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Clothing and the rich

post #1 of 157
Thread Starter 
I just read The Millonaire Next Door, and it had some interesting points about the rich and clothing which I'd like to share. Even though I think their methodology was flawed, I still think there's still some uncomfortable truths. " It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles, and such. To them, superior people have excellent tasts in consumer goods. But it is easier to purchase products that denote superiority than to be actually superior in economic achievement. Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement." "According to our recent survey... fifty percent or more of the millionaires surveyed paid $399 or less for the most expensive suit they ever purchased. Only about one in ten paid $1000 or more... For every millionaire who owns a $1000 suit there are at least six owners who have an annual incomes in the $50,000 to $200,000 range but who are not millionaires. Their shopping habits certainly have something to do with the fact they are not wealthy... About half the millionaires surveyed reported that they had never spent $140 or more for a pair of shoes. One in four hand never spent more than $100. Only about one in ten had spent over $300." "There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one's financial future... High income producers UAW spend a great deal of their incomes on expensive automobiles and clothing. But it takes more than money to acquire and maintain large inventories of luxury goods. Such purchases have to be planned. It takes time to shop. TIme, energy, and money are finite resources, even among high income generators. Often these high income UAWs outspend their six figure incomes. So how do they balance their need to maintain their high standard of living with a finite income? Many aggresively shop for bargains." "Examine the activies that Dr. South undertakes to puchase an automobile. You might get the impression that he is a tightwad. Most UAWs bolster their hyperconsumption behavior by telling would be critics that everything they buy is purchased near cost, at cost, below cost, and so on... All too often high income UAWs spend countless hours studying the market- but not the stock market. They can tell yo how to shop and spend. But they can't tell you how to invest." "Consider the level of car purchasing knowledge Dr. South has recently acquired that will never pay capital gains or real dividends or enhance the producitivity of his business. It takes much time and effort to aquire such information. Dr. South is penny-wise, pound foolish when purchasing motor vehicles. But he has convinced himself that he is a prudent buyer. After all, he spends much time and energy trying to buy cars at or near dealer cost."
post #2 of 157
I would really like to know who participated in this survey. I think you are right about their methodology being flawed.
post #3 of 157
To provide some context, the book points out that most millionaires are small business entrepreneurs. I can see how expensive clothing would not necessarily be of interest to or useful to a scrap yard owner, or the owner of a chain of doughnut shops or what have you.
post #4 of 157
The whole book is quite laughable. Isn't it common sense that people who save every penny will be able to accumulate more money and become millionaires more than those who spend the money? But what's the point of having money if you don't spend it? Someone who spends $10,000 a month and has $500,000 in savings at the moment is not necessarily worse off than someone who spends $2,000 a month and has $1m in savings.
post #5 of 157
Quote:
But what's the point of having money if you don't spend it? Someone who spends $10,000 a month and has $500,000 in savings at the moment is not necessarily worse off than someone who spends $2,000 a month and has $1m in savings.
The point of the book is actually encouraging people to save for their day when they no longer have an active income stream, i.e. retirement, unemployment or disability, and to have money available to create a passive income stream from investments and other activities so that you can afford to retire. The phrase that we always used when I worked as an investment representative was that you don't want to outlive your income. Inevitably, most of us wil hit the day when we are no longer capable of earning an income and at that point, it is important to have saved and invested enough to be able to maintain the style of living to which we have become accustomed. Bradford
post #6 of 157
Quote:
The point of the book is actually encouraging people to save for their day when they no longer have an active income stream, ...
Yes, I am aware of that. But if the authors go to extreme lengths just to make this point. I mean it is as though they are glorifying a penny-pinching lifestyle. After financial security is assured, it would be pretty stupid to keep a huge savings account and not enjoy all the pleasures that spending money can bring. The book I think may have a tendency of promoting saving money for the sake of saving money and sort of make saving money a pleasure in its own right ... which, of course, it is not.
post #7 of 157
Quote:
The phrase that we always used when I worked as an investment representative was that you don't want to outlive your income. Inevitably, most of us wil hit the day when we are no longer capable of earning an income and at that point, it is important to have saved and invested enough to be able to maintain the style of living to which we have become accustomed.
