The Millionaire Next Door p. 100-140

This portion of the reading discussed frugality, and both some common consumption tendencies of millionaires, as well as common investment strategies of millionaires. While the term frugality has been commonly used throughout the book, the author gave specific examples of how the majority of millionaires in America are frugal. The author described the consumption of automobiles by the wealthy. In his studies the author witnessed that the overall majority of millionaires in the United States had never spent more than $30K on a car. My favorite part of this section was when the author described the most common cars that millionaires have, the Chevy Suburban, the Jeep Grand Cherokee, and the Ford F-150. This was my favorite section because these are three of my favorite cars, so it's promising to know that they would suit me as a millionaire. The author includes in this portion the ways in which most millionaires purchase cars. The overwhelming majority were frugal buyers, spending monthly speaking to different dealerships in search of the best deal. These are life lessons which my parents have taught me since I was young. My mom recently bought a new car, which she had been in the hunt for spanning out over a full year! Another interesting topic evaluated by the author in this portion of the book are the ways in which the most successful millionaires in the country invest. The author found through his studies that the majority of successful millionaires in the country are independent investors who are independent. They study specific sectors within the stock market where they may have some sort of expertise. They are not overly active in their investments; the overwhelming majority won't touch their investments until they've been in the possession of the investor for over two years. Oppositely, those who don't succeed as well in the stock market are those who shop around for investing expertise. Rather than being independent, they are reliant on cold callers, and other people trying to make a quick buck. In addition, these people are typically overactive in their investments. Rather than allowing their investments to appreciate, they are constantly making changes to their investments, sometimes even weekly. Rather than having any special knowledge in one area, they spread out their investments, even into fields where they have zero expertise.
What I took from this portion was that in terms of investments, it's best to be independent and focus on a couple of sectors to invest in, or stay away from depending on the trends in that sector. In addition, buy the cars that you like (for me) rather than ones that attempt to display status.

C4E Update 12.19.14

This week in class we've finalized parts 4-6 of our storefront project, which consist of the budget and other expenses, as well as ordering and receiving our first shipment of the BHS socks. While I feel confident that we are going to be able to go forth with our storefront project based on the work that we have put into revising and finalizing it, I am very excited about our sock idea. We sold the majority of the first batch to the basketball team, and a few lucky mortals. We've already been approached by many people asking where we got the socks and where they could find a pair. Jack and I are excited to continue this project and see that it grows and that we have some extra money to spend. Once through with this project we hope to continue to market the socks and sell them for our own personal financial gain. We were very pleased with the quality and design on the first batch, and feel that with all the hype surrounding the new mascot, as well as a partial rejuvenation of school spirit within BHS, that we could really benefit from our sock business. I honestly think it's really stupid that it took a couple kids in a business class to come up with this idea. Kids love being able to throw their school mascot on some apparel, whether that be a t-shirt, socks, sweatpants, etc. At any other school in the country the school itself would recognize this and would be able to benefit from the profits from the merchandise that it sells itself. But the truth is that I am glad that the high school has not caught on yet since it allows us to monopolize the ever growing sock industry.

The Millionaire Next Door p. 80-100

I came across some very interesting findings in this portion of the reading that I wanted to share, because I found them to be obvious, yet important to reiterate. The author throughout the book has established the differences between what he calls a PAW and  UAW, a Prodigious Accumulator of Wealth vs an Under Accumulator of Wealth. In his comparisons he makes through the book, he uses PAWs and UAWs who make similar incomes, and differentiates why one's net worth is significantly higher than the others. He discusses a study where he asked a group of combined PAWs and UAWs what their overall life goals were, and more than three fourths responded: to become wealthy by the time they retire, to increase their wealth, to become wealthy through capital appreciation, and to build capital while conserving assets. Interestingly though, while both PAWs and UAWs answered similarly for the first question, the second question was almost split perfectly between PAWs and UAWs in their responses. The second question asked about time allocation and financial planning. It was an agree or disagree question. The overwhelming majority of PAWs agreed with these statements: I spend a lot of time planning my financial future, I have time to handle my investments properly, I place the management of my own assets above other activities in my down time. As one would imagine, the overwhelming majority of UAWs did not agree with the above statements. This fact clearly states a theme throughout this book which has been clear and constant; that accumulating wealth is not hard, it just takes planning, hard work, and brain power. Everyone wants to succeed in life. I'd imagine that the majority of Brookline High School would agree with all of the statements above from the initial question asked that all PAWs and UAWs responded similarly to. The only difference is the way that those who succeed and the way that those who don't go about accomplishing those goals. It's reassuring to know that I don't have to be some high accomplished surgeon or politician when I grow up to accumulate wealth, but rather simply have a financial plan and stick to my set goals.

