Is wealth easy for the millionaires?

A recent This Is Money article revealed that Britain is currently home to 280,000 millionaires. What is very interesting about this is that most of these people are actually multi-millionaires. Britain is home to about 60 million people in total, so only around 1% of the people are in this millionaire category.

 

This shows how difficult and rare it is to become truly rich, and why one must be dedicated to the cause. Most millionaires became that way by practising habits most other people cannot be bothered to do. There are countless stories of millionaires who have lost a million but then made their money back and more, such as Peter Jones, Donald Trump, etc, so this proves that getting rich cannot simply be about getting lucky. If you practice these skills you might not become a millionaire but you will still be much wealthier than you were otherwise.

 

I have the privilege of knowing one of these British millionaires, a certain Mr Piper, and I have had the chance to observe his habits and beliefs over 4 years so far, to see what makes him rich. He has no qualifications and does not own a business or have connections but he still managed to become a multi-millionaire. He saves and invests his money, and works hard to cut his costs everywhere. He is very independent and has built up a property fortune of around £3m. I was at his house last week and he told me that whenever he tries to give advice to friends about how to become wealthy they just say to him "well, you got lucky" or "you were gifted your wealth". These statements are so untrue as he started with nothing.

 

Every time I visit Mr Piper he is always working on about 4 different things. He maintains all his properties himself, and always tell me that if he needs to do a new skill which he's never done before, he'll just learn it. There is never any doubting or quitting with him. I've noticed that every time I visit him he gets me to do some 'menial' manual labour job or another such as carrying planks of wood. He's done this so consistently over the years that I now realise that he is purposefully testing me, or training me in some way. I think he's showing me how work gets done and how he does it, and that the only way to do it is to take action immediately. I've known Mr Piper for years and after all this time he still takes lots of daily action on his goals, he still tries to save money, he still looks for cheap deals on eBay, he still does all of his manual labour work on his properties himself, he is still a multi-millionaire. He remains a great example of the millionaires portrayed in the book: "The Millionaire Next Door" by Thomas Stanley.

 

I thought of a recent Budgets Are Sexy blog article I read, where the author J.Money tells of how his readers think that just because he now has more money than he had before, it must have come easily to him. Most people think wealth is something to do with luck. They then use this excuse to degrade other peoples success by accusing them of getting lucky. That way they can justify not putting in any effort themselves to gain wealth.

 

In the book Think Big by Donald Trump (which I am re-reading), on page 15 he says "to be successful you have to separate yourself from 98 percent of the rest of the world....there is a formula, a recipe for success that the top 2 percent live by..". This basically confirms that the vast majority of people in the world are not rich/wealthy because they do not do what the successful people do. Instead they take the easy way out with no budgeting no hard work, no sacrifice, no forward planning, etc.

 

Only a few people in every country in the world are rich and the majority are poor. If you want to separate yourself from poverty, do what the rich do. Wealth did not come easily for most of them. They worked hard for it, and are still working hard but it gets easier over time as you learn and practise the skills consistently.

Is anyone really 'poor' in the west?

These days, who is really 'poor' in western countries? I recently marveled at how many of my "broke" friends had the iPhone, which is one of the most expensive phones on the market. So many people in western countries actually have an easy time getting access to credit and loans. I thought about it and realized that these so called "broke" friends actually live quite a comfortable high-consumption life, with widescreen televisions, nice cars, expensive luxury holidays, fine clothes, and every latest gadget. Even though they are living paycheck to paycheck, and are usually in debt. If they truly go broke, the government will pick up the tab with lots of benefits. Nobody in Western countries is dirt poor to the point of starvation as the benefits system will take care of them.

A recent This Is Money article says many banks are just going to write off the thousands of pounds of credit card debt which UK consumers owe. This sometimes makes me wonder what is the point of saving, when the spendthrifts are simply borrowing gigantic amounts of money and living the high life. The article said that last year, banks wrote off more than 10 per cent of their credit card loan balances, and that over the past 12 months banks have written off more than £4.5bn of credit card loans.

The UK government said (when declaring the recent UK budget), that people must curb their personal expenditure, as Britain is now the most indebted country in the world.

In the UK at least, people are richer than they think they are, and actually have a good standard of living compared to third world countries. As long as you have a roof over your head and can get a regular supply of food, you're actually doing quite well in terms of survival. The problem is that living from paycheck to paycheck and being constantly indebted is mentally stressful and when it comes to making much bigger investments like property, such peoples credit score severely restricts them from creating great wealth.

Britains house prices

Having studied the UK property market religiously for the past couple of months, here's what I've discovered.

