Resource Review – Stop Acting Rich… And Start Living Like A Real Millionaire…

Just finished reading this book. A great resource for anyone (including consultants and wannabe consultants) seeking financial freedom along with occupational freedom. This is the latest book by Dr. Thomas Stanley, author of the bestsellers The Millionaire Next Door and The Millionaire Mind.

Unlike too many financial guides with their special formulas on getting rich, Dr. Stanley’s book shows HOW others have already done it. For the past 20+ years, he has conducted extensive research on the lifestyles and behaviors of the affluent. As an engineer, I love it — don’t just give me a theory — show me the data!

His results are revealing. As it turns out, most high net worth individuals are not who you think they are. Surprisingly, your plumber or hardware store owner driving the beat up pickup truck may well be a multimillionaire — while your doctor in the McMansion with the Mercedes, (or even your corporate boss) may be worth a lot less.

The difference is in what Stanley calls balance-sheet affluence (BA) versus income-statement affluence (IA). It turns out that many who earn high incomes squander their wealth in high consumption (or as he calls it, hyperconsumption.) As a result, they fail to convert their high earnings into wealth.

  • Among the worst offenders — doctors, attorneys, and mid-level managers. With their high incomes and high status jobs comes an expectation of high consumption. They often live beyond their means, with big houses, fancy cars, expensive suits,  gourmet food and wines, and more.
  • Among the best wealth builders — business owners (including independent consultants),  engineers (yea my fellow geeks), and college professors. Although by no means poor, many of these folks practice frugal living, living below their means and investing the difference. One day they wake up wealthy — and not from winning the lottery.

Stanley’s arbitrary criteria for affluence is a million dollars in net worth (assets minus liabilities). He likes to exclude non-investment real estate, since as we have seen in the past few years this  represents illusionary wealth that can quickly evaporate.

The real question, of course, is how long can you live off your assets and their passive earnings? With proper management, a million dollars in assets can last a LONG time…

So what does this have to do with consulting?

  • First, you don’t need a million dollars to start a consulting business. You do need, however, to have your finances under control. That means minimal debt combined with a frugal mind set. A modest mortgage is OK, but big car payments and lots of credit card debt are NOT OK.
  • Second, if you are not in a solid financial condition, I suggest fixing your financial problems prior to making a JumpToConsulting. And when you do make the jump, you’re not likely to get rich right away, but done right you can make a decent living and untimately create your own financial independence.
  • Third, once you do make the jump, keep the frugal mind set. Don’t put your money into a fancy car or office to impress clients. Rather, put your time and money into building your business through diligent sales, marketing, and delivery of services. Continue to live below your means.
  • Fourth, as soon as you can, set up a Keogh or other retirement plan, and treat it as a necessary business expense. If you set aside 25% of your W-2 income every year, it forces you to live on 80% of the full income (plus that 25% is tax deferred) As Stanley points out, the 80% method is a great way to build wealth in a relatively painless way.

For those of you who love stats and examples, here are just a few:

  • Only about 3.5 % of the US population has a net worth of over a million dollars. This translates to about 3.5 million households.
  • Only about 0.1% of the US population has a net worth of over ten million dollars. And only a tiny fraction of those are sport stars or celebrities. According to Stanley, you are more likely to catch malaria in the US that to have a net worth over ten million dollars.
  • Most true millionaires (not the pretenders) live in houses that cost under $400,000, drive Toyotas or Hondas, wear Timex or Seiko watches, and have never paid more than $400 for a suit. So much for emulating the lifestyle of the rich and famous.

Finally, why did I include this in a blog on consulting?

Because Uncle Daryl Wants You — To Be Free. Starting and building your own consulting practice is one way to do this, and I wanted to share my experiences and advice here. There are a multitude of other ways, but virtually all of them share a common theme of managing your finances wisely to create your wealth.

And in case you are wondering
— yes, my wife and I are financially independent. That was not the case when I started my consulting practice 30+ years ago, but thanks to working hard,  a successful practice, and frugally living beneath our means, we made it. You can too!

Stop Acting Rich… and Start Living Like a Real Millionaire
Thomas J. Stanley, Ph.D.. — Wiley — 2009
ISBN 978-0-470-48225-1

Web Site: http://www.thomasjstanley.com/

PS – Interested in more of this? Check out Mr. Money Mustache, a blog I just discovered on financial independence by a fellow geeky engineer who retired eight years ago at age 30.  Married, with a kid no less, so it can be done by a family — not just single persons.

© 2012, jumptoconsulting.com. All rights reserved.

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