Debunking the Millionaire Next Door: Why Frugality Won’t Make You Rich

In this episode of How to Invest in Commercial Real Estate, the guys dive deep into the popular book The Millionaire Next Door and explain why it’s giving people the wrong idea about wealth.

(0:00) I do disagree with Brayden. I slept on a million dollars last night and it felt, (0:05) it felt damn good. What is up? Yeah, wake up guys.Get up. Let's go. Still reading my notes.(0:20) Welcome back to how to invest in commercial real estate. We are here in Jinx, best podcast in (0:25) Jinx, Oklahoma, undisputed still. Yes, sir.Talking about commercial real estate. And today (0:29) we have a very interesting topic. It's about the millionaire next door.Before we get into it, (0:33) any updates? I'm sure there's some updates. Let's see. Aspen Dental went out, (0:41) sold out almost immediately.I think we're calling down the funds, closing on that (0:45) tomorrow. Construction loan tomorrow. Speaking of that, you guys should probably be around to (0:49) sign loan docs.I need to get with you on that. Okay. What else? We have, I think next Friday, (0:55) we've got another closing, don't we? Grand Rapids next Friday? That's 14th.Grand Rapids (1:01) closing the 14th. We have two more shopping centers in contract that are closing in March (1:06) and April. Hey, Precision Equity's got an apartment deal.Let's go. There you go. (1:13) Haven't seen one of those in a minute.Yeah. Value idea right here in Tulsa. (1:17) Sent out over $600,000 in distributions.Oh yeah. Biggest quarter yet. That's amazing.(1:23) Yeah. For Q4, 600,000 in distributions on invested capital. So that's no return of equity.That's (1:30) $600,000 in profit for one quarter going out to our investors. It's pretty awesome. (1:35) That's amazing, man, because this year it's only going to grow.We'll be over 2.5 million (1:42) in return on investment just with Criterion and Precision Equity's the same. It could be over (1:46) 5, 6 million this year out to investors, which is awesome to think about. When we started this, (1:53) it was nothing.And then now we're literally sending out $5 million a year to people that (1:57) we know and like. And so that feels awesome. I like most of them.Kidding. Kidding. (2:04) All right.Well, today I'm excited about this topic because I read the book Millionaire Next (2:09) Door when I was just getting into my investing career and I freaking hated it. (2:15) How long ago was that? When did you read this? I think it was early 2000s. (2:19) Back in NAN? Yeah.2003, 2004, (2:24) maybe 2005. And I just remember thinking at the time I had just gotten into self-help and I was (2:30) like, okay, I want to be rich. I want to have freedom.I want to have this lifestyle. I want (2:35) to have the millionaire lifestyle. And I assume this was a popular book back then.Very popular (2:38) book. And so I picked it up and I just couldn't believe what I was reading. And today we're (2:42) going to take a dump on the Millionaire Next Door.Right. Let's do it. Yeah.In reviewing this before (2:50) the show, it's very Dave Ramsey-esque. I think the idea of the book, just to give a premise, (2:54) even though I haven't read it, is... I can do it. Yeah, please.Please. (2:57) Premise of the book is this. What they did was they surveyed everybody that had a net worth (3:03) of a million dollars.Just a net worth. So that can include your cars, your houses, (3:08) your book collection, whatever. 401k.(3:11) Yeah. 401k, all of it. And it adds up to $1 million.And they're like, that's the definition (3:16) of a millionaire. And so, well, if you think about it, if you're 50, 60 years old and you've (3:23) been saving your whole life, you maybe make 50, 60 grand a year, but you've been really diligent, (3:28) you might have a million dollars when you're about to retire. That could be a bunch of people, (3:32) hundreds of thousands of people.And so what they did is they said the average millionaire, (3:37) and they define the average millionaire as this person with a million dollar net worth. (3:41) What do they look like? And so we're going to talk about kind of the examples they give (3:46) in the book and why it has nothing to do with the lifestyle that we want you to go after. (3:52) Yeah.If you're 65, 70 and you have a million bucks, well, chances are you're not working (3:56) anymore and you better hang on to that million dollars. It's not a millionaire lifestyle, (4:02) right? It's not what we think. (4:03) Yeah.I think almost more challenging, easily equally as challenging as saving a million (4:09) dollars is figuring out where to place a million dollars that gives you the cashflow you need (4:13) without having to spend it. I think that's insanely challenging. Somewhere to give you (4:17) a million dollars right now and say, Hey, you need to find a way to live off of this, (4:20) but you can't spend the million.Where are you going? Like bonds pay out a few percent. (4:25) The stock market is you may be able to get a few percent dividend on a stock. Maybe (4:30) it's going to be a struggle to try to invest in cash flowing assets that you control outside of (4:36) that.So it's a tough task. So, so let's talk a little bit about the average millionaire, (4:41) according to the millionaire next door. And let's just see what we think.