True. But unlike the book, this doesn't presuppose that your goal in life in to become a millionaire. I'd like to save/invest, etc.. enough money for a comfortable retirement, but I'd like to enjoy the finer things in life in the meantime, not because I want people to see me as wealthy, but because I enjoy those things. There's a happy medium.
post #8 of 157
Obviously a good balance if preferable, but I think the book is helpful for opening the eyes of the large number of people that are living way above their means. When I was doing financial planning, we'd get people every so often that were just insane with the credit - completely out of control. In contrast, the people that were retiring at 55 with plenty of capital to last them until 90 while taking trips and paying cash for their kids' Ivy league tuitions were the ones that had lived below their means for 30 years, even with lower paying jobs. -Edited for coherence-
post #9 of 157
Quote:
Obviously a good balance if preferable, but I think the book is helpful for opening the eyes of the large number of people that are living way above their means. When I was doing financial planning, we'd get people every so often that were just insane with the credit - completely out of control. In contrast, the people that were retiring at 55 with plenty of capital to last them until 90 while taking trips and paying cash for their kids' Ivy league tuitions were the once that had lived below their means for 30 years, even with lower paying jobs.
It just goes to show you how their is a difference between making money and having money. I think people forget this.
post #10 of 157
Quote:
I just read The Millonaire Next Door, and it had some interesting points about the rich and clothing which I'd like to share. Even though I think their methodology was flawed, I still think there's still some uncomfortable truths. " It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles, and such. To them, superior people have excellent tasts in consumer goods. But it is easier to purchase products that denote superiority than to be actually superior in economic achievement. Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement." "According to our recent survey... fifty percent or more of the millionaires surveyed paid $399 or less for the most expensive suit they ever purchased. Only about one in ten paid $1000 or more... For every millionaire who owns a $1000 suit there are at least six owners who have an annual incomes in the $50,000 to $200,000 range but who are not millionaires. Their shopping habits certainly have something to do with the fact they are not wealthy... About half the millionaires surveyed reported that they had never spent $140 or more for a pair of shoes. One in four hand never spent more than $100. Only about one in ten had spent over $300." "There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one's financial future... High income producers UAW spend a great deal of their incomes on expensive automobiles and clothing. But it takes more than money to acquire and maintain large inventories of luxury goods. Such purchases have to be planned. It takes time to shop. TIme, energy, and money are finite resources, even among high income generators. Often these high income UAWs outspend their six figure incomes. So how do they balance their need to maintain their high standard of living with a finite income? Many aggresively shop for bargains." "Examine the activies that Dr. South undertakes to puchase an automobile. You might get the impression that he is a tightwad. Most UAWs bolster their hyperconsumption behavior by telling would be critics that everything they buy is purchased near cost, at cost, below cost, and so on... All too often high income UAWs spend countless hours studying the market- but not the stock market. They can tell yo how to shop and spend. But they can't tell you how to invest." "Consider the level of car purchasing knowledge Dr. South has recently acquired that will never pay capital gains or real dividends or enhance the producitivity of his business. It takes much time and effort to aquire such information. Dr. South is penny-wise, pound foolish when purchasing motor vehicles. But he has convinced himself that he is a prudent buyer. After all, he spends much time and energy trying to buy cars at or near dealer cost."
I think this survey is not serious. Anyway very rich people do not need to impress. They are famous and every doors are open for them... And often, as they are intelligent and have many contacts and friends, they can buy good clothes with big discounts if not for free in exchange of other services.
