Now that the holiday season is in full swing, it might be a good time to reflect once again on the ways and means of the millionaire next door. This came to mind after I observed a woman who was trying her best to pay for a down vest at a recreational equipment emporium. First she attempted to pay for it all on one credit card. When that card was rejected, she pulled out a second card, but it was also rejected. However, this woman was a consumption commando! She had a multitude of cards remaining in her wallet; so she requested that the clerk put $20 on this card, $30 on that one and the balance on a third.
I was reminded of Dr. North, whom I interviewed for The Millionaire Next Door. In fact, I am in the process now of reconnecting with many of the respondents who have been profiled in my books as a base for my next one. As you might recall, Dr. North’s household net worth was in the high seven figures with an annual income in the high six figures. Yet, Dr. North and his wife use only one credit card for all personal consumption.
Their planning, budgeting and consuming are coordinated events. Their purchases are listed on one single statement each month. Each month they determine how much remains to be allocated for each consumption category.
By documenting and tabulating their consumption each month, they are deterred from overspending. Unlike the woman mentioned above, there are no surprises for the Norths when it is time to purchase an item. Too often consumers delude themselves in terms of underestimating how much they really owe by distributing purchases over a variety of cards. What if the woman in question had just one credit card, even one with a high dollar limit? One $5,000 or $10,000 balance will have a much greater dampening effect on consumption than the same amount spread over 10 or 20 credit cards.