The Importance Of Perseverance

Most of us work hard at earning our income, and on figuring how best to save and invest it.

We all want a better future, for ourselves and our families -- and especially for our children. Achieving financial security is an important milestone on the path to making this ambition a reality.

And so, day after day, we head off to work and put in another day's labor, hoping we're one step closer to the moment when we finally have "enough" money socked away.

There are literally thousands and thousands of books that have been written on how to amass wealth. Some excellent, some less so; and too many not worth the paper they're printed on. Each posits its own special strategy, promising a future of riches to the reader. Of course, were there a sure-fire recipe for making millions, it's a safe bet that the last thing the guy who figured it out would do is share it with the world.

But as mentioned, some of these books have real value. One whose lessons have stuck with me in the decades since I first read it is The Millionaire Next Door: The Surprising Secrets of America's Wealthy, first published in 1996 by two PhD researchers, Thomas Stanley and William Danko.

Unlike most personal finance books that pitch a particular model for "becoming rich", this book is the summary of a scientific profiling of people who have successfully amassed wealth. Rather than push an ideology, it simply reveals: These are, statistically, the factors wealth-accumulators have in common.

The book is fun to read, as many of the authors' research results defy our conventional image of a "millionaire" (and, remember, when the research was conducted over 20 years ago, $1 million in net worth meant substantially more than it does now):

  • A frugal lifestyle is the #1 reason people become millionaires
    • Despite the popular caricature, most millionaires don't buy new-model cars, McMansions, expensive clothes, or luxury goods
  • Most millionaires are self-made (80%), vs. having inherited their wealth
  • Most are self-employed businesspeople or professionals
    • Less than 20% of the workers in America are self-employed, compared to 2/3 of millionaires
    • Most of these self-owned businesses are not "sexy" (welding contractors, auctioneers, rice farmers, mobile-home park owners, pest controllers, etc.)
  • Most don't have outlier income - but they save more of what they make than most
    • The average annual realized taxable income (different from gross income) for most millionaires is near the 50% median
    • They manage to invest 20%+ of this income each year
  • 97% are homeowners but they remain in the same home for decades vs. trading up or 'flipping'
  • Most are married and consider their spouse to be even more frugal than they are
  • A minority attended private schools growing up
  • They value work/life balance and are not "slaves" to their businesses
    • 2/3 work less than 55 hours per week

Many of the specific mindsets and behaviors of these Prodigious Accumulators of Wealth (PAWs) will likely resonate well with readers of, Zero Hedge, and other similar websites. Pragmatism, practicality, and discipline are big hallmarks of the PAWs' success.

Accumulating Wealth Is Easier Than Sustaining It

But as someone aspiring to build financial wealth for my own family's long term benefit, I was dismayed by one of the insights from the book: Self-made fortunes are often quickly lost after being passed on, usually within one generation.

Does becoming a millionaire mean you're doomed to have spoiled kids who quickly fritter your money away trying to keep up with the Rich Kids of Instagram?

While that does happen in a minority of instances (usually combined with a failure of parenting), the answer is "no".

The actual reason for this swift wealth dissipation is really interesting and more nuanced. And it's caused by the unwitting choices of the millionaires themselves...

When Protection Hurts Rather Than Helps

Understandably, most wealthy parents want their children to be well-off, too. But they don't want their kids to have to suffer through the years of uncertainty, anxiety-ridden toil, and risk that they had to endure. So they guide their children into "safer" and more elite professions -- like medicine, law, finance, accounting, etc.

But perversely, this insulates their children from the very stimuli that made these self-made millionaires successful. Overcoming adversity, developing iron discipline, learning to get by without enough, facing fears, turning failures into successes because there is no other option, etc.

Without this 'Masters in Grit' from the University of Hard Knocks, their children are more professionally cautious and less likely to make sacrifices in their household spending when they can't afford it. By protectively insulating their children from the more Darwinian forces of capitalism, wealthy parents often unwittingly make their children less likely to become PAWs. The kids just don't develop the musculature for it that their parents did.

As Stanley and Danko put it:

The first generation affluent in America are typically entrepreneurs. They beat the odds. Their businesses succeed and they become affluent. Much of their success depends on their living a frugal existence while building their businesses. Luck is often involved. And most who succeed understand that circumstance could have gone against them.