BTL investing: The problem with BTL interest only mortgages with the landlord putting in a small deposit, is that the arrangement fees added on by the banks are too high. They can be in the region of 3k per year or more. I honestly can't figure out how the new generation of BTL landlords are making money, as thousands of pounds are added onto the mortgage every year via the arrangement fees. I've seen that the more money the landlord puts in, the better deals you get from the bank, so if you are rich enough to put in say 75% or more as a deposit you will be offered very low arrangement fees and a better interest rate. The rich truly do get richer.

Property prices: Property prices are definitely going down. In Central London and a few select areas, prices are going up or holding steady, but mostly everywhere else I've seen, prices are stagnating or going down. There are still cash buyers around and the odd bidding war still takes place for certain properties. Using the "Propertybee" tool on Rightmove.com shows how long properties have been on the market, and how much they were reduced by. I'm seeing properties on the market which have not sold for almost a year. Some sellers will have to reduce their price. Lots of other sellers will simply take their house off the market, so don't expect a massive house price crash. Overall from what I've seen, my gut instinct tells me to expect a 20k drop by christmas.

Property condition: From going to viewings, I've noticed that no property is perfect. All of them are compromised in some way. The TV shows say you should choose a property in the right location next too good schools and shops and transport links etc, but in reality no location is perfect so you have to compromise on something. Maybe one rooms a funny shape, or the kitchen is old, or the gardens to small, or its a bit far from the shops, etc. One trick I've come across is to look at how close a property is to bus routes. People like to say a property is good if its close to train or tube transport, but I've seen that some cheaper properties are close to bus stops which can then take you to the nearest train station quickly. When renovating and redecorating properties, all properties I've looked at, even the ones in good condition needed a bit of minor redecoration here and there.

Building surveys: Most people do not do a full building survey, and only do a valuation survey which is cheaper and mandatory by the bank. I also noticed on TV shows that most buyers don't do the full survey. I estimate 9 out of 10 buyers do not do the full building survey. The reason is probably due to the cost which is about double the price of a normal survey. Also it slows things up a bit. I talked to my millionaire property mentor Mr Piper about this, and he said he never does full building surveys as its all about common sense. Obviously its worked out for him as he's now a multi-millionaire. In general I probably will do full building surveys to cover my back, but I would definitely consider taking the risk if my gut instinct told me to.

Demand for housing in the UK is as strong as ever, if not stronger. The only thing holding back the market is the banks unwillingness to lend. I reckon in 2 years things will be back to normal and the banks will once again offer mortgages to people who can't afford them. After all, everything else has returned to normal and the bankers are once again raking in huge bonuses. House prices in Britain whilst dropping, are still high relative to earnings, and they will stay high. Average earnings in the UK are 20k, average house price £220k that's why few people can afford a property without excessive bank lending. My gut instinct tells me that If prices were going to crash drastically they would have done so by now. The fact is, that Britain is an expensive place to live in and will remain so.

The money seeking goes on

I haven't blogged for a while, as I've been extensively researching the UK property market, and I even put in a few offers on some properties but ended up being outbid. I've also spent this time doing some thinking about the nature of wealth, and observing those around me who are deeply in debt, but spend money like they are rich! Its amazing what people will do to get wealth, or to make other people think they are well off. Its also eye opening to look back on all my years of moneyseeking and reflect upon what I have learnt.

 

After seeing all of the costly iphones and fancy, brand new expensive cars that my broke friends are buying on pricy hire purchase (loan) agreements, I asked myself if I was denying myself these pleasures, after all you only live once. I asked myself if I should start spending money more conspicuously now, and show off a little bit of my wealth, since  have earned it. I then realized that  I would only be doing this to impress other people.

 

Yesterday, I phoned my millionaire mentor Mr Piper for a chat, and he was at a car boot sale, looking for the cheapest goods he could find. He hasn't changed his ways and still does not overspend on high priced brand new goods. He continues to practice what he preaches, and its a sobering lesson to me that frugality is the way forward.

Why I'm not buying an iPhone

The Apple iPhone 4 has just been released. Lots of my spendthrift friends have got iPhones and they seem to love the device. I decided to do my research, and look into getting a new phone. When researching the Internet, I came across a comment by someone who said: “I used to think that iPhones were for those that wanted to show off but I know now, that people use them because they are a life tool that will do anything you want it to do.” This made me think that iPhones might have an excellent capacity for changing the way that people live.

The iPhone is a type of smart-phone. I have a nice cheap normal pay as you go mobile phone which can cost me as little as £5 per month to run. In contrast, I know many people who regularly pay in excess of £100 per month for their mobile phone bill. I decided to look into buying a smartphone.

