If I had to choose any two books to recommend to people who want to become financially independent, what do you think they would be? Maybe Warren Buffet’s excellent biography ‘Buffett: The Making of an American Capitalist’by Roger Lowenstein? Perhaps Buffet’s compilation of Berkshire Hathaway letters to shareholders.
Surely at least ONE of the books would be written by or about a famous investor, or contain at least for key insights into stock-picking, real estate, how to be successful in business or another get rich plan? Judging from the tone of this article, you can probably guess that the answer is “no” — and you would be right.
The first book that I believe gives the best advice on how to be successful in your financial life (and how to make your children successful as well) was written by two professors who set out to study millionaires. What they found surprised them. In ‘The Millionaire Next Door’, the authors discovered that those with over a million in assets were NOT the people driving expensive vehicles, renting high-priced downtown apartments or drinking Dom Peringnon.
Instead, many of the millionaires they studied had the following seven traits, which the authors flesh out further in the book:
1. They live well below their means.
2. They spend their time, energy, and money in ways leading to wealth.
3. They do not worry about social status, preferring financial independence.
4. They did not receive a lot of financial help from their parents.
5. Their own adult children are not financially dependent upon them.
6. They target opportunities that benefit from large amounts of spending.
7. They work in the right jobs, often for themselves.
I believe, as do many others, that the most important of these commonalities is number 1 – living well below your means. I think the authors might agree with that priority when they write: “Being frugal is the cornerstone of wealth building. … [F]ew could have ever supported a high-consumption lifestyle and become millionaires in the same lifetime.”
After reading “The Millionaire Next Door,” you will have seen the blue print for attaining wealth. However, implementing that plan is the hard part. Living below your means, regularly investing (and rarely taking capital back out), and foregoing some of the perks that TV commercials and rap songs have convinced us we “deserve” takes discipline, faith, and hard work. This difficulty is why I believe the second most important book to read with respect to wealth building is Elaine St. James’ ‘Simplify your Life’.
St. James’ lays out 100 ways to simplify your life. The idea is that as Americans in our modern world we’ve become to obsessed with “keeping up with the Jones’s”, buying bigger houses, flashier cars, and working longer hours to pay for it (while starving our retirement funds, I might add.) Her goal is to show people the way to reduce their consumption while simultaneously increasing their happiness. She recommends “selling the damn boat” and consolidating your investments to help reduce the time, money and worry in one’s life.
While St. James’ book is not dedicated solely to reducing your expenses and making you wealthy, it gives the proper framework to get the most out of life without rampant consumerism.
Taken together, I believe “The Millionaire Next Door” and “Simplify your Life” will show you the plan to wealth, and then help you execute it. Start living cheaply right now and check ’em out from your local library for free!