The Millionaire Next Door
The Surprising Secrets of America's WealthyBook - 2010
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Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.”
― Thomas J. Stanley, The Millionaire Next Door: The Surprising Secrets of America's Wealthy
Wealth is not income. Wealth is what you accumulate, not what you spend.
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There are two types of wealth accumulators in our society; those that are prodigious accumulators of wealth and those who are under accumulators of wealth. To calculate the threshold to be considered a PAW take your (age*yearly income)/10. PAW's much of the time have a very strong defense (frugality) which allows them to build up a net worth that is many times higher than UAW's in a similar cohort. Having a good offense (realized income) does not readily translate into wealth accumulation. A significant number of UAW's have a superb offensive, but lack the skills needed to play a solid defense. It is within the benefit of the individual to live below their means in order to build a large net worth. The American society has conditioned a large percentage of the population to become consumers and materialistic. What PAW's realize is that material goods (e.g. cars, house, clothes) do not make the individual. Conversely, UAW's are more likely to be involved in careers that engage in show-off purchasing behaviors (physicians, lawyers, upper management etc.) They essentially need to prove their aptitude in their careers via high status purchases. Of the PAW's interviewed, a majority of them were owners of "dull" businesses (i.e. companies that provide a necessary service, but do not appear to be of high status). What do PAW's investment portfolio's look like? Much like the businesses they run.
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