When thinking of upgrading my phone, I realized my options were:

1. Leave everything as it is and  just stick with my current phone.
2. Buy a net book in order to experience Internet on the move. These small portable computers are the best way to experience mobile Internet, with better web-surfing and battery life than top of the range smart-phones. The downside is that they are physically much bigger.
3. Use or upgrade existing separate devices, to take on the same functions, i.e normal phone, normal camera, mp3 player. This option is a bit fiddly carrying around so many devices.
4. Get a new low budget smart-phone
5. Buy a new expensive  top of the range smartphone.

Reasons to buy a smartphone:

1. Consolidation of devices such as camera, mp3 player, phone, PDA, laptop. A smartphone can do it all.
2. Internet surfing capabilities.
3. Ability to read pdf files and edit documents
4. More phone memory.

Reasons not to buy an iPhone:

1. A new version of the iPhone might be released next year. Lots of people who have already spent lots of money to buy the previous version will be spending more money to upgrade to the latest hardware.
2. If you lose it, or it gets stolen, you have to buy another (unless you also get expensive insurance).
3. Apple are selling "bumpers" which look like colored elastic bands which go around the phone for fashion purposes. They are selling them for £25 each, yet they should only cost a few pennies to produce! This is an example of how Apple mark up their products very highly, for the hyper consumers among us.
4. There's additional accessories which iPhone consumers might want to buy, such as special headphones, fashionable covers and cases, docking units, etc. They are optional but potentially add to the expense.
5. All of my "broke" friends seem to have an iPhone. What's that all about? Its one of the most expensive phones on the market yet the very people who should never even be considering buying one are the ones who have them.
6. Many software applications for sale at Apples "App" Store. Games and apps mainly cost money. This means that its too easy to keep shelling out money with just a few taps of your fingers.
7. iPhones are not perfect, and they experience problems such as the case overheating, and poor battery life.

If I got an iPhone, it would go against everything I have so far  practiced concerning wealth building. I tried to convince myself that an iPhone would be an affordable luxury for me (which it is), but the fact is that when I looked at what I could actually use it for, the cost just seems too high for me. I the end I decided I would not be an "iClone" like everybody else. Let them play on their expensive iPhones while I focus my income on wealth building. I accept the iPhone is a good piece of kit, but I have to stay true to my wealth building plan, and that meant going for a cheaper more economical option.

I actually spent hours agonizing and researching over whether I should buy an iPhone. My whole philosophy, actions and purchases should echo that of the frugal millionaires in the book ""The Millionaire Next Door". If I did buy an iPhone it would go against everything I have come to believe about wealth creation and I would see it as saving all that money just so I can give it to Apple and Steve Jobs. It would feel nice to have a high end product such as the iPhone, but I know I would come to resent it due to it's cost, as If I'm honest, it would mainly be for keeping up with the Joneses.

Smart phones are just another excuse to spend more money. Lots of time and money is spent on these phones, goofing around on Facebook etc, which could instead be used for building wealth. Research of current phones showed me that no phone is perfect, all have some type of flaw, e.g Blackberries do crash and friends of mine who have them, say it is common for these top-end smartphones to regularly reboot themselves. iPhones have short battery lives, etc.

I did buy a smart-phone after all, but a low end one. I got the Nokia E63 black, which is basically a cheap Blackberry clone with above average end user ratings. It's got a lot of the functions of top end smartphones, at a fraction of the cost. It's not perfect, but no phone is, not even the iPhone.

I got the Nokia E63 smartphonecarphone warehouse currently shows you can get the cheapest equivalent iPhone 4 deal (16GB version, 300 minutes), for £30 per month, on the Vodaphone Network, and you pay an extra £30 for the phone. In reality, iPhone users will probably go for the more expensive price plans and could end up paying £50 or more per month. That's OK if you can afford it, but I bet lots will sink further into debt as a result.

To me the iPhone is another costly status symbol which won't add that much to my life. I can reproduce lots of its capabilities by buying a cheaper smart-phone, and save a bucket load of money in the process. Yes it is a compromise, but that is the nature of frugality. Let my broke friends enjoy their iPhones, I'm going to keep focusing on wealth building.

Spend it like Fergie

Former Duchess of York Sarah Ferguson (nicknamed "Fergie") has squandered away millions upon millions of pounds by living extravagantly. Her financial situation became so dire recently, that a newspaper reported that she resorted to selling personal access to her former husband Prince Andrew, for cash.