C4E Update: 12.12.14

Last week in class we continued to work on our storefront project. After finishing parts 1-3, we had to begin parts 4-6. Parts 4-6 is the less idealistic business stuff, but the more practical. I had to draft and write up a tentative budget for our doggy day care service. While a budget is such a straightforward and seemingly basic document, it is incredible difficult and tedious to have to write up. There is so much unknown when starting a business regarding how much money needs to be spent and where those funds should be allocated. I found that whatever I imagined the price of something to be, if I doubled that value I would find my estimation to be much closer to the actual value of the goods. One of the more tricky aspects of this is that the storefront of Boylston St. is so run down and disgusting, that there is so much necessary money to be spent on simply repairing and sprucing up the appearance. This paired with the normal costs of starting a business i.e. permits, insurance, utilities, etc. means that we are spending a lot of money in places that we didn't originally anticipate.
In our $200 project we are in the process of ordering our BHS themed logo socks. The reason that it took us so long to do this is because we wanted to ensure that we are ordering the right product. Many of the sewed on designs that we found on line seemed shabby and poorly done. We really liked the idea of socks where we could print on an image because through that process we could ensure that the product design would come out a lot nicer and cleaner. We've been working hand in hand with the assistant athletic director Mr. Williams on this project, and he ordered a couple pairs from the same distributer with our design on it that we could use as models. We're happy we did because we ended up liking a design that changed a bit from our initial one, now reading "Brookline Warriors" under the spartan logo. The socks came out likely and different sports teams have expressed interest in purchasing them. Our next step it to order them and then to push them off, which we anticipate will happen completely within a couple of days.

The Millionaire Next Door p. 40-80

An interesting quote from my second round of reading goes: To build wealth, minimize your realized income and maximize your unrealized income. This means that to build wealth, people need to be focussed on putting more of their money into "unrealized" income, which comes in the form of forms of capital appreciation. This section analyzed how people are too quick to spend their immediate, or realized incomes, which means more taxes. Studies show that the overwhelming majority of "millionaires" pay a much smaller fraction of their income in the form of taxes than people who aren't millionaires. To do this, rather than spending money, they allow their money to appreciate in the form of liquid currency. They allocate a large portion of their incomes to stocks and bonds, as well as other nontaxable municipal funds. Thus, the government is not able to take as much from high earners. Oppositely, people with much lower incomes who are quick to spend their money as a means of "escaping" from life as a lower-middle class person, are the ones who end up paying through the nose when it comes time for taxes.
Another interesting point made by the author is how people who don't feel that they have a lot of money, have many opportunities to change this, but are influenced by society to remain poor. An interesting example given by the author is based on an interview with a husband and a wife that he interviewed. They were poor, living paycheck to paycheck with no immediate assets. Between them they both smoked three packs of cigarettes per day. They smoked from forty-six years. This combined with the price of cigarettes means that they spend over $33,000 in their lifetime on cigarettes. Now had they invested that money in the stock market (index fund), they would have accumulated over $100,000. Had they invested this money in Philip Morris, after forty six years they would have accumulated over $2 million. This interesting study shows just how much of a difference seemingly minute purchases make, and how simply changing where that money goes can lead to huge capital gains.