Their children will have it better. They will not have to take significant risks. They will be well educated. They will become physicians, attorneys, and accountants. Their capital is their intellect. But unlike their parents, they will postpone entering the job market until they are in the late twenties or even early thirties. And most likely they will adopt an upper-middle class lifestyle as soon as they start working, a much different lifestyle than their frugal parents had when they started their businesses.
Often their children are not frugal. How could they be? They have high-status positions that require higher levels of consumption and thus lower levels of investing. As a consequence, they may require economic outpatient care. In spite of earning high incomes, as most professionals do, they are obligated to spend.

'Tough Love' Parenting Embraces Struggle

My takeaway from Stanley and Danko's research is that adversity is an experience parents should expose -- rather than shield -- their children from.  A very different approach from the "helicopter' form of parenting so ubiquitous these days.

Of course, this should be done responsibly, with safeguards when needed (someone tossed in the deep end of the pool doesn't instantly learn to swim). But, in order to learn how to actualize their own value-creation, our children need to "find their way" by persevering through the common challenges life will throw at them -- like setbacks, doubt, fear, and being bested by the competition.

As Chris and I point out in our book Prosper!: How To Prepare for the Future and Create a World Worth Inheriting, humans are wired for learning from failure. If we don't fail, we don't fully mature:

The Value Of Mistakes

Another reason the kaizen framework is useful to know about is that it bears strikingly similar resemblance to the way in which our minds learn.

To gain new knowledge -- to become smarter -- our brain formulates a hypothesis, tests it out, observes the results, processes them, and then begins the cycle anew:

This test-and-measure, or “trial-and-error”, approach is the way we are wired for self-betterment, which brings us to the importance of mistakes.

When building resilience, you’re going to make them. A lot of them. You’ll be trying things you’ve never done before, across all aspects of your life. And much of the coming change on a macro level is out of your control, making it impossible to predict without error. Mistakes are inevitable.

This scares many. Some to the point of immobility. You need to get past that fear.


Well, as we’ve hopefully just demonstrated, mistakes are required for learning and self-development. Whether it’s manufacturing a Toyota or growing a tomato, our brains need to observe an outcome and then ask: What could we change to do it better next time? We need to experience how it doesn’t work perfectly in order to imagine how it might in the future.

During his long path to eventual success in inventing a long-lasting electric light bulb, inventor Thomas Edison famously quipped: I haven’t failed. I‘ve just found 10,000 ways that won’t work.

When we fail, we need to conjure our inner Edison to remind us that the only true failure lies in failing to try. We must remember that the goofs, the glitches, the curve balls – the mistakes – are our milestones to mastery.

Mistakes are so important, in fact, that if you’re not making them now, and plenty of them, you’re putting yourself at a real disadvantage. Why? Because, as of the writing of this book, life still works pretty much as we’ve known it. Things are relatively tranquil in the world. This is the time to be making your mistakes – while the cost of failure is low, as is the threat level to your quality of life.

You know when’s a terrible time to learn about how to put hedging safeguards into your financial portfolio? After the market has already corrected by 50% (as it last did during the 2008 crisis). Try figuring out how to source a meaningful percentage of your calories locally after a liquid fuels emergency has stopped the trucks delivering produce to your grocery market. Failure at that moment could be life-threatening.

So as you begin trying things you’ve never done before while working on your resilience, embrace the mistakes. Hope to make them, even.

Just make sure you learn from them.

Mistakes are great, the more I make, the smarter I get.

~ Buckminster Fuller

I think about all this a lot as a parent. Where do I offer guidance? And where do I step back, despite seeing disaster ahead? It's not always an easy call to make.

Though as my kids have grown, I've learned that the latter approach is usually the faster path in terms of their learning process.

And I'm not heartless about it. When the failures arrive, there are hugs as well a 'Monday morning football' discussion about what can be done differently next time to effect a better result. The key is building up their confidence in solving their own problems, while making it clear you're there to help support them in case something truly calamitous overwhelms them.

One of the best ways to equip your kids for dealing with life's uncertainties is to give them a rock-solid understanding of themselves: their strengths, their passions, and what they want to accomplish in this world. These will be the compass points they navigate by when the path immediately ahead is unclear.

