Saturday, July 12, 2014

Book Review #6: The Millionaire Mind: Author: Thomas J Stanley

The Millionaire Mind is a book written by Dr.Thomas Stanley who co-authored the wildly successful book 'The Millionaire Next Door' (TMND).

This book follows TMND and discusses the mind of the millionaire. The author send questionnaires to about 1000 odd individuals out of which about 733 millionaires responded to the questionnaire. The survey covered various aspects of decision making and Dr.Stanley wanted to know if there is a common pattern of thinking that makes a person a potential millionaire. The questions covered various aspects of decision making like How they think when exposed to particular situation? How they make life decisions? Which decision factors they emphasize and which of the factors they De-emphasize? What they learned in their school? How they choose their vocations?

In the first 20 odd pages of the book Dr.Stanley gives a very good introduction to the entire contents of the book. The introduction is a synopsis of the rest of the book. The introduction thoroughly covers the contents of the book and the rest of the chapters are elaboration of the points covered in the introduction.

The introduction is followed by a chapter devoted to each of the following.

1. Success Factors
2. School Days
3. The relationship between courage and wealth
4. Choice of Vocation
5. Choice of Spouse
6. The economically productive household
7. The Home
8. The lifestyles

The book rounds off by summarizing the points made about each of the above points. 

In the next chapter, the author covers the various success factors that help an individual become millionaire. The success factors are divided into major groups. The groups include:

a. Social Skills (Getting along with people, Having strong leadership qualities, Having an ability to sell my ideas and products and Having good mentors)
b. Integrity and Moral Values (Being honest with all people, Having a supportive spouse and Having a strong religious faith)
c. Creative intelligence (Seeing opportunities others do not see, Finding a profitable niche, Specializing, Loving my career or business)
d. Investing (Investing in equities, Having good investment advisers, Making wise investments, Investing in my business, Willing to take financial risk given the right expected returns, Living below the means)
e. Self Discipline (Being well disciplined, Being well organized, Working harder than other people)
f. Intellectual Orientation (Having high IQ, Attending a top-rated college, Graduating near / at the top of my class)

As you read these success factors, it is gratifying to note that 9 out of the top ten success factors (out of the 30 Success Factors listed) are within behavioral factors which are under individual control. This gives the hope that with the right thought processes any one can aspire to become a millionaire !.

The top 10 success factors identified by Millionaires are:

1. Being honest with people
2. Being well disciplined
3. Getting along with people
4. Having a supportive spouse (This is one factor not totally in an individual control)
5. Working harder than most people
6. Loving my career / business
7. Having strong leadership qualities
8. Having a very competitive personality
9. Being well organized
10. Ability to sell my ideas / products

As you can see, except point 4 above, all the rest are factors that can be controlled by the individuals.

Are High IQ, High Test Scores and Graduating at the top of the class important factors to become a millionaire? The chapter on School Days addresses this question. As per the author, while test scores may be important for some type of vocations like Doctors, Attorneys etc, people with Millionaire traits get more out of schools and colleges than non-millionaires do. For example, by interacting with people, they learn to get along with people, by being active participants in sports they get keen competitive spirit and by participating in various events in school, they learn leadership skills. In addition, since schools focus a lot on test scores, some of the millionaires get a lot of negative feedback from the teachers for their poor performance in tests. These negative feedback in turn elicits a burning desire in their minds to prove the teachers wrong. The summary of the chapter is that yes, test scores are important, but other factors are equally, if not more, important. 

Out of the 733 millionaires studied, almost 60% run their own business. Running own business is a risky proposition. There are 10 failures for every 1 successful business out there. How do millionaires handle this risk? Are they scared? How do they handle their fears? The chapter on the Relationship between courage and wealth addresses this question. The author points out that millionaires and not above feeling the fear. However they have conviction in their ideas and faith in their ability to execute those ideas. 

What are the approaches adopted by millionaires to handle fear? Some of them follow positive thinking and removes negative thoughts from the mind. Some of them work extra harder to remove all the 'Fear Inducing Aspects' of running a business. Some of them call upon their religious faith to overcome their fear. Some of them do regular exercises to keep the mind and body sharp to handle the challenges. 

The importance of choosing the right Vocation is the subject of the next chapter. How do millionaires choose their vocation? Do they hit it right the first time? How do they identify the right vocation? Most of the millionaires do not identify their vocation the first time. They try different vocations, some successfully some not so, before they identify the right vocation. Most of them identify a market niche where others have not gone. They build specialized skills that can help them tap that specific niche. A lot of emphasis is given in this book on the power of specialization and identifying the niche to capitalize on. One characteristic of the vocation should be that you should be able to love it. In fact most of the millionaires featured in the book claim to love their vocations. Once you love your vocation, it no longer is work, it is more of a vacation!! (copy right mine)

Studies have found that there is a high correlation between durability and stability of the marriage and wealth generation. This book proves the point. Most of the millionaires profiled in the book are married to the same woman for more than 20 years. And almost all of them say that their spouses play a significant role in their economic success. This leads to the question, are there any specific criteria that millionaires use when searching for their spouses? This is the focus on the next chapter on 'Choice of a Spouse'. As the chapter points out, millionaires look for the following specific characters in their spouses. At the beginning, during courtship, the factors that attracted the millionaires to their spouses included Spouses' Intelligence, Sincerity, Cheerfulness, Reliability, and Love & Affection. While these factors may lead to initial interest, the factors that help in the durability of marriage include Honesty, Responsibility, Love & Affection, Capability and Supportiveness. 

