by: Richard A. Anderson
The story of the millionaire next door has been told at nauseum. Since authors Thomas J. Stanley and William D. Danko first released their book “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy” in 1996, the book’s themes have been used as an attempt to promote good savings habits.
The authors find that the perception of what a millionaire looks like (high-income white-collar professionals) is contrary to the reality of what a millionaire looks like (middle-class blue-collar professionals). The millionaire next door is the family that has a modest lifestyle; the ones that don’t have the largest house, fanciest cars, newest electronics, etc. Not the family that shows their wealth through luxury goods or status items.
When the topic of spending and savings habits is approached, it’s often met with eye rolls and the expectation of hearing the phrase “spend less and save more.” It’s often reinforced with the story of the millionaire next door or a statistic that shows how much you would accumulate if you stopped buying your morning coffee from Starbucks. The problem with this approach is simple to unpack.
First, it automatically puts people on the defensive. They feel the need to justify their spending and savings habits, rather than simply reflect on their habits.
Second, the term budgeting has a negative connotation. It elicits visions of coupon clipping and frugality. Not that there’s anything wrong with that, but I’m sure there are more exciting things to visualize, like travelling to an exotic location.
Finally, it essentially makes the assumption that you are a robot whose sole function is to save as much for retirement as possible. It doesn’t take into account the fact that we all have emotions and receive a certain level of value from everything we do in our daily lives. Have you ever heard the phrase life is a journey, not a destination? The joy of living life every day is lost if all you can think about is how much each expense is taking away from your future retirement nest egg.
Don’t get me wrong. Spend less and save more is sage advice and needs to be adhered to, but there is a middle ground between living like a Kardashian and living like a spartan.
That middle ground involves thinking hard about what you value most. Don’t be afraid to spend on items or experiences you get a great amount of value from, within the constraints of a financial plan of course. But that also means reducing or eliminating spending on things you don’t get a lot of value from. Think those impulse buys.
So, if you value your morning coffee and bagel and it makes your morning commute more tolerable, then go for it. But maybe think about packing your lunch rather than buying your lunch. Or if you value travel, then think about cutting back on dining out. The possibilities are endless. But you’ll run into trouble if you say I get maximum value from everything I do, and I can’t find any place to cut back.
When the topic of spending and saving is addressed by a financial planner, I bet you expect these conversations to be chastising; that you expect to hear you can’t or shouldn’t do something. The truth is it is our job to help you find ways to not only do the things you want but do the things that are truly most important to you. That is why we devote so much time at the onset of our relationship going through the vision question exercise, managing cash flow, and having frank conversations about your goals. And that is why we revisit these topics during our meetings, to make sure the financial plan we have helped craft continues to reflect the life you want to live now and in the future.