A great resource for this is the Johnson O'Connor aptitude test, which I've discussed at length several times before. It's the best test, by far, that I'm aware of for gaining empirical clarity into these 'compass points'. I took it myself and found it immensely useful -- years later, I still leverage the insights gained on a near daily basis. I think we'd live in a much better world if every high schooler had the benefit of taking this test before deciding on what path to take in life -- many fewer people would feel stuck in unwanted careers, plodding through in quiet desperation. In fact, my oldest child will be taking the test next year (she's just turning 15, the minimum age at which the results become statistically predictive).

Those interested in learning more about the aptitude test offered by the Johnson O'Connor Research Foundation can listen to this podcast of my discussion with the center's NYC director:

In addition, there's a good number of worthwhile tests and exercises that help with this kind of self-exploration that are described in my book Finding Your Way To Your Authentic Career. Again, the objective is to arm your child with self-knowledge that will enable prudent decision-making -- whether you're around to contribute guidance or not.

Fortune Favors The Prepared Mind

As Louis Pasteur exclaimed, "Fortune favors the prepared mind". If your intent is to create fortune for your family members, prepare them mentally and emotionally to sustain and nurture it.

Of course, the environment we live in has changed from when The Millionaire Next Door was first issued (several asset bubbles have since transpired; crony capitalism has worsened; QE-liquidity is creating a growing wealth gap between classes) -- but I think, in many ways, that makes its pull-yourself-up-by-your-own-bootstraps guidance feel more timeless.

In his recent report, Part 2: The Keys To Prosperity, contributing editor Charles Hugh Smith looks at the macro trends most likely to impact our way of life over the next several decades. Like Stanely and Danko, he sees those with the ability to persevere through adversity as most likely to survive and thrive through the a future shaped by growing economic, energetic and environmental scarcity. If you haven't already read it, it's worth your time to do so now.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

This is a companion discussion topic for the original entry at

Fascinating reminder of the importance of frugality and managing your own capital via self-employment and self-managed investing. I noticed the number 20, and this is important because it's the first tier of the Pareto Distribution: the so-called 80/20 rule. 20 years ago, 80% of the self-made millionaires were self-employed–a form of capital ownership/management held by only 20% of the population back then.
My research into IRS statistics last year revealed that the number of independent self-employed households has fallen to around 4% to 5%–the 2nd tier of the Pareto Distribution (64/4). This suggests most of the wealth accumulation (64%) accrues to the 4% self-employed business owners, which includes self-employed MDs, attorneys, CPAs, as well as welding contractors, etc. The professionals are usually incorporated (for liability and tax reasons), the non-professionals are usually unincorporated.

Only 4 million tax returns took a deduction for paying healthcare insurance premiums. This is an excellent marker for self-employment that generates enough income to pay sky-high health insurance premiums. (Self-employed professionals probably have their premiums paid by their corporation.) Out of 123 million people with earned income, I concluded there are perhaps 5 million self-employed professionals and 4-5 million self-employed non-professionals who make enough to not need a spouse working at a corporate or government job to survive. That is roughly 8% of the working populace–well below the 15% who report some self-employment income.

The point is: it's becoming more difficult to be self-employed/own a small business that supports a household.

I also noticed the self-made folks saved and invested 20% of their income. There is probably a Pareto Distribution here as well. Those who save 20% of their income or more probably end up with 80% of the self-made wealth.

worth considering if you're on the East Coast….

This might be a good trial run to test the just-in-time supply chain on the East Coast.

Let's be clear - there's no bubble out there in the financial markets.
There are LOTS of bubbles.

Among them I count:

  • US equities
  • EU junk debt
  • EU sovereign debt
  • Chinese credit creation
  • Chinese real estate
  • Canadian real estate
  • Palo alto (et al) real estate
  • London real estate
  • Australian real estate
  • FTSE equities
  • Complacency
  • central bank omnipotence worshipping
By the time even Bloomberg is noting that everything is a money printing-driven bubble, it's long in the tooth.
This Bubble’s Got Legs

Sept 9, 2016

The whole world is moving together and signs of a massive bubble that spans asset classes are becoming clearer. Yet, given the driver is cash printed by central banks, indications it could pop are scant.

A Credit Suisse gauge known as the cross-market contagion indicator – which tracks price relationships in equities, credit, currencies and commodities – shows different markets are influencing each other more than at any time since at least 2008.

Historically, very high correlations are associated either with a panic or a bubble. Extreme asset inflation tends to reach fever pitch partly because of what scholars call positive feedback, or where exuberance and herd mentality feed further investment.

