The Life Transforming Book Review – The Millionaire Next Door

Millionaire - A man crouched looking over a cliff to see all of the low clouds in the horizon

Are you ready to have your perspectives challenged and mindset revitalized? We just finished re-reading The Millionaire Next Door: The Surprising Secrets of America’s Wealthy tonight, and want to share its surprising secrets with you!!

College Mindset as a Millennial

Facebook, Instagram, Twitter, and Snapchat began to revolutionize how we shared our status, our fashion, our attractiveness, and our power. Following celebrities to see them pictured with foreign whips, private planes, diamond chains, expensive liquor, designer clothes, and beautiful models.  Sitting court side or hanging out in the islands for some relaxation, while secretly promoting expensive clothing for their sponsor deals. A world where those who get the most followers, retweets, likes, or views rule as we show off our latest purchases to build a personal brand of success. A very expensive one…

Award shows…

The Grammy Awards, CMA Awards, The Oscars, BET Awards, and so many many more. The fashion and luxiourus lifestyle demonstrates how most wealthy Americans live right? WRONG! From professional athletes to successful actors/actresses, the high-income high consumer lifestyle leads to a much different ending. Bankruptcy!

High spending…

Johnny Depp had 650 MILLION dollars. 650!! He spent on average 2 million a month on regular expenses. His lifestyle eventually caught up to him as he now owes his business managers 5 million from an unpaid loan and 500k in management fees.

Check out the Scribd resource at the end of the post to read the report from his managers. If its true, our respect for Mr. Depp is at an all time low.

Money decisions….

Many of these stars are renting chains or leasing cars. They splurge on stupid things like throwing money at the club. Throwing money, unfortunately, doesn’t have much of an ROI. We totally don’t recommend it to Duke’s on their journey.

Fakeness…

In 2015, Americans spent 13.5 billion, yes BILLION, on plastic surgery. The next generation of our young women are constantly putting themselves against standards of the crazy pictures we see in magazines. Magazines use Photoshop with models using fake bodies. Companies are plaguing our culture with fake being better than real. It’s disgusting and it hurts our hearts. What is one of the most important factors of becoming a millionaire in the US? A supportive spouse, we prefer ours to be real here at the Duke of Dollars castle.

Idolization…

What really makes this heart wrenching is the idolization of these high spenders to our youth. These stars instead could be using this power to positively impact society (some do! Have you heard what Ashton Kutcher has co-founded?). Instead, we see real people making real decisions, most of the time ridiculous ones. Lil Wayne – the role model for aspiring rappers, doesn’t even believe racism exists in America. WHAT!? Many of these celebrities help our young to see what the lavish life looks like, not what real life actually does. Hurting their futures and that alone is why we hope this blog post helps transform that mindset.

Rant wrap up…

As we begin wrapping up the rant, let us relate this back to the heading – in college the mindset continuously thrown our way was gaining success to obtain the lifestyles window shopped for on TV and music videos. We learn to work feverishly for dreams to buy all that we want. Thankfully, we read this great work and transformed our mindset + our life. Consumption doesn’t equal happiness. The millionaires show us this.

Side note – this post is a long one and will be going in depth through the trans-formative topics from the book mentioned, its without a doubt, worth your time!

It’s time to transform from college to millionaire mindset!!

Purchase the book today to get all of the details we summarized, case studies not mentioned, and graphs/charts not copied!

Let’s get this round table of transformation started!

Book Intro:

“Wealth is not the same as income.” By spending everything one makes, they aren’t accumulating any wealth. To do so takes “hard work, perseverance, planning, and most of all, self-discipline.” Millionaires are not those who make a lot of money, but those who have accumulated a large sum and are financially independent from the money they do earn (sometimes this is through high income). They work on their passions and for the challenge, living frugally to grow wealth to millionaire status as time goes by.

