1) Explain the following four (4) concepts addressed in The Millionaire Next Door: Big Hat, No Cattle This refers to individuals who spend money before they earn it and who are more interested in looking like they are wealthy than in actually being wealthy.
Go to Hell Fund It is the point of choice, where an individual can have enough money accumulated to live without working for 10 or more years. Basically you get to tell your boss, Go to Hell.
PAW It stands for Prodigious Accumulator of Wealth. This refers to individuals who are builders of wealth. People who are very good at building their net worth compared to their income/age category.
UAW It stands for Under Accumulator of Wealth. This refers to individuals who tend to live above their means. People who can make a good income however they tend to spend close or more than what they earn.
2) In the example of Theodore Teddy J. Friend:
Provide three (3) reasons why Teddy is considered a UAW. What was the message Teddys parents sent him about consumer behavior? Reason #1 Teddy is an UAW because he is the ultimate consumer. He has boats, jet skis, 6 cars, etc. The point is that he is more concerned with impressing the people around him than increasing his net worth and what he is really worth.
Reason #2 Another reason why Teddy is a UAW is because he believes that to drive his performance to the highest level he has to use fear as a motivator, meaning that since he owns so much money he always has the fear of defaulting on his debts if he doesnt perform.
Reason #3 Mr. Friend is not thinking about his future. He doesnt make investments and has a cheap accountant. Although he has so many upscale things, he doesnt get to enjoy them or spend time with his family.
Parents Message The message is that the money that is earned is meant to spent, and if more money is needed for more consumption, you need to earn more.
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3) In the example of Mr. W.W. Allan, a self-made multimillionaire:
He never extended credit to people who exhibited the Big Hat, No Cattle philosophy. Why? Why did he decline the gift of a Rolls-Royce? Philosophy The reason behind it is that those types of people would never pay him back. Mr. Allans thoughts were that those types of people only spend and spend money even before they have earned it.
Rolls-Royce There are several reasons why he declined the gift; First of all he didnt want to have the pressure of owning a Rolls-Royce since when you drive a vehicle of that caliber people expect you to play the part. Also he stated that he wouldnt have the opportunity of doing the things that he likes to do, like fishing or going out to eat to certain restaurants that he likes. Also he thought about his employees and that they might think that he is exploiting them.
4) Regarding Economic Outpatient Care (EOC):
Answer the four (4) EOC questions below. Define Economic Outpatient Care (EOC). EOC is when parents or grandparents give a substantial amount of money per year to adult children or grandchildren instead of letting them grow and handle their own finances.
Like the example of James, many EOC receivers (inaccurately) view themselves as____________. They see themselves as part of the I did it on my own club. The authors of the book were surprised when they heard from these people that they feel they have earned every dollar they have. As illustrated in the example of Henry & Josh, what is the fundamental rule regarding wealth building? Be specific. The fundamental rule of wealth building is Whatever your income, always live below your means. What this means to me is that no matter what income a person has, there will always be more things to spend money on, but they need to spend less than what they make if they want to build wealth. Why did Laura succeed? Lauras success is attributed to hard work, frugality and also the fact that she had to care for her three children and failure was not an option.
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What are the two (2) concepts you found most useful? How will you apply them into your life? In your own words, give your thoughts in a minimum of three (3) paragraphs.
The first concept that has had a big impact on me is that frugality is essential even if you are a millionaire and especially if you want to become a millionaire. Before I read this book I thought that someone could become a millionaire just by making a high level income however, I have learned by reading this book that by being frugal and investing in your future, you can become wealthy. On the other hand someone might have a high level income but will never be a millionaire if they dont learn to budget, be frugal and invest properly. The second concept that I have learned is that when it comes to millionaires, you cant judge a book by its cover. Someone may live in a big home, drive an imported luxury car, have a thousand dollar watch, etc., but that doesnt mean that they are millionaires or can afford their lifestyle. Since reading this book I have started to notice friends and neighbors and analyze their spending habits. I realized now that a lot of people in our society live to impress their neighbors even if they cant afford it. As I ponder about the different concepts that I have learned by reading this book, I feel that continuing to follow a household budget will help my family and me to have a better future. By budgeting we will be able to live frugally and live within our means. Also I have decided that the best use of my money is to save and invest rather than spend every penny or even use credit to try to look wealthy and impress the neighbors.
Reflective Writing Compose 2-3 paragraphs explaining how reading The Millionaire Next Door helped you achieve at least 2 of the SLCC Learning Outcomes. Acquire Substantive Knowledge Reading The Millionaire Next Door helped me to acquire substantial knowledge about how to manage my own finances and how to plan for the future. This knowledge will not only help me in my personal finances but also with running a business in the future or managing an office budget. Think Critically & Creatively This book has helped to think more critically about how my choices today will affect my future and my familys future. Also I have learned that there are many different professions or businesses that a person can get into to make a high level of income, however, it requires critical thinking and planning especially at a young age.