Like many people in todays consumer society, she spent money with little regard for saving or investing carefully. As a result, even though more money has passed through her hands than many people could ever imagine, she has nothing to show for it. Thisismoney.co.uk showed why she is facing financial ruin.

The BBC website has a good article on how Fergie lived the high life, rather than budgetting carefully. People may laugh and sneer at a lifetime of living frugally but as Fergie shows, a lifetime of living extravagantly if you don't have a plan to preserve wealth, produces desperation, humiliation and poverty later on. 

 

Many people, including myself, will be far better off financially by living within our means. This means budgetting and living frugally. Don't just spend it all, like Fergie did.

Book review of The Millionaire Mind by Thomas Stanley

The reason I am so critical of the system which produces todays university graduates, is mainly down to this book, and undeniable evidence I have witnessed in my own life. Being clever, going to university and getting high grades is not a guarantee of future wealth. A long time it might have been, but not any more. The mind of a millionaire is not focussed on passing ritualistic university tests (which are part of a process which collectively earns the universities billions of pounds per year). The mind of a millionaire is focussed on creating wealth. This means: frugality, choosing an earning strategy very carefully, and being willing to work hard in the real world, in order to become wealthy.

I recently re-read this book, and I was reminded of just how good it is, and why I live my life the way I do; saving up thousands of pounds every year, looking for profitable investments, and living frugally. To me this is the 3rd best financial book I ever read, and currently only one of 3 books that I give an absolutely top financial rating to. It gives hope that one may become wealthy if they practice the right financial habits. Many people think they are not clever enough to be millionaires, or their education is not good enough, yet this book shows that academic success and financial success are 2 different things.

Stanley questioned many millionaires, and kept good records of the results. The millionaires studied said that they found out that hard work was more important than genetic intellect, in achieving their level of success.

On page 152, Stanley gives the case of champion world war II fighter plane pilot, Major Erich Hartmann who shot down 352 planes during the war, far more than most other pilots who were usually lucky just to get one. His mentor was Paule Rossman, a crippled fighter pilot who shot down more planes than his comrades despite his disability. His mentor realized he was physically disadvantaged compared to his opponents, so he planned his attack strategy very carefully beforehand. Stanley says millionaires also pick their battles carefully, and choose the most profitable opportunities. He says that too many occupations are filled with clever people, therefore highly qualified university graduates have a difficult time finding work. It's better to choose a vocation where there are fewer competitors. Stanley says "where you will fight is much more important in winning than what you do once the dogfight begins".

Chapter 2 of the book briefly parodies many get rich quick schemes and wealth seeking strategies in America, and says the best way to find out how millionaires became rich, is to ask them. This is what makes the book so valuable, as it is composed of the results of data gathered from interviews with real millionaires.

Many millionaires were heavily criticized at one time or more, but ignored their critics and went on to become successful anyway.

The importance of morals is explained and the example is given of an intelligent, highly academically qualified prisoner who applied to be a math tutor to the children of millionaires, but was rightly turned away due to his untrustworthiness. Stanley says "smart" people are many times seen to have a halo by a lot of people, but they are not automatically better than everybody else in every area, and some of these smart people lack integrity. Stanley says academically smart people can find that their careers are filled with other highly qualified competitors, and so end up hating their vocations. Pg 78 says that the ability to get high grades in school, only seems to relate well to an ability to do well in aptitude and academic tests. Life is a marathon, and doing well or badly in school does not automatically relate to how you will perform in real life. No matter how badly you are doing or have done in life, don't stop believing that you will eventually cross that finish line.

The book says the stock  market is invested in by millionaires, but the money originally came from the cashflow created from living below ones means.

Chapter 3 says that at school, many millionaires did badly. They learned to work hard in the real world, to overcome this. The book Successful Intelligence by Robert Sternberg is quoted, as it details how successful people learned to work hard as they knew their brains would not match the top students unaided. Low scores on tests of inert intelligence don't preclude intelligence, neither do high scores guarantee it. Sternberg's book shows how successful people responded to earlier failure by outworking and eventually outperforming the so-called intellectually gifted. Hard work is a better predictor of success than grade school experiences. I actually did buy Sternberg's book as a result, and it inspired me that I do not have to be a genius in order to create wealth; I just have to work for it.

On page 158, The case is given of "Doctor Heart" who saved millions into an investment fund, but then a get rich quick seminar by a "finance guru"  convinced him to invest his money in a new scheme. The guru lost all his money. It shows how important it is to get good financial advice and that even clever people who are financially well off, can be fooled by cheap scams. These schemes always sound excellent, but are never anything more than scams.