7 Factors of the wealthy

  1. “They live below their means”
  2. “They allocate their time, energy, and money efficiently, in ways conducive to building wealth”
  3. “They believe that financial independence is more important than displaying high social status”
  4. “Their parents did not provide economic outpatient care”
  5. “Their adult children are economically self-sufficient”
  6. “They are proficient in targeting marketing opportunities”
  7. “They chose the right occupation”

The Research

The research for this book was mostly gathered during 1995-1996 by doing the following:

  • “Personal and focus group interviews with more than five hundred millionaires and surveys of more than eleven thousand high-net worth and/or high income respondents”
  • More than 1K people responded to a 249 question survey
  • “Hundred of hours conducting and analyzing in-depth interviews with self-made millionaires…and their advisors.”

1. Meet the Millionaire Next Door

The chapter begins with a quote stating that many of those being interviewed didn’t look or act like Millionaires. The view was that millionaires “own expensive clothes, watches, and other status artifacts.” Their research found otherwise. It’s like the old saying…don’t judge a book by its cover. Why not mother? “Looks can be deceiving.”

The real prototypical millionaire says the following about themselves:

  • “We have an average household net worth of $3.7 million”
  • “…one in five of us is retired. About two-thirds of us who are working are self-employed.”
  • “On average, our total annual realized income is less than 7 percent of our wealth.”
  • “97 percent are home owners”
  • “About 8 percent of us are first-generation affluent”
  • “We live well below our means”
  • “On average, we invest nearly 20 percent of our household realized income each year.”
  • “I am a tightwad”

Definition of Wealth

Dictionary:

“People who have an abundance of material possessions”

Thomas and Bill’s:
  • Net worth = assets less liabilities
    • In the book, wealthy is defined as more than 1 million+ net worth
      • only 3.5 million of 100 million households during their study was considered to be wealthy based on this definition

How wealthy should you be / How to determine if you’re wealthy?

Assumption: Income + age = expected higher net worth.

Equation from the book to determine your bench mark:

bench mark = ( (Age * Realized pretax annual household income except inheritance) / 10 ) – inheritance

Example from book:

  • Age: 41
  • Salary: 143K
  • Investment Return: 12K

Bench mark = 155,000 * 41 = $6,355,000 / 10 = $635, 5000

PAW or UAW

  • Prodigious accumulator of wealth = Net worth is two times your bench mark
  • Under Accumulator of Wealth = Net worth 1/5 of the expected bench mark

The main difference between the two is their ability to accumulate wealth from their income. To do this, one must live below their means and consume less.

Aren’t most millionaires given the wealth from their parents?

Facts of the millionaires studied in the book

  • “Only 19 percent receive any income or wealth of any kind from a trust fund or an estate”
  • “Fewer than 20 percent inherited 10 percent or more of their wealth”
  • “Nearly half never received any college tuition from their parents or other relatives”

The chapter ends with details on the different ancestry groups of the affluent.  The authors give one main reason small population sizes in the US for different ancestries still have a high representation of millionaire status. It’s because they have not been influenced to the consumerism culture yet. They give a few case studies to show the importance of living frugally, and the hard work of immigrants to make it in America leading to accumulated wealth.


2. Frugal Frugal Frugal

  • Definition -> “behavior characterized by or reflecting economy in the use of resources”
  • The opposite -> wasteful. “lifestyle marked with lavish spending and hyper-consumption”

“Being frugal is the cornerstone of wealth-building.” They explain how the media “barrages” us with athletes or big spenders being “promoted by the press.” Many of them couldn’t sustain their high spending life for more than one year without pay. But they make millions, how can this be? They spend all of the millions they make! The lavish lifestyle sells on TV, magazines, and newspapers. People love celebrities because they think they are the most successful in America – this book’s research transforms that opinion.

The lifestyle of the typical American millionaire

If a typical millionaire was shown on a TV talk show, people wouldn’t it watch. Why? It’s boring! They have the same wife for years, went to a local college for their degree, own a small business, and dress like the average blue collar worker. People would be quite confused. Where’s the Armani suit? Jewelry? They don’t have either.

If the host began questioning his habits for purchases, it would go like this:

“What’s the most you ever spent for a suit of clothing?

  • $399

How much do millionaires spend on shoes they buy?

