Stop Acting, Start Getting

The neighborhood you choose can have a powerful impact on how rich you become and how wealthy your children will be.

But the link between where you live and how much you're worth may be different than you expect.

So says wealth myth buster Thomas J. Stanley in his new book, "Stop Acting Rich ... and Start Living Like a Real Millionaire." Stanley is on a mission to change how Americans view money, starting with the blockbuster he co-authored in 1996, "The Millionaire Next Door."

Too many Americans are what Stanley calls "aspirational spenders" — people who spend money to make themselves look richer or more successful than they are.

But their "hyperconsumption" effectively torpedoes any chances they would have at accumulating real wealth, which typically requires spending significantly less than you earn and investing the difference.

In his latest survey of millionaire and nonmillionaire households, Stanley ranked more than 200,000 U.S. neighborhoods for wealth, then followed up by surveying select households, more than half of which were millionaires, which Stanley defines as having $1 million in investments, excluding their homes.

Here's what Stanley found:

The neighborhood in which we live influences a lot of our spending. The more expensive the house, the bigger the mortgage tends to be, and the more we'll spend on heating, cooling, insuring and maintaining the place.

But we also feel pressure to match our neighbors' spending on cars, vacations, furnishings and other trappings.

The "keeping up with the Joneses" mentality means the fancier the neighborhood, the less wealth we may accumulate, Stanley said. The opposite is also true: When our surroundings are more modest, we tend to spend less, regardless of our incomes.

"The propensity to spend," Stanley said, "is directly related to the typical home price in that neighborhood and to the price you paid for the house."

Interestingly, most of the people Stanley surveyed who lived in $1 million-plus homes weren't millionaires.

"They may have a big mortgage," Stanley said. "They don't have a lot of money."

In fact, Stanley found that three times as many millionaires live in homes worth $300,000 or less than live in homes worth $1 million or more.

"People who have a tendency to accumulate wealth live in neighborhoods that are easy to live in," Stanley said. "That's a hallmark of an accumulator."

Whom you hang out with matters. The ideal neighborhood, Stanley said, would be populated with engineers and teachers, two professions he found were associated with higher-than-expected levels of wealth accumulation.

Educators were especially good at turning sometimes below-average incomes into above-average wealth, something Stanley — a university professor for 20 years — credited to the culture in which they work. Frugality and saving for the future are valued in many teaching settings, he said, and that culture can have a profound effect.

"Work with frugal people, and you may become frugal," he writes. "Associate with colleagues who are astute investors, and you may become wealthy one day."

Our neighborhoods influence our kids' future wealth accumulation, too. Stanley asked his survey respondents a simple question: Growing up, were they better off or worse off financially than most of their neighbors?

People who perceived their childhood family's income as below the average for their neighborhood tended to become aspirational spenders and below-average wealth accumulators, Stanley said. They spent more to compensate for childhood feelings of somehow being "less than" their neighbors.

"They said things like, 'I went to high school with kids who had a lot more money,'" Stanley said. "They're making up for that scar."

By contrast, those who felt their families were in the upper half of their neighborhood's wealth hierarchy were more likely to be accumulators, rather than spenders.

"They're not looking for ways to consume to make up for the past," Stanley said.

Most millionaires have just one house. Many people associate a second or vacation home with having arrived. In Stanley's surveys, though, 64 percent of millionaires had never owned a second home. The net worth of second-home buyers at the height of the real-estate boom was actually considerably lower: a median of about $380,000, Stanley estimated.

Houses cost a lot to run and maintain. Stanley postulates that money-savvy millionaires find one home to be enough and prefer not to pour money into a property they may not use often — or might feel pressured to use more often than they want to.

A mere recession won't change Americans' spending habits. Actually, this wasn't a survey finding but is Stanley's own assessment of the long-term impact of the Great Recession on our likelihood of accumulating wealth.

Yes, people have cut back their spending because of job losses, less access to credit and the desire to build up savings, Stanley said. But that cutback is likely to be reversed as the economy improves, he said.

"It's not going to change the fabric of people," Stanley said. "Our whole (economic) structure is based on hyperconsumption."

Passion an essential building block for success

I’m a big believer in following your passions, wherever they might take you. Part of doing that is preparation – saving money, making choices that pave the way – but another part is simply stepping up to the plate and hitting that fat fastball down the middle of the plate when it comes your way.