Some of the biggest bubbles of the past century were marked by this spillover to all asset classes. But once one market pops, the rest deflate as well.

There are clear marks of a bubble in the current market.

Perhaps the best indicator is the so-called complacency index, which relates enterprise value (dictated by market prices for a company's debt and stock), Ebit (a measure of actual profitability) and the Chicago Board Options Exchange's Volatility Index, or VIX. The ratio between these three hasn't been this high since just before the 2008 credit crisis – and the higher it goes, the more you should worry.

The so-called complacency index hasn't been this high since before the global financial crisis

These are massive bubbles, each and every one, and nobody should really be surprised.

There has NEVER been a period of world wide money printing (aka central bank balance sheet expansion) like the current period.

It’s the largest on record by at least an order of magnitude.

NOBODY has any experience in this twilight zone.

EVERYBODY should be aware of the risks involved.

When this puppy bursts, and it will, there will be tears all around, and the economic and financial damage will last for a very long time, maybe ‘forever’ as far as people alive today are concerned.

Bubbles burst.

That’s the one and only thing everybody should keep at the front of their thinking. Don’t get swept up in what everybody else is doing. Find your own true center and hew to that.

That's one way millionaire's are preserved.  They don't lose everything during the bubble bursting phase.

No World War complacency is very high in elite circles.   This one looks more and more like global war will break out before the bubbles pop.

In addition to the other advantages of self employment mentioned, the potential tax savings is another huge advantage.  This can apply not only to the entrepreneur but also the children as well.  With the government taking on ever increasing debt which must be paid by future generations, the need for a smart tax strategy becomes ever more important.   It is more difficult for kids these days to have their first entrepreneurial job than when I was growing up when having a paper route, mowing lawns, doing odd construction jobs etc was more common for kids (now these jobs are taken by adults).  Today it seems that kids enter the workforce primarily employed by fast food services which don't offer the same entrepreneurial lessons.  Having children employed by a closely held corporation of an entrepreneur allows for them to get their first paying job doing useful work and allows them the experience of paying for their own expenses and managing their own budgets which might otherwise have been paid for by their parents.

Funny in only 20 years how much the value of a Million dollars has changed.  What used be considered extraordinary wealth is now what everyone is expected to have just to retire.  Think how transformative that really is in such a short period of time.
To me it is all part of the monetization and destruction of culture.  When was it that becoming a millionaire became every ones goal? How about musician, conductor, artist, scientist, architect, novelist, inventor.  Instead we have a brain drain going to wall street.  Or instead it seems that every one who can paste a couple of lines of code together wants to take an internet startup to IPO and I guess what the modern day equivalent to millions - 

If you think about it even shallowly, per the following popular story:

An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked.  Inside the small boat were several large yellowfin tuna.  The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, “only a little while. The American then asked why didn’t he stay out longer and catch more fish? The Mexican said he had enough to support his family’s immediate needs. The American then asked, “but what do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos.  I have a full and busy life.” The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.”

The Mexican fisherman asked, “But, how long will this all take?”

To which the American replied, “15 – 20 years.”

“But what then?” Asked the Mexican.

The American laughed and said, “That’s the best part.  When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”

“Millions – then what?”

The American said, “Then you would retire.  Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

But this seems to frame a false choice in my mind, one of a relaxed happy life, or if you have any ambition, then of course it would be for the purpose of accumulating wealth, material goods. There is so much more to sink ourselves into, that involves neither long siestas or McMansions.

Remember this guy?


The Millionaire is an American anthology series that aired on CBS from 1955 to 1960 originally sponsored by Colgate-Palmolive. The series explored the ways sudden and unexpected wealth changed life for better or for worse and became a five-season hit during the Golden Age of Television, finishing in the Nielsen ratings at #9 for the 1955-1956 season, #13 in 1956-1957, #17 in 1957-1958 and #30 in 1958-1959.[1] It told the stories of people who were given one million dollars ($8.83 million in 2015 dollars) from a benefactor who insisted they never know him, with one exception. The series was known in syndication by two titles—The Millionaire, and as If You Had a Million.[2]

The Millionaire (TV series) - Wikipedia

According to the wiki article, it would seem Mr. Michael Anthony would have to hand out checks of roughly 8.8 million dollars if the series was launched again today.

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