  • Half of them never spent more than $140
  • One in four never spent more than $100
  • One in ten spent more than $300

Is that what you envisioned? We were shocked first reading this. NBA star Chris Paul has a closet full of Jordan shoes, who would have thought this wasn’t the norm for millionaires? Only “1 percent of the millionaires in our survey paid $667 or more for a pair of shoes.” The award shows with their red carpet fashion displays of the world show otherwise – yet the truth gives all of us more hope to reaching the level of wealth we envision in our lives.

Millionaire - 5 pairs of shoes on a table sorrounded by a closet that has at least 200 pairs of shoes
Image from http://hoopeduponline.com

How much do millionaires pay for their wristwatches?

  • Half never spent more than $25
  • One in four spent $100 or less
  • One in ten never paid more than $47

Millionare - Two men with their clothes compared side by side. with title above their head. Broke - wearing expensive clothes. Billionaire - wearing cheap simple clothes.

The show would end with the following quote on:

“I live in a fine home…but have no mortgage. All my children’s college accounts were more than fully funded before they even began attending college.” The millionaire’s boring life style might not sell TV, but it sure does achieve the dreams we want in our lives. Great relationships, no debt, and successful children!

The main reason most high income earners are not wealthy is because they play poor financial defense. “The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.” A lifestyle choice that continues well after becoming a PAW.

A great metaphor used to drive this point from the book – jogging. The people you see jogging every day are the ones who look like they don’t really need to be jogging. Why? Because they are so fit. They are fit because they routinely  run while many others don’t have the discipline to do so. The same can be said for your finances, be financially fit!

Is it possible for a family earning 500K to struggle making ends meet? Check out the financial samurai post to see how it can be a scenario in a very expensive city.

Do you want to become affluent? Can you answer yes honestly to these 4 questions?

  1. “Does your household operate on an annual budget?”
    • About 100 millionaires don’t budget for every 120 that do
      • Those that don’t live in a life of scarcity – meaning they invest first, then spend the rest.
  2. “Do you know how much you family spends each year for food, clothing, and shelter?”
    • Without knowing your expenses, how can you plan to be financially independent? You must know how much you need to live freely on.
  3. “Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?”
    • For every 100 who answered no, 180 answered yes. The no’s are those who are already retired and accomplished their goals.
    • “Financially independent people are happier than those in their same income/age cohort who are not financially secure.”
  4. “Do you spend a lot of time planning your financial future?”
    • For every 100 no’s, there are 192 yes’s.Those who said no, are the high income with low net worth UAW’s or wealthy retirees.

Millionaires allocate much more time in their weeks to investment decisions than those who are non millionaires. They take time to invest and allow their wealth to grow, it is a priority for them and their future.

Would you really want a UAW’s lifestyle?

A few descriptions of the UAW “Theodore” from the book:

  • Came from a very poor family, but went to a nice school where the rich kids’ cars constantly amazed him. Made the promise to be better off than his parents, which meant displaying wealth to show status
  • Simple money plan – spend when you have, save when you need, use installment loans
  • Ultimate consumer life:
    • owns two boats
    • one jet-ski
    • six automobiles that are either leased or bought on credit
    • Member of two 5k+ country clubs
    • “Owns” a vacation condo
    • Shops at the best stores
    • His income ~221,00 a year, with a bench mark net worth of $1,060,800…but is worth 1/4 less

Sounds like the good life right? Vacation homes, best quality clothes, boats, caviar, and more! It does sound great and looks great too. Internally – its not. The high income makes for a great start in your life. Would you be happy working many hours and seeing less of your family just to pay for all the toys you bought? Most likely not. Worst, UAWs do not participate in pension plans, so they struggle to find money to fuel their tank during retirement.

The UAW Process:

Work hard -> earn money -> sacrifice to impress others. He does all of this for others without taking the time for his family and his self to enjoy the little things in life instead.

Can they change?

Of course – if your friend is a UAW then talk to them. If they are willing to change, recommend good professional help or the Duke of Dollars blog :).

How to build wealth:

“Minimize realized (taxable) income and maximize your unrealized income (wealth/capital appreciation w/o cash flow).”

