The neighborhood where I spent most of my growing-up years was strictly middle class. We lived in a brick home on a half-acre lot in a suburb of Cincinnati, Ohio. There was no golf club membership or swimming pool membership. For entertainment in the summer, we watched the Cincinnati Reds annihilate nearly every team it played, or at least it seemed that way to me. By getting straight A’s on my report card, I earned free tickets for our family, a contribution that made me beam with pride. If we weren’t attending a game, we listened on radio, and even today listening to baseball on a warm summer night makes me smile. My growing-up years were a happy time but not a wealthy time.
My constant companion back then was a neighbor named Debbie. I spent hours at her house playing with Barbie dolls and eating French fries her mother would make for us in a deep fryer. Her father groomed their yard with care, and the house was a neighborhood showplace for its landscaping. The cars in their driveway were American, and they never took extravagant vacations. What I didn’t know was that Debbie’s family was on its way to becoming wealthy. Her father, an electrician with his own business, made a decent living, but he and his wife managed their finances with care. They became millionaires in an era when being a millionaire really meant something. If you saw him in his yard in white T-shirt and jeans, you would have guessed he was living paycheck to paycheck and working a blue-collar job. But the truth was far different. He paid for all three of his children to go to college—in cash—and retired comfortably. He was a huge success but was never flashy.
Public policies of the last six years haven’t favored individuals who want to be financially independent and successful in their own right, but people are still, like Debbie’s father, getting ahead. In this final chapter, I want to look at the characteristics of people who’ve managed to go against the tide and achieve financial success on their own terms.
Attitude is the key. If you want to achieve any goal, you have to have the right frame of mind. I believe the critical ingredient in becoming financially successful is believing it can happen. America continues to hold great prospects for those who want to accumulate wealth. Those benefits flow to people who understand that our nation’s economy and social system are fluid. I see too many Americans, particularly young people, who believe that the modest background they are from is where they will stay. They think that only wealthy families produce financially successful offspring. The rich are born with silver spoons in their mouths, they believe. In this way, President Obama’s rhetoric about the 1 percent of Americans controlling the nation’s wealth has done much harm. More and more people buy the idea that the fix is in and only the government can save them from financial distress. This attitude could not be more wrong. When Thomas Stanley and William Danko wrote their groundbreaking book The Millionaire Next Door, they found through extensive research that more than half of the nation’s millionaires had not received a single dollar in inheritance money. They were first-generation wealthy. So much for silver spoons! Hard work and planning, I believe, makes the difference for American families who achieve financial success.
The financially successful also have other critical attitudes. They feel they are responsible for their own future and take that responsibility seriously. They don’t worship money but respect it. These are people who don’t pay full price for anything. Money is a tool to the ends they want to achieve, not the goal in its own right. Consider my friend Jonathan. He worked as a kitchen porter years ago at a fashionable New York restaurant but spent his free time at the library reading financial publications. Friends at work said he’d come into the kitchen with the Wall Street Journal under his arm. He was determined to succeed after a tortured childhood in which he faced multiple illnesses and was branded a failure at school. “Most of the restaurant staff would go drinking,” he recalls. “I’d go home and study and sleep. They made the decision to spend, and I’d made the decision to save and invest. Multiply that by 365 days, throw in a little investment success, and at the end of the year, one guy’s got $20,000 and everyone else is penniless. Multiply and compound that by 10 years, and one guy is home and dry and all the others are going to be waiting tables for the rest of their lives.” Today Chris is retired at age 55 and enjoying his life. It was Chris’s ability to work and his desire to make it on his own that led to his success.
Another trait I see over and over again among the financially successful is that they are resilient. If fate throws them a curve, they don’t look for someone to blame; they get up and try again. Babe Ruth was one of the greatest baseball players who ever lived. He hit 714 home runs over his career, but he struck out nearly twice as often. Even the greats have to deal with failure. It comes with the territory. The same is true for managing your own money and becoming financially successful. Peter Lynch, the legendary Fidelity Magellan portfolio manager who advised small investors to “buy what you know,” could boast annual returns of an astonishing 29 percent, yet even he said that picking winners was not easy. “In this business, if you’re good, you are right six times out of ten. You’re never going to be right nine times out of ten.”
In Chapter 5, I described my philosophy of investing, but there is much more to being financially successful than guiding your own retirement portfolio. Truth is, there are a handful of issues that set back families, even ones with fat portfolios. So many families overindulge their children day to day but fail to have a will that would pass on their savings if the worst happened. Debt, particularly the sort that comes from day-to-day overspending, can sap your best efforts to prepare for your future. Divorce is a huge financial negative for the families that endure it.
