015) - For Asian Americans, a changing landscape on college admissions.

Here is a table highlighting the main point of discussion in the article.  I guess redlining is occurring, just not where most people think it is.

Princeton University admissions SAT score "bonus"
Race/Ethnicity   Bonus
Black+230
Latino+185
Asian-50

Luck12

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Re: The death of the 'Millionaire Next Door' dream
« Reply #91 on: April 01, 2015, 11:20:04 PM »
By no means do I think the MND dream is dying or was ever dead, and of course, many squander their high income on useless junk thereby setting themselves up for economic hardships, but let me illustrate why I think a lot of this has to do with luck.  I'll use myself as an example.

I grew up a little below middle class, but in a loving, two parent, economically stable home, with parents who were frugal and set a good example.  Parents pushed us to excel academically.    Not to brag, but I was always naturally good at academics, particularly at math, and we all know being really good at math makes it a lot easier to pursue a lucrative career.   I have always been naturally good at saving money and understanding investing/personal finance.  This shit just came easily. 

I know not everybody who is MND/MMM comes from this type of background, but I have to admit I had a lot of intrinsic advantages that many others did not have.  It's not like I necessarily worked that much harder than other people, I am and was the recipient of a lot of luck.   Becoming an MND/MMM type is just a lot easier when you have certain privileges.   

Basically, our genetic traits (including propensity to save and invest wisely) and family backgrounds control our outcomes in life to a much larger degree  than many on this thread and forum believe. 
« Last Edit: April 01, 2015, 11:22:01 PM by Luck12 »

velocistar237

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Re: The death of the 'Millionaire Next Door' dream
« Reply #92 on: April 02, 2015, 07:28:50 AM »
It sounds like our disagreements lie at the margins. Yes, the ovarian lottery exists. The people profiled in MND had some big advantages (living is the USA being the biggest one, but also being most likely a white male with a stable background). No, that doesn't discount the fact that wherever you start, you should make good decisions and you have to work hard to go far. MND does a good job dispelling the myth that most rich people spend a lot of money. Does anyone disagree with any of this?

These points don't pertain to OP's article, though, which said that MND may have been possible 20-30 years ago but no longer. They just don't have the data to back themselves up. They didn't bring up the ovarian lottery factor at all, maybe because discussions about it just aren't that fruitful. Even if everyone on the board took a moment to ponder how lucky they are to have been born in their circumstances, how would it change our discussion about personal finance?

slugline

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Re: The death of the 'Millionaire Next Door' dream
« Reply #93 on: April 02, 2015, 07:41:11 AM »
What's laughable about people that think they've "debunked" TMND is that they seem to conveniently ignore that Stanley and Danko actually rolled up their sleeves and did their  research. When someone writes another book on how the wealthy get wealthy after getting out there and collecting an even more comprehensive dataset from the field, I'll be happy to read it. I don't believe that TMND will be the last/best word on this subject, but if you're going to assert that it's flawed by selection bias, then someone needs to step up and do better.

MgoSam

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Re: The death of the 'Millionaire Next Door' dream
« Reply #94 on: April 02, 2015, 07:59:05 AM »
Speaking of redlining, here is an interesting article:

LA Times (2/21/2015) - For Asian Americans, a changing landscape on college admissions.

Here is a table highlighting the main point of discussion in the article.  I guess redlining is occurring, just not where most people think it is.

Princeton University admissions SAT score "bonus"
Race/Ethnicity   Bonus
Black+230
Latino+185
Asian-50

Yeah it has to be tough for Asians and for schools in general. When I was studying accoutning, I heard something interesting about the Masters of Accountancy program. They received a TON of applications from a city in China (I believe it is Chendu). The students were qualified enough that they could fill the entire program with students from there, but of course they were unable and unwilling to do so.

Luck12

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Re: The death of the 'Millionaire Next Door' dream
« Reply #95 on: April 02, 2015, 09:28:44 AM »
MND does a good job dispelling the myth that most rich people spend a lot of money. Does anyone disagree with any of this?

I read the book and I don't recall any mention of savings rates by income group in the book.  In fact, it is indeed true that rich people spend a lot of money, just look at savings rates by income group.  I know I've read that those making in top 1 to 10% of income save only 10-15% of their incomes, that's just pathetic.   The top 1% saves 30-40% which is easy when you make that much.     

Hell, the median income was $131K in MND and since this book was published 20 years ago, that's more like $200K today.  That is top 5% of household income.  So much for the "next door" part unless you live in some place like Georgetown or Upper East Side. 