Income tax deters wealth as it is the highest expense for most households in the US. Its a tax on your income, not on your wealth. On average, millionaires spend only a bit over 2 percent of their wealth each year in their annual taxes. Typical Americans? “More than 10 percent.”

Mortgage rule of thumb – “If you’re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income.”


3. Time, Energy, and Money

“People who become wealthy allocate their time, energy, and money in ways consistent with enhancing their net worth. PAWs spent nearly 2x more hours planning investments than UAWs.”

The book uses a case study format to compare two different doctors:

Background

Dr. South (UAW)Dr. North (PAW)
Married with 4 children in his fiftiesSimilar age and family composition as Dr. South
Earned more than $700,000, but declining net worth of 400KAlso earned more than $700,000, increasing net worth of 7.5 million
Invest little...why? Consume as much as people with 2x their net worth
- Spends 30K on clothing, 72K on vehicles, 107K on mortgage, and 50K on club dues
Invests at least 1/3 of his pretax income...how? By consuming less than they earn
- Spends 9K on clothing, 12K on vehicles, 15K on mortgage, and 8K on club dues
3 hours a month spent on financial investment planning10 hours a month spent on financial investment planning

Both doctors are in the top 99.5 percentile of all income earners in America, yet as you can see their lifestyles and wealth are so so so so so different. It is much better life to focus on being a great person, building relationships with the people you love, and building wealth. Focusing on impressing others leads to unhappiness and debt. Which do you choose? Transform today fellow dukes!!

Car Shopping:

“There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes, and the time spent planning one’s financial future.”

“Most millionaires we have interviewed never in their life spent near $65,000 for an automobile.”

Dr. South (UAW)

The gist of this section goes like this. UAWs spend incredible amounts of time to learn about all of the dealers in the area and shop around for months to get the best deal. He contacts dealers and puts them against each other for price, until he finally gets the dealer price for his purchase. They believe in being a very smart buyer, when in actuality they are spending more time learning about dealerships (around 60 hours) than planning their financial futures.

If we use a gross income estimates, based on earning 700K a year, he makes 336.53 an hour. He wasted 23K searching for a car.

Millionaire - A silver porche 911 on a white background
Image from Porsche.com

Dr. North (PAW):

  1. Decided he needed a new car, and knew that European luxury cars depreciate in the first 3 years…confirmed by price checking
  2. Visited local dealer to confirm if a 3 year old model is best for him
  3. Telephoned dealers to let him know he was interested, then bought the car when they got them in with a good deal

He purchased a nice car, in less time, and much less money. UAWs who purchase new cars every 3 years subsidize the brunt of the payment years, then PAWs move in.

Millionaire - Picture of a 2014 Mercedez Benz to demonstrate buying a 3 year old luxury vehicle
Image from http://www.seefinchfirst.com

Taxes and Government:

Four fears expressed by Dr. South (UAW):

  1. “Paying increasingly high federal income taxes”
    • Both fear that the gov is likely to increase high income producers to pay more taxes
    • If the tax rate doubles, Dr. South would be worried. More taxes paid = less income to pay off his debts each month
  2. “Increased government spending and the federal deficit”
    • Increased spending by the gov = higher taxes
  3. “High rate of inflation”
    • Increased spending and increase in deficit means increase in inflation
  4. “Increased government regulation of business and industry”
    • This could effect the income they receive from their practices

Active or Inactive Trader?

“Fewer than one in ten millionaires are ‘active investors.’ Most hold their investments for at least 6 years, see our investing philosophies if interested in being a Duke! According to the authors, millionaires spend time understanding smaller markets and become experts on smaller offerings, meaning they can make better decisions on the investments they buy.

Millionaires can and do use trusted financial advisors – we recommend taking a look at our review, Tony Robbin’s book Unshakeable, to see how to choose one for yourself if interested!


4. You Aren’t What You Drive

This chapter reiterates a lot of the observations we have talked through, along with a few case studies to demonstrate. If your interested in reading the case studies, then definitely check out the book.

