The Millionaire Next Door Post #2: Living Below Your Means

The Millionaire Next Door Post #2: Living Below Your Means

By: TERAN LONG

My last post covered some of what a millionaire actually looks like and touched briefly on the big-hat-no-cattle principle. This post will cover highlight two techniques millionaires use to accumulate wealth by living below their means.

To be a millionaire means that you have accumulated a certain amount of wealth, in this case one million dollars. One can not have one million dollars if he has spent it all. The majority of millionaires get rich by saving money. There are two techniques that my book, The Millionaire Next Door by Thomas J. Stanley highlight. the first being careful budgeting and the second being the "Artificial Environment of Scarcity" or "Pay Your Self First" method (Disk 2 Part 3).

Method #1: Budgeting

This method includes setting limits on how much money one will spend, and not spending more than that amount. a budget is often divided in to different categories and includes a cap on how much one will spend on items in his category (Disk 2 Part 4. This method utilizes self discipline to save money.

Method #2: Artificial Environment of Scarcity method / Pay Your Self First method

This method involves putting money away first then spending the balance of it. This means allocating a certain amount , or percentage of money to the future, putting that amount away and then living off the remainder (Disk 2 Part 7). This method utilizes foresight and planning to put away money over self discipline not to spend it

These are two methods that millionaires use to limit their spending and live below their means.

Money that I have not spend because I hid in in a box in my room and forgot about it (Artificial Environment of Scarcity). Feat. the box that I hid it in  in background 

My preferred money saving method is the Artificial Environment of Scarcity. I often put money away or "pay myself first" by putting money out of sight in my room or in my savings account. The picture above is a stash of money that I have been storing in a box in my room where it does not get spent. By hiding this money I create and environment of scarcity and am more able to save money.


Thought provoking question: Have you used one of these techniques and not even known it?

Citations:

Stanley, Thomas J., and William D. Danko. The Millionaire Next Door: The Surprising Secrets of America's Wealthy. Atlanta, Ga.: Longstreet Press, 1996