(4:44) The first one is that the, uh, the average millionaire next door lives in a home that (4:50) is $300,000 or less. Now this is written, uh, 20 years ago. Uh, but that, that is not (4:56) what we think a millionaire is.Uh, what's one off your list, Brian, that the book, uh, (5:01) so it says, uh, basically it says they live below their means. This is how they, it says, (5:07) this is how they build extraordinary fortunes, which is frugality is frugality through frugality, (5:11) not extravagance. And they live below their means.They drive modest cars. They live in (5:16) average neighborhoods and they avoid luxury brands. That's not what I call a millionaire (5:20) lifestyle.Now here's one when they go on family vacations, that they're likely to try to drive (5:25) on their family vacation to save money. Uh, the quickest way to save money is to drive to the (5:32) vacation because it's going to be so bad from having to drive that you're just never going to (5:36) take vacations. Save a lot of money.Yeah. Here's one. If you have a really big anniversary, you (5:41) don't, you don't do a lavish party or take a trip.You have a modest dinner, family dinner. It said, (5:45) that's going to go over like great with the wife. I'm telling you right now.They, they, (5:49) the average vehicle is a, is a Toyota, a Honda and, and the most likely Ford used Ford one 50, (5:56) uh, talked about not buying expensive watches. Some of them have timexes it said, (6:01) and, and this is how to achieve extraordinary wealth. Yeah.They says they prefer to cook (6:09) at home instead of going out to eat. This one says they mow their own lawn and they fix their (6:13) own cars. And so what this book did, and I think it was terrible for the, for the American public, (6:19) it took the average person that makes 50, 60, $70,000 a year and they don't feel rich.And (6:27) then they read this book and they say, Hey, if I stopped spending all extra money and I live like (6:33) a poor person, one day I'll have a million dollar net worth. I can be a millionaire and it makes (6:40) them feel good. It fills with pride.They can be like, I'm proud of myself. I'm a millionaire. (6:45) No, you're not.You're not a millionaire, right? Just because you have a million dollars doesn't (6:49) mean that you're anything close to what the average person thinks in his mind or her mind (6:54) of a millionaire lifestyle. But that's what people want. They want to say, I'm okay.I don't (6:59) need to work harder to get that lifestyle that I really want. I'm, I'm a millionaire anyway. And so (7:04) then they can turn their brain off and they can stop working hard to build wealth.And they can (7:08) just, you know, live like a poor person with the, with the pride in the back of their mind saying, (7:13) I'm a millionaire or one day I will be a millionaire. But if the $1 million in net (7:18) worth by the time you're 70 doesn't get you the lifestyle you want, are you really achieving your (7:22) goal? Well, if, if the, I think this is where we go back to, we have to be very careful what we speak (7:29) and write down, like what our goals are. You know, if your goal is to be a millionaire, let's, let's (7:33) dissect that, you know, it's going to drive a used F one 50.You're going to do your own home repairs. (7:38) You're gonna have a practical wedding, you know, lots of other examples. This one says by used (7:42) furniture and also when Braden likes to do low cost haircuts.Oh yeah. Non-existent haircuts. This, (7:47) this is actually how I build wealth as I don't cut my hair.But the idea is at some point, (7:54) um, you know, saving is not going to get you wealthy. It's, it's earning more income and (7:58) not just earning more income. A lot of what we talk about on this show is focusing on the rate (8:02) of your return.You know, the rate of your return matters, all of these people to, uh, you know, (8:07) what they're doing with these savings, what this book is recommending is investing and kind of (8:11) saving in, in like some sort of S and P, you know, traditional retirement