In Stop Acting Rich there is a section entitled “The Money Pit.” This material apparently had an influence upon Mr. R.S. who recently wrote to me (see my previous blog). Here are some extractions from the book:
. . . the true cost of living in certain homes and neighborhoods is unseen but truly devastating. . . . The greatest detriment to building wealth is our home/neighborhood environment. If you live in a pricey home and neighborhood, you will act and buy like your neighbors . . .act and be like those around (you).
. . . the more affluent the neighborhood, the more its residents spend . . . . From cars to haircuts, and from wine to watches, those who live in ‘prestige estates’ spend more.
. . . most of the self made millionaires I have studied . . . were able to build wealth precisely because they never lived in a home or neighborhood environment where their domestic overhead made it difficult for them to build wealth. . .. They ran their household like a productive business. It is not only about how much you make (or generate in sales). More important, it is how much you keep. And the ‘keep’ component begins and ends at your home address.
Today’s blog continues with the letter from Mr. R.S. who transformed himself from a spender into an accumulator of wealth.
. . . it’s my latest step forward that prompted this letter . . .
I recently began looking for a new home. Your book stated that [28.3%] of America’s millionaires living in homes valued at $300,000 or less. I thought “Well, that’s a good place to start” and I set up a search for homes $300,000 or less. Surprisingly this didn’t present as much of a challenge as I thought it would even living where I do (thank you corrupt Wall St. investment bankers).
Your statistic regarding “not being in a hurry to buy but waiting for the right opportunity,” while well-advised, didn’t last long. Within just 3 weeks my opportunity came knocking. I found a 4/2 single-story property, less than 2000 sq ft with a seller who needed to sell. They had it listed just high enough over their loan balance to cover their sales costs. Their loan balance was $301,000. It was exactly what I was looking for. It was the White Camry Syndrome.
When I went to drive the neighborhood and saw Fords and Toyotas, instead of Mercedes and BMW, I knew I had found my new home. Because the total cost of living in this neighborhood will only be about 15% of my current income, the Joneses will now be keeping up with me.
Additionally, I bought the property by taking over their 7 year old, fixed rate loan – an investment strategy I’ve used many times in my real estate business. I got the benefit of someone else making over $100,000 in front-loaded interest payments. We’re moving next Monday and I’m certain my wife and I will be the happier for it.
Dr. Stanley, thank you for your incredible research and insights into America’s true millionaires. You have indeed ruined my consumerist, consumption-oriented thinking. With my continued and steady progress, I’ll look forward to getting your next survey in the mail.
Much Success,
R.S.
BTW, the Wall Street Bankers were corrupted by the easy money created by our politicians and the Fed. This easy money leads to malinvestment and a boom and bust cycle. This is called Austrian Business Cycle Theory (ABCT) and F.A. Hayek won the Nobel Prize for it in 1974.
My wife and I live in a home valued at $230,000. We paid cash for the home in 1995. The value of our home is substantially less than 10% of our Net Worth.
I, too, wish to thank Dr. Stanley. I have read several financial books and his books are the very best.
Dr. Stanley,
I’ve read most of your books and think they are awesome! My wife and I had your book in mind when we purchased our new house a few years ago. We found that staging our house and negotiating the purchase price made it possible to purchase a Singe family house for less than our townhouse in a highly desirable community.
But the main reason for the move was that we wanted to live in the community that our business was in. We discovered living very close to your business (2 min commute) was an extremely good money strategy. We have estimated that we save thousands of dollars a year in commute expense compared to my former 1 hr commute time when I had a full time job. The interesting part is that we save the money for enhancing your lives – more free time and less aggravation caused by commuting.
My question is do you see similar behaviors among the Millionaire Next Door types?