How To Become A PAW (Prodigious Accumulator of Wealth)

The book The Millionaire Next Door is an enlightening read on the habits of the truly wealthy.

I agree with much of what Trent over at http://www.thesimpledollar.com/ says in his review:http://www.thesimpledollar.com/2006/11/11/review-the-millionaire-next-door/ - that the book is somewhat age- and small business owner-biased, and that the idea that these millionaires don't provide economic outpatient care to their adult children skips entirely how to raise your kids so they don't depend on it.

That said, it's worth reading. Why? Because it talks about how to become that middle-aged millionaire. The reality is that as much as CNN loves to write articles about teenage millionaires and Bill Gates, most of us will never have that kind of luck or money. Our path, as JD so succinctly puts it in the name of his blog, is to get rich slowly http://www.getrichslowly.org/.

How? By becoming what The Millionaire Next Door calls a PAW, or prodigious accumulator of wealth.

The formula is simple. Multiply your age by your income and divide by 10. If you have that amount or more, you are a PAW.

But if you don't (and we don't either), don't sweat. Most of the millionaires didn't when they were 34 (my age) either. But they worked towards it. And worked towards it. And....you get the idea.

The way to do that is simple - be frugal, frugal, frugal. Yep. Spend less than you earn, don't consume conspicuously, save, save save, all those ideas that us personal finance bloggers and Suze Orman pummel our readers with on a daily basis. Clip your coupons, shop for the lowest price, etc.

Invest. A lot. The average millionaire in the book saved 20% of their income annually.

Recognize that flashing expensive items does not equal wealth. See, it's like this. The guy with the Rolex is conspicuously showing off his possessions, but there's no guarantee that he has actual wealth. He may have just purchased status, and he may be making credit card payments. The curtains from Smith and Noble might be custom made, but at $400 a window, are they really 10x better than the ones from JC Penney? Mmm....I doubt it.

The folks in The Millionaire Next Door probably own a 20 year old Timex. Because they know a secret: Rolexs and bespoke suits don't make you rich. Appear rich, sure. But actually rich? Nope.

Only saving makes you really rich (unless of course you've started the next Google). And saving your money comes from having a surplus every month. And having a surplus comes from living below your means. Which, in turn, often means.....frugal frugal frugal. You get the idea.

Create a budget. Most wealthy people have them. They can look back and tell you exactly what they spent on groceries, eating out, car maintenance, and so on.

Don't buy expensive cars, or if you must, keep them. Very few millionaires are driving this year's model. Or even last years. And they don't buy luxury cars.

Set goals. Weekly, monthly and annual goals. Long term ones too. What kinds of goals? Savings goals. Debt payoff goals. Investment earnings goals. Work goals. All kinds of goals. The proof is in the pudding, over and over - goal setters tend to acheive more than non-goal setters.

The average millionaire profiled was 57 years old. Meaning they knew the adage 'slow and steady wins the race'. They could, on average, sustain their lifestyle without income for more than 10 years.

So skip the get rich quick scheme, keep that old car one more year, max out your 401k, and set a budget. And then retire early.

Doesn't sound like a sacrifice to me.