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| Thomas J. Stanley and William D. Danko wrote a bestseller called The Millionaire Next Door: The Surprising Secrets of America's Wealthy. It suggests the secret of achieving wealth is to be thrifty, which in turn raises the question of what is the thriftiest approach to obtaining a mortgage. |
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| We hold a stereotype of a millionaire as someone who makes and spends money flamboyantly. Perhaps it is someone who is a brilliant stock speculator, a driven entrepreneur, or a talented entertainer. |
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| Stanley and Danko claim their research shows more often a millionaire is someone who makes a rather ordinary income and takes a disciplined approach to spending, with the result that savings accumulate. This is a very provocative thesis. |
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| If Stanley and Danko are correct, then if you earn $50,000 a year, you can achieve millionaire status by holding your spending down to $40,000 a year. You then wait patiently for the savings to compound. You should bear in mind that the last 15 years have been extra-ordinarily rewarding to savers. Inflation has been surprisingly low. Growth in corporate profits and stock prices has been unusually high. Had the authors conducted a similar research project in 1980, they would have found many highly-disciplined savers whose wealth had been eroded by inflation and bear markets. |
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| Many people react to The Millionaire Next Door on emotional grounds. People with modest tastes enjoy reading that their virtues will be rewarded. People with expensive tastes tend to find the book more threatening. What is the point, they ask, of getting lots of money as an end in itself, rather than spending it? |
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| How would the millionaire next door choose a mortgage? Probably by paying off a mortgage as soon as possible. This means saving up for a down payment of at least 10 percent, rather than pushing the envelope of affordability. It means looking into mortgages with faster equity buildup, such as the 15-year mortgage, or possibly a biweekly mortgage. The millionaire-next-door approach means paying off additional mortgage principal when you have the opportunity. |
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