Financially successful Americans avoid debt. They know either intuitively or through experience the toll that having personal debt takes. Even a small credit card debt of $5,000, for example, can spiral out of control. At a monthly payment of $200 and an interest rate of 16.5 percent, the repayment period stretches out to 10 years and 9 months. Total interest paid will be more than half of the debt, or $2,510. I am not one of those people who believe that credit cards are the source of all consumer evils. In fact, they are powerful tools for people who use them correctly by not rolling debt month to month or using them only in the event of an emergency. But let’s face it, that $2,500 in interest payments could be better used to start a child’s college fund or as a down payment on a car. Debt is a waste of time and a burden you are better off without.
Successful Americans are generous with their gifts to children but don’t jeopardize their own financial well-being to make their offspring happy. I see so many young parents who can’t deny their children even the most frivolous consumer items, and those gifts can become habits on which children can become dependent. According to Pew Research, 48 percent of middle-aged adults with grown children gave them financial support. And for 27 percent of grown children, Mom and Dad were their primary source of income. There is no doubt kids are relying much more on their parents today than previous generations ever did. In fact, many have become so accustomed to support that they expect it. It’s easy to understand why. The economy is failing to provide opportunities that would make it easier for grown children to stand on their own, and college loans are burdensome. Many families, though, are taking their assistance to an extreme. Tapping your retirement savings to help your child get a degree is a strategy bound to end badly. Again, nobody will lend you money for retirement. It makes no sense for your children to attend a pricey college where the dining hall serves made-to-order omelets while you eat Quaker Oats every morning to finance your child’s lifestyle. One of the smartest things I see parents do is to set limits on spending. Since just 39 percent of college students graduate in four years, you can start by telling your children that if they want financial help from Mom and Dad, they better plan to finish their education on time.
Remember, not every college grad relies on the Bank of Their Parents. When Deena, a woman I interviewed not too long ago, discovered that her student loan debt would take her 10 years to pay off, she switched to a more lucrative job, got a roommate to share housing costs, and began paying more than her monthly student loan payments of $360. She wasn’t earning a fortune—she made only $30,000—but she still was able to pay off the debt in three years by being disciplined and staying focused on her goals. Eradicating her student loan debt gave her the confidence to tackle new financial goals. “Once I became eligible for my company’s 401(k), I paid in enough to get the match. Now I’ll be boosting that contribution amount.” There’s a young woman who some day will be a millionaire!
Another thing that I see successful families do is stay together. It sounds simple, but divorce is a scourge that bankrupts millions of families. The statistics are astonishing. In the United States, there is one divorce approximately every 36 seconds. That’s nearly 2,400 divorces per day, 16,800 per week, and 876,000 per year. Forty-one percent of first marriages end in divorce. And once you’re divorced, your chances of getting divorced again rise dramatically. Sixty percent of second marriages and 73 percent of third marriages end in divorce. I was astonished not too long ago when my doctor told me the story of his own divorce, a million-dollar mess that took years out of his life and an untold emotional toll. This was a man who would have been hugely successful financially but for an acrimonious divorce. His situation was unusual. After all, not every family goes through a high-profile court battle. Still, the cost of divorce decimates a family’s wealth-building ability.
The bigger point here is the ongoing costs for a family that splits. Typically, costs for everything double. There are two payments for housing and two mortgages or, more likely, a mortgage and rent that still have to be paid. Child support, household expenses, utilities, groceries, and the like, double. Meanwhile, the same level of income has to suffice to cover this doubling of costs. There is no way to put a pretty face on this: divorce is expensive and can derail your financial future.
Being a success financially seems to come intuitively to some of us. Some people have the basic habits of mind and money that drive them to secure a stable future for their families. Many of these habits are good not just for your finances but also for your peace of mind. Keeping debt low also means that you won’t stay up late at night worrying about the credit card bill. Telling your children what you expect out of them will keep them from becoming dependent on you.
The financially successful people I meet also have a clearly defined sense of values. They know what their goals are and work toward them every day. If what you want is a secure future for your family, you’re less likely to throw away money on Manolo Blahniks. What’s more, people who are on the right track understand that the game they are playing is a long-haul one. They are long-distance runners with the finish line in mind all the time. They know that achieving their goals will be a lifetime endeavor. For that reason, they can be flexible with the details. A friend of mine says that people who succeed at managing their money are more likely to view a problem as a challenge. If the roof caves in and requires $15,000 to fix, they are likely to view it as a problem that could happen to anyone and to work toward a solution rather than settle into fear. Typically, success of any sort requires good luck, but planning and hard work are what makes the difference.
In sum, it is true that it is harder these days to make it on your own and become a financial success. Poor government policies have made sure of that. But it still can be done. I have great confidence in the American people to overcome the burdens of high taxes and government bureaucracy to create lives of their own that are comfortable and full of abundance. And I firmly believe you can be part of that success story!