Gary Vaynerchuk is passionate about wine. He’s one of the best known wine evangelists in the world because he wears it and shares it. He built a $60 million business in the wine industry mostly on the back of sharing his enthusiasm about wine online. Crush It! tells the story about Gary’s experience in translating his passion into a real business.

Gary’s story and advice rings really true because, in many places, it’s a journey I took myself. I did wind up in an area without the mainstream appeal of Gary’s area (sorry, folks, but there aren’t as many frugal people as there are wine fanatics) but most of the elements are strikingly similar.

His conclusions are spot-on, too – but we’ll get to that later.

In the first Chapter the writers tells us that Passion Is Everything. He says, it’s incredibly hard to be successful at something without being passionate at it. Why? Success takes time – a lot of it – and that early time is often filled with a tonne of failure. If you don’t have that true seed of passion that will help you get through those early trials and tribulations, you’ll never make it through. Passion keeps you going even in the face of repeated failure, and it’s only through repeated failure that you build the skillset necessary for success. I agree from experience – I failed as a writer for at least ten years before finding any sort of success with the written word. Without passion for writing, I would have given up and started playing World of Warcraft.

The second thing he says is that Success Is in Your DNA. Think about it. Every single person is unique and brings a unique perspective and set of talents to the table. That unique mix is something that is valued by others if you go through the process of mining it and isolating exactly what you have that’s valuable. It’s a long process, one that’s going to include a lot of failure along the way.

The other one is the branding aspect. What do people think of when they think of you? The stronger you can make that theme, the better off you are. Why? Because if you’re able to conjure up something when people think of you, they’ll already have a strong preconceived notion when they see your name pop up in other places. You’ll be familiar – and if you’ve built a positive (or at least an interesting) brand, you’ll turn something ho-hum into something people want to engage with. This might mean books, products you make, speaking engagements, and countless other things.

Remember that as the costs for starting your own business get lower and lower, it becomes less and less of a sensible proposition for talented and intelligent people to work for other people when they could be using that talent and intelligence to build a business for themselves and collect the rewards from their efforts. The Simple Dollar was started on a shoestring with little more than my spare time invested in it, for example. I could have just signed on to write or produce content for another site – but if I had done that, I would have made much less and had much less control over what happened with my stuff. If you’re passionate, don’t sell that passion to others – ride it yourself.

The secret is to create great content. If you’re not making things that other people want to read or listen to or watch or interact with, no one will pay any attention to you. The keys are straightforward: know what you’re talking about, be excited and passionate about it, and tell a story as you go. Those things work in any medium about any topic that you might be covering.

Also you need to choose your platform. “If you build it, they will come” isn’t true. You have to make sure people know you’re there and are aware of what you’re talking about. Thus, to get started, you have to go where the people are – places like Twitter and Facebook. Go there before you even have a product and join in the conversation. Follow others who are interested in the things you are and converse with them. Ask questions. Say astute things. Get involved in topics of conversation. Eventually, you’ll start accruing followers yourself – and you can start building from there in whatever direction you want. The key thing is that your followers – the people interested in what you have to say – are your platform.

Community building largely revolves around interacting with people, engaging in discussions, answering questions, asking questions, and being involved. You create community when you listen to what people say, focus on topics that people want to hear about, involve yourself in conversations, and so on. Each time you connect with a person, that person becomes part of your internet community. The larger that community is, the more powerful of a support platform it becomes for whatever you choose to do.

Lastly, Once you do decide to start making money (after you have a nice audience, of course), there’s a lot of potential avenues for income – advertisements, affiliate programmes, speaking engagements, consulting, freelance work, writing a book, and on and on and on. All of that (except for perhaps the direct ads) builds on top of establishing a community of followers who are interested in what you have to say. In the end, remember that a lasting legacy is much more valuable than money in hand right now.

Source of income

Don’t sell yourself out for something that you don’t believe in. If you do that and maintain honesty with the people who follow you, they’ll respect and value you far more than if you’re into every money-making opportunity that comes along. If you’ve ever thought you could do what I do, Crush It! is pretty much an essential read.

It outlines quite a lot of the process involved in translating a personal passion into an online-led endeavor that can be your primary source of income. It matches up very well with my own experience in doing much the same thing.

The real key behind it, though, is passion. You need to have a passion before you even start or else the book won’t ever take off for you. If you have a passion and want to share it with others and grow it into something that can financially sustain you, that’s where this book takes over.

-THE SIMPLE DOLLAR