Highlights we want to convey:

One millionaire was gifted a Rolls-Royce, he asked for it to be returned. Some would be shocked at this, let us quote his reasons:

“There’s nothing the Rolls-Royce represents that’s important in my life. Nor would I want to have to change my life…I can’t throw fish in the back seat of the Rolls…I’m out fishing here every weekend…With a Rolls, I can’t go to some of the crummy restaurants I enjoy going to…Can’t drive up in a Rolls-Royce…There are some things that are more fun to do…more interesting to do [than owning a Rolls].”

Again, the mindset of the real wealthy in America contraries popular belief of needing status in life. Status doesn’t do anything for you – it turns people fake around you, makes people see you as a bank account, and reduces your checking account balance.


5. Economic Outpatient Care

There are two sections that go into heavy detail on the reasons affluent parents should not make life easy through financial gifts to their heirs. Those who get this Economic Outpatient Care never learn the same grind their parents have, thus never becoming independent either. We must teach our children to fish instead of sponsoring their bad financial decisions. UAWs produce UAWs and PAWs produce PAWs by teaching values they believe in. We won’t go into more details here, as it falls out of the scope of your mindset to building your kingdom!

One SN – this books dives into the details of woman during this time period not being pushed into growing their own career or financial freedom, instead they were encouraged to use their parents money and find a husband who earns a high income. We support anyone who wants to pursue their dream and live the life they choose. We don’t support anyone being forced to do anything they don’t want to by their parents. Be you, be great, and be financially responsible!

Find Your Niche

Are you asking yourself now, why am I not wealthy? Consider finding a niche that affluent people spend their money for. Many times people create businesses targeting customers without the money to buy it.

The book details professions and business opportunities they believe best fit niches that can have the affluent as customers. For example, estate attorneys or orthodontist. Since this book is a bit dated, the recommendations should be dived into deeper to find niches for the technology age. See our building income article for a good first step!

Jobs: Millionaires versus Heirs

Millionaires recommend professions to their children instead of self employment. Why? Its more risky. “They can take your business, but they can’t take your intellect!”

Many self made entrepreneurs were unable to afford college and the profession they encourage their children to work in. They want stable and wealthy lives for their children. Who doesn’t!? Freedom for their children without risk is their philosophy on this. We are living in a time where silicon valley and the start up world has developed products that made them tons of money. Internet businesses are started every day. Duke of Dollars is run as a passion from authors with full time jobs. Our mission is to enrich the lives of others to live a great life!!

Millionaire - Picture of Google's corporate building in California.
Image from www.techinside.com

Concluding Thoughts:

This book transformed one of our Master Duke’s life, recently reaching a milestone of his own! Our authors truly believe the mindset of appreciating the little things, enjoying life’s experiences, and growing our healthy relationships make life worth living. Consumerism and the good things of life can help, and should only be enjoyed if you can truly afford and moderate them throughout your journey. Let the media do their thing and keep your eyes on the real prize. A wealthy life towards financial freedom: one where you are judged by what you do, not by what you wear or buy. When you’re surrounded by people who care who you are, not by what you have, then you already have a millionaire life with everything you need.

What is your mindset? Let us know what you think by leaving a comment below! Want to transform the mindset of your friends and family? Share this on social media!

Resources:

https://www.scribd.com/document/338055501/TMG-v-Johnny-Depp#download&from_embed

http://www.washingtontimes.com/news/2016/mar/14/americans-spend-unprecedented-135-billion-plastic-/

Disclaimer – affiliate links are used for the purchase of the book above.

 

Build an Unshakeable Kingdom – Part 2 – Book Review: Unshakeable by Tony Robbins

Unshakeable - A woman sitting on the ledge looking out over the city

Welcome dukes to part two of our first book review: Unshakeable by Tony Robbins. In part 1, we summarized and talked through section one, the first four chapters, on your wealth playbook. In part two, we will be focusing on section two and three, the unshakeable playbook and psychology of wealth. See them below!


Tony Robbins released Unshakeable two weeks ago as your financial freedom playbook. The book was co-authored by Peter Mallouck from Creative Planning.

Before we start the review, I want to highlight that each purchase of this book will result in 50 meals from Feeding America. Tony has partnered with them and all profits will be going there way! Basically, for our $15 donation to feeding America, we were able to get financial knowledge from the 50 top financial minds he interviewed for the book!!!