C4E Update 12.1.14

This week in C4E we have begun working on our $200 project and the storefront project. For the $200 project our group has decided to begin a company that produces customized athletic socks that sport the new BHS Warriors logo on it, while for the storefront project we are developing a doggy day care.
Jack and I play numerous sports, and we are well aware of how much athletes value socks. To someone who doesn't play sports this concept seems a bit odd. To those who do, they understand the need for socks that not only provide exceptional wicking, but also sport the colors of their team. Our goal is to use our $200 completely to order as many pairs of socks as we can from an online distributer. From here we intend to sell our socks to both the basketball and lacrosse teams in our first round of sales. Both teams are looking to order team socks and the captains of both have said that they would use us as their distributor.
On the storefront project our group is creating a doggy day care. Our businesses largest asset we believe is it's location. Our goal is to provide a day care service for dogs who's owners drive down route 9 on a daily basis. If that person doesn't want their dog to be home alone all day, yet doesn't have the time to go out of his or her way to drop them off at another service, they can efficiently drop their dog off using our service, and don't need to be inconvenienced by changing their work commute. While I know that this is a hypothetical project, I feel that this could be an actual successful business should someone desire to install a doggy day care program there (assuming that they marketed it as a convenience for people commuting down route 9).
I like that we have begun working on projects of this nature, versus the projects that we were working on first semester. I feel that we have been given more concrete opportunities, directions, and help from teachers and guest speakers alike. I hope that we can continue to work on these ones.

The Millionaire Next Door: P. 1-40

I rarely read books. I know that this is really sad, especially for a senior in high school who genuinely loves to learn and aspires to go on to a good college, but it's the truth. Thus, when Mr. Fischer and Ms. Stevens presented to the class a reading project where we would have to read books on entrepreneurship, it's fair to say that I was less than excited to begin reading. Only forty pages into "The Millionaire Next Door" has completely changed my attitude towards this project.
The book is a review of over twenty years of research done by the author on who in America are actual millionaires. Going into the book my vision of a "millionaire" were celebrities, big time corporate CEOs, and doctors. Interestingly, this is one of the most common misconceptions regarding who in fact are actual millionaires. The majority of wealthy people in America are not the kin of multimillionaires, wealth in many cases is not passed down. This is another misconception that I had regarding millionaires in America. Over 80% of the millionaires in America are first generation millionaires, and the majority are not glamorous movie stars and CEOs. The majority in fact are your average business owner. Two thirds of the millionaires in America own their own businesses, many of these people are farmers, auto mechanics, contractors, etc. This book debunks the myths and misconceptions that we as a society have of the wealthy, and gives us a more realistic view of what a real millionaire looks like.
At first I didn't understand how people working in such absurd and random industries could have a lot of money. The answer in many cases lies in the notion of prudent spenders and big time money savers and investors.
An interesting concept or analogy used by a wealthy diesel engine repairman from Texas is the idea: Big Hat No Cattle. This symbolizes people who we would view as wealthy, for example, your average CEO living in Brookline, Massachusetts. This person probably makes a decent paycheck, but our society has created an environment where people don't view you as wealthy unless you dress the part. This CEO may drive a $100,000 car, wear $1000 suits, and have a $5000 watch. In addition this person pays heavily in taxes to live in an upscale neighborhood like Brookline. Say this person has kids and thus pays for them to go to a private school (55% of millionaires have their children in private school). This person makes a lot of money, but then spends that money on the things that society tells wealthy people that they need to spend money on. Despite a large paycheck, many of these people don't have appreciable assets. Oppositely, as the statistics from the study show, the majority of millionaires live in less wealthy neighborhoods, drive cheaper cars, more than half never spent more than $400 on their nicest suits or more than $140 on their nicest shoes. These people still make a good paycheck, but they don't spend as much. They aren't surrounded by other doctors and lawyers and CEOs and thus feel the need to "keep up with the Jonas'" and buy expensive clothes and goods. These people, form the overwhelming majority of millionaires in America.