account, whatever. (8:16) So instead of putting all the effort into save on these expenses and, and live a life that you may (8:23) have a decent amount of regrets with, you know, if you would have different dream, if, if we would (8:28) say, Hey, you know, I want to be a millionaire because I want to have time freedom. I want to (8:32) be able to ride jet skis with my kids.I want to be able to fly to all of these vacations like (8:35) that. That's a goal maybe worth detailing out and having. And when you focus on what you actually (8:41) want, instead of just like being a millionaire, having a million dollars in an Excel sheet that (8:45) says you're rich, it actually does nothing.I can speak from personal experience. Like being (8:49) Excel riches is, is, is, is Excel. You know what I mean? Yeah.So no, it's a good point. I, uh, (8:57) what, what this book does, I look guys, I'm not downing saving. I lived just like this for the (9:02) first 10, 15 years of my investing career, all of these things I did, but I wasn't doing them, (9:08) uh, thinking I was getting myself rich.Okay. I was just doing them to make sure (9:12) that I had extra money to invest, to become rich, actually rich. And so we don't, you know, (9:18) what if you spend all your time going, you know, keeping yourself from all of life's pleasures (9:25) only to have a million dollars, which will never get you that lifestyle that you're chasing after.(9:30) And so instead you can do this, but you have to be spending energy trying to grow your income. (9:35) Okay. And grow a rate of return that you're getting on that income.And so then you're (9:40) actually going to be able to achieve that, that life. And so if saving in the short term and (9:46) focusing on building your wealth, uh, to get to that, taking that awesome vacation and having (9:50) that million dollar home and driving that car you've always wanted, that's what the goal should (9:53) be. Yeah.It's it's income, right? Like I think so many people focus on cutting, cutting, cutting, (9:59) saving, saving, saving, because they just think they're not capable of earning more income, (10:03) right? Like buy a camera and shoot videos, like create a lemonade stand, go garage sale, (10:08) flipping, like do do anything to get the extra $200 a month. So you can drive the car you want (10:13) to. Maybe it's a brand new F one 15 instead of a used one, right? Like that could be the difference (10:17) in a non regretful life.Flying could be the difference of enjoying the vacation or being (10:22) able to go to the ocean because nobody wants to drive 15 hours in a car with multiple kids or (10:26) whatever it is, right? Like focusing on how do I earn more, more like $300 more a month instead of (10:32) how do I save $300 a month, I think is easier. I think it's, it's very easy. Well, what you said (10:38) earlier is true is guys, what we want you to do is focus on the goal.Okay. And in the goal, (10:44) whatever that is for you. But I think this book encouraged people to just set the goal at a (10:50) million dollar net worth someday later on in my life.It's focusing on the wrong thing. Yeah. And (10:54) what if you set a bigger goal? Okay, then you're going to take different actions.And you know, (11:00) if you set a goal to have $10 million, when you retire, uh, you may not make 10 million, (11:05) but you're going to be way ahead of a million. Yeah. But, but what people that read this book (11:09) do is they say, okay, all we got to do is cut out all the good stuff of our life, (11:14) live, you know, live as poor as we can to have a little bit of extra money when we're older.(11:18) That's not a good plan. It, it may be that that's how it ends up, but it's definitely shouldn't be (11:23) the goal. Okay.That definitely shouldn't be the goal is to not have any fun and not spend any (11:27) money and live as poor as we can in hopes that we can just call ourselves a millionaire. Uh, (11:33) cause that, you know, millionaire probably, you know, originated some hundred years ago, (11:37) 200 years ago when it actually meant you were rich, but today it doesn't mean that. Uh, and I (11:42) know people are going to listen and they're going to say, well, Joel, that's ridiculous.(11:45) It's not, I don't have a hundred thousand. I have, I have 10,000 in my bank account, (11:48) a million dollars. You are rich.I understand. I hear you on that. Uh, but I think setting a (11:54) bigger goal, uh, retiring early, uh, and not, you know, pinching pennies your whole life, (12:00) it's better to focus on that and set that goal and didn't see where you end up.