The reality of what graduates might experience after university is exposed on Page 203, when Stanley gives the true story of a man he met working at the local photocopying store. The man behind the counter was very interested in what Stanley was photocopying, and it turned out that he was a lawyer!! Because competition is so fierce for lawyers, even though he he is self-employed as the owner of his own law firm, he has to take another job just so he can pay his bills! There were more than 70 pages filled with listings for lawyers in the local yellow pages for that city alone, so with all that competition we can see that even the most educated will have severe difficulty finding work! As Stanley quotes "he's intelligent; he passed the bar exam, he went to an accredited law school. So what? He's just one of thousands of attorneys listed with 74 pages of other very smart competitors". It just goes to show just how tough life is for graduates and that they are not necessarily going to have an easy, well paying life after they have graduated. I myself have met many well qualified graduates in the UK who are working in  very low paid jobs, or who can't find any job at all as the competition is so fierce. These days, everyone seems to have a degree, so why would any employer pay an extremely high premium for it? The majority of my views about the current state of graduates and the role of university were formed by reading this book. In my own life, I have seen that there are too many graduates and not enough jobs to go around. I do not believe that there is a good enough chance of becoming wealthy by having a university degree, when compared to what has to be invested into it. Most people do go to university in the hope that it will get them a better paying job (in spite of what some might say), so we need to accept the truth and look critically at the real likelihood of that happening. Its like a lottery with the odds stacked against you. There is no guaranteed job for anyone who is taking a degree, which makes it a risk as to whether you get a high paying job, or any job at all.  The amount of time and money invested into university and the debt incurred are some of the reasons why I believe most graduates (but not all) will be worse off financially if they go to university. Many news outlets have run stories about how highly educated graduates cannot find work. All that studying for nothing, yet someone like Sir Richard Branson who has no degree, is one of the richest men in the world. An article in The Daily Mail (14th Aug 2009) entitled "we've made the grade so where are our jobs" is an example of what graduates, even the brightest from the best schools, have to look forward to. I have made clear the financial disadvantage of being a graduate, many times in my blog.

As a criticism of the book, sometimes it throws so much data at you that its hard to know if its really relevant or not. I think that there's too much data for even the author to keep full track of. On page 218 the story is given of some millionaire homeowners who regularly  go to a certain hardware store to purchase DIY stuff. This shows that some  millionaires do their own DIY work, and it is not a hindrance to their wealth. BUT on page 387, it says DIY might be a waste of time which could be spent building wealth; "there is strong evidence that do-it-yourself activities are substitutes to building wealth". So, the evidence here is contradictory. The real life stories and examples of millionaires provide good emotional anecdotes which help to even out the amount of data thrown at the reader.

On pg 261 the theme of frugality and long term planning is summed up when it says:  "to build wealth one may likely have to forgo realizing a high income for many years". Choosing a spouse who is financially aware can also have a positive effect on your wealth. Most millionaires look to the future and compute the lifetime  costs and benefits of activities likely to save money. Using discount coupons to buy food is something that many millionaires like to do. The example is given of Mrs Point, on page 301, who uses coupons in the shops, yet has an extensive investment portfolio and is richer than her neighbors. They think she is having trouble making ends meet, but the reality of her frugal lifestyle means she is building wealth at a far greater rate.

On page 350 it says "there is a strong correlation between net worth and the proportion of one's wealth that is invested in real estate". This means that investing in property is historically a good thing in general. No reason why that should change now. If the numbers make sense, and you can afford the property then go for it.

Also, page 388 shows that 2 thirds of  millionaires studied gave money to charity, so it appears to show how generous rich people are.

The Millionaire Mind is a stellar attempt to show that many millionaires are not the perfect humans a layman would imagine them to be. They are not the best of the best, or the best looking among us, with perfect grades at school and a distinguished family background. They are not the beautiful people. They are more likely to be the underdog like the injured fighter pilot Paul Rossmann, who learned to win by avoiding highly dangerous dog fights filled with competitors and instead devised an alternative strategy which proved to be vastly superior. Stanley says: "He won because he selected the target, the time, the place, the altitude, the angle of attack. He was proactive". Many of the millionaires surveyed said that if they were one of the beautiful people they didn't think they would have become so successful because they would not have needed to be so very careful in selecting the opportunities most likely to make them wealthy

A truly excellent book with great stories and examples of becoming wealthy which is sometimes bogged down by an overload of factual data. It still stands head and shoulders way above most other financial books. It shows that being clever cannot compare to good planning and hard work. Getting rich, is a marathon that everybody is allowed to race.

Moneyseeker3000 rating: 5 stars out of 5