There is some unproductive discussion in this chapter about where you can find the best spouse that meets your criteria. This part could have been avoided in my opinion.

How do the millionaires run their households? How do they handle the day-to-day expenses of running a household? What separates them from the non-millionaires when it comes to running a household? Millionaires are frugal. When it comes to spending there is nothing called impulsive purchases for millionaires. The spouses of the millionaires also share this trait. Their purchases are well planned. They do not enter a store without a shopping list. They know what they want before they enter the store. This saves both money ( a less valued resource) and time (a highly values resource). Given a choice between repairing and buying new, most millionaires believe in repair and reuse. 

There are four major patterns to the way millionaires run their households. These patterns are:

1. Extending Life Cycle: This is done by repairing instead of buying new, be it getting shoes resoled or clothes altered or mended and using.
2. Reducing monthly burdens: By reducing the monthly payout, be it the electricity cost by resetting the thermostat during summer or paying off the mortgages or by switching off long distance phone companies. The objective is to reduce regular monthly payouts as much as possible.
3. Planning Purchases: No 'Impulsive Purchases' for millionaires. They achieve this by preparing a shopping list before entering a store, or never purchasing online or through telephone solicitations, or using discount coupons, or by reviewing consumer reports before making a purchase or by leaving the store as soon as purchase is made
4. Patronizing Discount Institutions: Buying from Discount stores like Sam's Club or by doing business with a discount brokerage firm.

And finally, Economically Productive Households always lives below their means.

One of the major purchases in the life of an individual is the purchase of a Home. Do millionaires approach this differently from non-millionaires? Millionaires for one buy older homes in classy neighborhoods as against non-millionaires who buy expensive, new homes in classy neighborhoods. Millionaires hardly have any mortgage balances on their homes as against non-millionaires who pile up hefty mortgages (Read my post on this aspect). In addition there are certain behavioral characteristics displayed by millionaires when it comes to buying home. Millionaires are:

1. More proactive when searching for a home to buy. For instance, they may put up classified ads in papers expressing their interest in buying a property in a specific locality
2. They take their time in searching for and reviewing options. They are not impulsive when it comes to Home buying
3. They are prepared to walk away from a negotiation
4. They don't pay the initial asking price. They always ask for and get a discount.
5. They almost never borrow long-term to buy a home with short-term income. In other words, they build a corpus of funds before making a buy decision. 
6. They do a thorough research of the property on sale before starting the negotiations. The research include researching the prices of recent home sales in the neighbourhood.
7. They negotiate better before purchasing. 
8. They always consider life cycle costs when it comes to buying a home.

The last point is worth elaborating. There are two concepts of costs, one is known as 'First Cost' and the other is the 'Life Cycle Cost'. The first cost is the purchase cost of the property. Millionaires focus on the Life Cycle Costs while Non-millionaires focus on the First Costs. For example given an option to buy a house costing $700000 Vs $ One Million, people with First Cost Focus will choose the former. However a person with the 'Life Cycle Cost' Focus will look at running costs including maintenance costs, electricity costs, property taxes, cost of services in the area etc. This may lead to the conclusion that it may be better to pay a little bit more now and pay a lower running costs later thereby lowering the total Life Cycle Costs.

One would assume that with all their wealth, millionaires would be leading a lavish lifestyle. As the next chapter on Lifestyles of the Millionaires tells us, there nothing farther from the truth. The number one activity for most of the millionaires is Consulting Tax Expert. Other activities include watching their children and grand children play, regular physical exercise, DIY tasks like Gardening and being involved in civic activities. 

Of course, they do visit Paris albeit not as the first priority!

The final chapter summarizes the entire book by pointing out that the millionaires think differently from others. That is the focus of the entire book. Each chapter in the book tells us how millionaires think differently from non-millionaires. The lesson is that if you want to become a millionaire, you must learn to think like a millionaire. (That is kind of paradox because millionaires are original thinkers !)

What are my key learnings from the book.?

One is the concept of First Cost Vs Life Cycle Cost. Another is the concept of Balance Sheet Affluent Vs. Income Statement Affluent (BA Vs. IA, most millionaires fall into BA Category). Third is the fact that if you want to be successful you have to think about your customer. As the top salesman says 'Me, me, me, dull, dull, dull'. You have to think less of 'Me' and more of 'You'. 

Will I recommend this book?

This book is not an easy read. The structure of this book is not intuitive. There is scope for improvement when it comes to the structure. You cannot, for example, look at the major headings of a chapter and come up with a big picture idea about the contents of the chapter. In addition, and very annoyingly, some of the topics are underlined where as some others of the same level are not. (For example, in the section Introduction, heading VOCATION, VOCATION, VOCATION is not underlined, whereas THE HOME is. Since both are names of chapters in the book, either both should be underlined or both should not be). But the ideas are simple and elegantly explained with a lot of examples. Between TMND and this book, I will recommend the former. 

Good read if you are a fan of Thomas Stanley. 

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