(12:05) Yeah. And you gotta be careful what you give attention to, right? Like I, (12:08) I mow my own lawn a lot of the times, you know, you, you mow your own lawn a lot of the times (12:13) Brian's loaded. So he pays somebody to do some.Yeah, no, Brian doesn't do any, I'm just kidding. (12:17) But like a perfect example, like great value water bottles. Like if you grab a water out of (12:22) Brian's fridge, if you grab it too hard, it'll just explode because they use such cheap caps.(12:27) So they don't stay secure. And Brian, Brian still buys these, right? Like, (12:30) because you don't have to buy Fiji water just because you can or whatever it is. Like, (12:34) we're not taking a dump on like DIY home repairs or mowing your lawn.(12:38) No, we're not. Like I love cooking at home. I love cooking at home.I think going out and (12:44) buying an $80 filet, you know, with no sides is like an egregious waste of money. But like (12:49) sometimes, are you going out to celebrate something? My wife's anniversary, I'm going to, (12:53) like, I'm celebrating that, right? Like I'm not going to sacrifice my yearly anniversary with (12:58) my wife so I can save myself the, what was it? Like extraordinary wealth. That's a fallacy.(13:05) That's what I said. Extraordinary fortunes. (13:07) Saving yourself to extraordinary fortunes is a lie.It's impossible. (13:11) You're never going to save your way to rich. (13:13) No, if you're making half a million dollars a year as a surgeon, you could save your way to (13:17) ridiculous riches, right? But like the average American is not saving their way to extraordinary (13:22) wealth.It's just a lie. (13:24) But a lot of people, they tell themselves they are. And so then they don't take further action (13:29) and they don't put a burden on themselves to increase that income and to go after their (13:33) dreams because they think they're already achieving everything they want and they're (13:37) never going to get there.They're never going to get to that goal. And that's all we're saying (13:40) here, guys. We're not downing savers.We're not downing people that don't have money in (13:44) their bank account. One million can be a goal, but let it be the very first goal. It's the (13:50) very first stepping stone to the life of your dreams.Just don't think that you're going (13:55) to save your way to $1 million at retirement and you're going to have the life of your (13:59) dreams. Those two are not going to be the same. You're going to have a good retirement, (14:04) okay? And we're not going to down that, but just don't think you're getting rich.(14:08) And another note, I don't even have a personal wealth number. I've got to be worth $5 million. (14:17) We've talked about this.I don't know if you guys have that number. I am of the belief that (14:21) picking a random number and measuring your entire life success on achieving one number, (14:28) I think that's ridiculous, right? Because a million dollars doesn't get you anything. (14:32) If somebody handed you a million dollars, it's not like you're going to be like, okay, (14:34) sweet, I'm done.You're going to think, oh, what can I actually get with the million? I want a (14:40) house. I want a boat. I want vacations.I want time with my family, whatever it is. Make those (14:43) the goals. Make those the goals.The million does nothing. You can't sleep on a million dollars and (14:48) be happy. It gets you nothing.Make a goal to spend more time with your family or make a goal (14:53) to outweigh your active income with passive income. That's a goal. (14:56) That's what we're preaching here, guys.You don't have to even have a million dollars. Let's say (15:01) that your lifestyle, you spend comfortably 75 grand a year, let's just say, and you work so (15:06) hard to get $100,000 a year in passive income. Now you have your lifestyle.You're totally free. You (15:12) don't have to go into a job. You don't have to beg for a vacation time off.That can be your (15:17) wealth. Then you build from there. It's not about the money.It's about your goals and what kind of (15:23) lifestyle. This book told everybody that they could have the lifestyle they wanted by being cheap and (15:27) frugal. I just think that it was disingenuous to call the average millionaire a millionaire and (15:33) then talk about wearing a Timex or whatever.That just was disingenuous. They sold a ton of books, (15:39) but I just don't think it got people where they actually wanted to go. (15:43) I do disagree with Brayden.I slept on a million dollars last night and it felt (15:48) damn good. (15:50) All right, guys. I hope you enjoyed the review of the book.If you don't, (15:54) take our word for it. Go read it and see what you think and then hit us in the comments. (15:59) See you next time.