post #11 of 157
There's an easy answer for this. Do both. I do. Here is what I do, and how I started. When I was fresh from college, I put on my W-4 that I wanted the IRS to withhold $500/mo. from my check. At the end of my first tax-year, I got a return of approx. $7000 (withholdings and refund, I also claim 0 exemptions and am agressive with my 1040-A). I used that money to buy a used Lexus ES300 (from an estate sale), which I sold one year later for $9500. The second year I continued to use the IRS withholding mechanism, so I had a total capital value of approx. $17,000 after two years of saving. This money was put into an American Funds account (yes, I know, that is piddly money for MFs, but I didn't want to touch it, that was the point). Now, I have a system setup where my fund manager auto-withdraws (via bill-pay) approx. 25% of my gross income every month from my account, and that is deposited into my investment portfolio - made up mostly of Vanguard and American funds (and averaging about 14% growth to this point). For fun, I take another 10% of my gross income, and deposit that into my forex account, which I trade agressively, and use the generated income for some of my more extravagant non-durable purchases (dinner, movies, live music, travel, etc). I use an automated trading system (via fxengines) and it is returning me about 300 pips a month currently, on average. I trade pretty agressively, generally buying 5-6 lots per position, so that gives me about $50 a pip. Most of my returns, however, stay in the account, to increase my margin (unused margin earns 2%) and cover choppy markets. I never use credit. Why should I pay someone else interest to loan me money for things I do not need? My debit card has a visa logo, and I can rent cars and buy airfare with it, so why use a credit card? Doesn't make sense to me. As for building my credit - I don't need a house. I currently rent an apartment with my girlfriend. We each pay $425/mo. in rent. It is tiny. We do not care. We are never home. When we need to buy a house, we will either pay in cash, or use the financial services of the firm we deal with. They have excellent lending terms if we need to borrow. I bought myself a Mercedes SLK-350 because I liked it. I spent the next few days driving like an idiot, and showing it off to a bunch of people who didn't care. It was a blast. The car is a lot of fun, and so it adds to my quality of life. However, I bought the car with cash, and I make monthly payments (to my fund manager) for what I would have paid on a loan (including interest). I will sell the car in a few years and come out ahead (with the interest earned on my payments). I started my career making less than $50k/yr. At no point have I ever made over $120k/yr. My net worth now (if I had to liquidate) would exceed that of my total income over that span of time, simply due to good investment strategy and good luck (I have had some securities and forex investments go wildly in my favor, which was nothing more than pure luck). At no point have I been a penny-pincher, and my lifestyle is not what many would call frugal (although I guess in some ways it really is). But, my girlfriend and I have, to this point, still been able to increase our net worth to the point that we could buy a house with cash if we wanted to. It is not necessary to live like a hermit or a scrooge in order to retire early or build your wealth. Money management is key. 35% of my gross income is automatically invested (actually, come to think of it, with my side projects it is probably closer to 50%), the rest I do what I want with. And that works fine. My current capital situation shows me clearly that a man making less than six figures can easily build a million or more in capital with proper money management and aggressive financial planning. And every millionaire I know has at least one suit worth $3k or more. It is not a luxury. It is a necessity if you are leading any serious business requiring meetings with clients and vendors. Unless, of course, you like to be taken as a fool.
post #12 of 157
I find the hostility to the book here amusing. What they are doing simply is showing you how 'average' millionaires got to be millionaires, what their financial habits are. If you want to be a millionaire then you should do what millionaires do. This is what they do. Certainly there are exceptions. As Bradford said, the important thing to remember is security when your income stream stops so you're not a greeter at Walmart in your 70s. That means making certain choices when you're younger. I suspect that when most of you are married and have kids you'll start to see the other side of it a little more. At least I hope you do. Alan (spends lots of time bargain shopping...uh oh   ) PS If you want to go hardcore with that approach, here it is.
post #13 of 157
Quote:
And every millionaire I know has at least one suit worth $3k or more.  It is not a luxury.  It is a necessity if you are leading any serious business requiring meetings with clients and vendors.  Unless, of course, you like to be taken as a fool.
I agree for the suit but I guess a 1500 $ convas suit would be as nice as a $3000 suit because nobody will see the difference. At least not without touching .
post #14 of 157
If the road to being a millionaire according to the dude who wrote that book means wearing $399 suits, count me out.. I'd rather be in debt and look good.
post #15 of 157
Quote:
The whole book is quite laughable.
I dont understand how. Its probably the best global practical advice that I have read in years. In my opinion, in a country where personal savings rates have steadily fallen to the current level of almost zero and the "instant gratification" message is everywhere, I think a book like this is a voice of reason.
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