The main issue I have with the thinking that anyone can become a millionaire aside from the fact that it's just false is that it makes for a convenient excuse to fuck over the poor and middle class.  It is catnip to the right wing/Ayn Rand/Horatio Alger types. 
http://www.financialsamurai.com/the-average-savings-rates-by-income-wealth-class/
« Last Edit: April 02, 2015, 09:33:57 AM by Luck12 »

skunkfunk

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Re: The death of the 'Millionaire Next Door' dream
« Reply #96 on: April 02, 2015, 10:17:56 AM »
Why am I going for delayed gratification, in effect saving a million dollars instead of spending an extra million dollars?  Sure it means I could cut down to a 40k lifestyle and quit my job, but what about my lavish reward of all inclusive cruises, the bigger house, the Rolex and the Lexus?  I figure after the security million, I will continue to work and divert all that money to luxury.

Eventually my net worth needs to mean more than numbers on a spreadsheet.  As it stands now I'm making more money than the poor, and in some cases living pooerer than the poor.  How are we sure the poor aren't living happier than us and aren't worried about credit card debt?

What? Do you read the blog? I think you may be in the wrong place, try the Ramsey forums.

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Re: The death of the 'Millionaire Next Door' dream
« Reply #97 on: April 02, 2015, 10:22:06 AM »
Naysayers: you essentially claim that the differing propensity of various demographics to engage in economically successful behavior refutes generalizations about the results of that behavior.

No. Not just no, but hell no.

If we have an underlying social order that sabotages certain groups by making them less likely or less able to follow known steps toward wealth, that's a fucking tragedy. But it does not refute the mechanics of the approach in question. Arguing against known methods for success on the grounds that social injustice prevents people from exploiting those methods in an egalitarian fashion only muddies the waters and does not address the injustice.

velocistar237

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Re: The death of the 'Millionaire Next Door' dream
« Reply #98 on: April 02, 2015, 10:57:57 AM »
I read the book and I don't recall any mention of savings rates by income group in the book.  In fact, it is indeed true that rich people spend a lot of money, just look at savings rates by income group.  I know I've read that those making in top 1 to 10% of income save only 10-15% of their incomes, that's just pathetic.   The top 1% saves 30-40% which is easy when you make that much.     

I don't remember savings rates either (kite said 20%), just all the statistics about low spending for suits, cars, shoes, etc., for a large percentage of the study population.

Hell, the median income was $131K in MND and since this book was published 20 years ago, that's more like $200K today.  That is top 5% of household income.  So much for the "next door" part unless you live in some place like Georgetown or Upper East Side. 

The authors themselves were surprised 20 years ago to find high earners in middle-income neighborhoods. We might be surprised by the current reality, too. We don't really have any data to show whether it's more or less likely today. We do know that a lot of us will be MsND one day.

The main issue I have with the thinking that anyone can become a millionaire aside from the fact that it's just false is that it makes for a convenient excuse to fuck over the poor and middle class.  It is catnip to the right wing/Ayn Rand/Horatio Alger types. 
http://www.financialsamurai.com/the-average-savings-rates-by-income-wealth-class/

I see your point. As a person who may someday become a MND, I value MND's small contribution to my understanding of how to succeed, and I think it would even help people who are worse off to see that you don't get rich by buying expensive stuff. Hopefully, people can reason out that a book showing that millionaires mostly fit into a particular demographic does not imply that anyone can become a millionaire.

I'm coming around to the idea that survivor bias is a significant problem with the book. Here's an Amazon review that discusses it. MND got the mechanics of saving and investing right, but if it followed people who only saved about 20% of their income and then benefited from a very good market, then it's no different from the standard financial prescription. It's not very impressive that someone making a top-5% income becomes a millionaire by working their whole life and being born in the right year.

Fortunately, we know from YMOYL, ERE, and MMM that those MND mechanics applied to a greater degree is as good a recipe for financial success as you could get anywhere.

RFAAOATB

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Re: The death of the 'Millionaire Next Door' dream
« Reply #99 on: April 02, 2015, 11:04:20 AM »
What? Do you read the blog? I think you may be in the wrong place, try the Ramsey forums.

I believe in the math much more than the motivation or the end goal.  Not long after reading this blog I actually cancelled cable service like so many of you have.  I also make above median income.  Meanwhile I know a couple who make less than me with more people to take care of who finally just got cable television service.  Situations like these make it look like I'm living poorer than the poor.  If you have the ability to save a million in investments and retire in your forties, you could comfortably fade into obscurity like the Millionaires Next Door.  Of course I could always focus my efforts on something more interesting, like being a state representative, a lawyer, or buying a big house and luxurious items.  Sounds more fun than me recently waiting 5 months before begrudgingly spending $250 for a new video game console and games.