Do you want to become rich one day, or do you only ever aspire to talk about becoming rich one day? Some things are easier said than done, but we usually get what we want from life exactly what we put into it. Money is a tool, a mindset that one should use to ensure more options in life. Treat money as an end unto itself and you will forever have a debt quagmire mentality, acquiring debt to pay bills in a neverending life cycle. Or, you may spend your life living an average life and barely paying off your bills. If you want to become rich you have to pick a side between PAW vs UAW.
A “PAW” is a prodigious accumulator of wealth. UAWs is an acronym for an Under Accumulator of Wealth. An AAW is an average accumulator of wealth.
To explain what these acronyms mean, I first have to explain a short wealth management formula that was created in a book called The Millionaire Next Door. This book was published in 1996 and written by Thomas J. Stanley Ph.D and William D. Danko Ph.D.
The Millionaire Next Door
The authors interviewed hundreds of millionaires to learn how they became wealthy, eradicate stereotypes about rich people, and educate working-class and poor people on what it takes to become rich, which is an attainable but long-term goal.
Rich people don’t wear gold chains, drive fancy cars, or spend money frivolously. Think about this – pretend that you never knew what Bill Gates looked like. After seeing an image of him, would you believe that he is the fourth richest man in the world? (Gates was arguably the richest man in the world from 1995 to 2010.)
Bill Gates looks like he buys his clothes from secondhand stores. Warren Buffett drives a nondescript car and still lives in the home he bought as a young man in Nebraska. If you did not know what Gates or Buffett looked like and passed them on the street, you would never believe they were billionaires.
And that is the point the authors of The Millionaire Next Door make in their book – wealth is a mindset buttressed by making self-beneficial financial decisions, not by being materialistic and spending money faster than one makes it.
There are rules to becoming rich, and none of them include walking around in financially depreciating items like fancy clothes, jewelry, or expensive cars to look rich. As per the title of the book, people in your neighborhood with average professions like accountants, laundromat or restaurant owners, dentists, and so on, could be millionaires you walk past every day and you might not know it.
So, if there are millionaires walking in plain sight past you every day, why can’t you become one?
How you save and invest your money, rather than spend it frivolously to impress others, determines who you are in the battle between PAW vs UAW.
PAW vs UAW
Want to know where you stand in the question of PAW vs UAW? Use this The Millionaire Next Door wealth management formula:
Multiply your current age times your gross, pretax income. Then, divide that number by 10. That number is what your current net worth should be relative to your age.
A PAW generates well over twice their number. An AAW generates half times more to exactly twice their number. A UAW makes less than half of their number.
So, what does this all mean? It means that our mindsets about money and wealth management ultimately determine how wealthy we become in life.
You can become rich if you want – it just won’t happen overnight, or without radically changing your mindset about money or without significant sacrifice.
To better understand PAW vs UAW we must first talk about the stereotypes and misconceptions attributed to rich people, how poor people stay poor, and the seven vital financial lessons that The Millionaire Next Door offers readers who want to create generational wealth.
Misconceptions About the Wealthy
To better appreciate the PAW vs UAW mindset, you have to obsolete the idea that all rich people are born with a silver spoon in their mouth.
The average age of a millionaire is 57! It takes time to save money, make the right investments, and parley shrewd financial decisions into generational wealth. The average person does not become a millionaire until they are in their 50s or 60s.
Young people who become rich at a young age as entertainers or athletes are not the norm when it comes to millionaires – still, because that is the pop culture mindset of what a millionaire is, that is what we think of. (Your local dentist is more likely to be a millionaire than a celebrity you don’t know who might be publicly faking their wealth.)
Only about 21% of millionaires inherited their wealth and didn’t work for it. 8 out of 10 millionaires are self-made and created their own wealth.
Less than 9% of Americans are millionaires and the average millionaire has a net worth of $2.2 million. Just because you’re a millionaire does not mean you have $1 million in the bank – net worth is a calculation made by adding the value of bank accounts, investments, real estate, paintings, and so on and then subtracting all debts and expenses.
You could be a millionaire because of the accumulated value of your home, investments, and fine art that could be turned into cash if you liquidate them.
How you manage your wealth ultimately determines if you become rich or not. Rich people budget, monitor their finances, pay down their debt, and focus on generational income.
If you pay off debt with credit cards, never budget, and always live above your means, then you will never become rich. Change your mindset about money – look at money as a tool to ensure more options in life.
Are You a PAW or a UAW?
To settle the debate in PAW vs UAW, you should really read The Millionaire Next Door. I highly recommend it because it will help you to change your mindset about money.
To pique your interest, here are the seven main themes the book uses to drive its points.
Wealthy People Live Below Their Means
The celebrities you watch on TV, and who may be secretly broke, don’t count. The 1% save 25% or more of their income. Wealthy people make budgets and account for every penny made or lost.
Rich people pay down all their debts and aspire to stay debt-free. Having constant debt, like credit card debt, a car note, or rent on an apartment one does not own is not a point of pride. (The rent you pay is helping the owner of that unit pay their debts and become rich)
Rich people live below their means and don’t spend more money than they generate.
Wealthy People Work Efficiently to Continually Generate Wealth
Your local dentist, laundromat owner, or restauranteur may have focused on investing in one business and excelling at it and then opened another office or location.
Wealthy people use their time wisely, brainstorm, and research new ways to make more money all of the time.
The 1% Strive for Financial Independence, Not Showing Off Wealth to Others
Status is important in life. And who doesn’t like buying new things? But if you make money to buy new clothes, jewelry, and cars to make others envious, then you are missing the point of wealth generation.
If you are not watching your budget or striving to make more money, you could lose your status and money and then sell your materialistic items at a loss later on.
Being financially independent must be your goal, not showing off a financial status that could be temporary or not real.
No Parental Rescues From Financial Problems
Stop going to parents and friends for financial help. Develop the mindset that you have to fix your finances, and no one else.
If you are used to having your parents pay your bills and financially save you, then you may never be rich. (Unless you are certain you will inherit wealth, which could be squandered quickly anyway)
Don’t Financially Support Adult Children – Create Generational Wealth
Teach your children the value of a dollar early in life. If you financially support adult children, then you will support them forever. Moreover, they will be financially lost and emotionally vulnerable after you pass away.
Brainstorm how to start a family business or family-connected business that will create generational wealth long after you pass away.
Identify Business Markets Rife With Opportunity
A “business” is not a general term. If you could launch a business, what would you do?
What local market conditions could you take advantage of financially? Is there a local demographic you could serve?
Anyone can open and fail at a business – what local business opportunities could you excel at? Exercise due diligence and do research.
Choose the Right Occupation or Business Opportunity
Look for business and investment ideas that will benefit from your existing skills, knowledge, and experiences.
No one gets rich quickly. The average age of a millionaire is 57. You have to have the right mindset to get rich and stay rich. Remember – money is a tool that helps ensure that you always have options in life.
It’s why we always say things like “beggars can’t be choosers.”
Over 70% of lottery winners will lose all of their money within five years – they never had the mindset for money or wealth to begin with.
Read The Millionaire Next Door today – here is a snippet of the first chapter as published by The Washington Post in 1997.
You won’t become a millionaire tomorrow, but you can do it – just change your mindset.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.