Buy the book below to feed 50 people!

Section 2  – The Unshakeable Playbook

Chapter 6: The Core Four

Tony “came to realize that there are four major principles that nearly all great investors use to guide them in making decisions.” They must be executed and lived by to truly utilize their power for building wealth!

PrincipleDescription
Core Principle 1: Don't Lose"The more money you lose, the harder it is to get back to where you started"

Example from the book:
- If you invest 100K and lose 50%. How much does it take to get back? Many would think 50%, but this is incorrect. 50% means you gain 50% on 25K, so your total is only back to 75K. This means you need a 100% return on the first 50K to get back to the original amount!

Design an asset allocation strategy that diversify's your money, so when there is a loss, it is only on part of your nest egg! In other words, "reduce your risks and maximize your rewards"
Core Principle 2: Asymmetric Risk/RewardContrary to traditional high risk/high reward mentality. Great investors look for investments that "the rewards should vastly outweigh the risks."

"Invest in undervalued assets during times of mass pessimism and gloom."
- He uses the 2008-2009 financial crises an example, since so many stocks went on sale. One thing he doesn't really take into consideration, is that many people during that time lost their jobs or couldn't afford to really invest.

This is where our roadmap comes into play - if you take the necessary steps when your money is flowing, you will be ready to take advantage of the investment sales!
Core Principle 3: Tax Efficiency"Mutual fund companies love to tout their pretax returns...there's only one number that truly matters: the net amount you actually get to keep"
- Basically, if your mutual fund company is taking fees and taxes, but boast on their pretax returns, you aren't getting the amount they boast.

Index fund trading tremendously saves you on taxes because they do not trade as much, meaning you aren't having to pay as much in taxes. More net income!

On our roadmap, we utilize retirement accounts for tax savings. Check out our 401(k) articles for a few examples on how much it can save you on taxes and make you in investments. The more money you save on taxes, the faster you build your kingdom.
Core Principle 4: Diversification:Four important ways to diversify:
1. "Diversify across different asset classes"
- Invest in bonds, stocks, real estate, etc.
2. "Diversify within asset classes"
- Buy different stocks in different industries
3. "Diversify across markets, countries, and currencies around the world"
- We recommend foreign stocks, but not Forex trading
4. "Diversify across time"
- Dollar cost averaging - this is the principle of consistently investing the same amount over the same period of time to average out the price your buying stocks. The average will always reduce your risk and increase returns as it takes away trying to time the market

"everything comes down to owning an array of attractive assets that don't move in tandem"

Chapter 7: Slay the Bear

Tony begins this chapter with a story describing his journey with discovering the risks and treatment options for his brain tumor. He ends the story with his decision of living with it and not getting treatment at that time, showing his courage to be unshakeable! The take way is given to the readers – “your family, your faith, your health, your finances – you can’t rely on anybody else to tell you what to do.” It is imperative to know “that there’s never absolute certainty in life.” Get the facts and make the decision that is best for you.

Prepare for the bear – Peter Mallouk

If you recall from part 1, the bear market is when the stock market goes down by at least 20%. “Constructing a diversified portfolio that reduces your risks and enhances your returns.”

Investment options

  • Stocks
    • Over time the economy grows, so owning the businesses that are growing with it = returns
  • Bonds
    • “When you buy a bond, you’re making a loan to a government, a company, or some other entity.”
      • Different types
        • Treasury – lending money to the federal gov
        • Municipal – lending money to city, state, or county
        • Corporate – lending money to a great company with high credit ratings, like Microsoft
        • Junk – lending money to risky credit ratings, meaning you may not get your money back
    • Bonds are great for conservative and less risky investments and can hold cash until a crash occurs. You can sell the bonds, buy on sale stocks, then repeat for the next bear.
  • Alternative Investments
    • Investments other than stocks/bonds/cash
    • REITs – Real Estate Investment Trusts
    • Private Equity Funds – purchasing part or all of an operating company with the fund
  • Master Limited Partnerships
    • Recommended for older investors without an IRA (from the book)
  • Gold
    • “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again, and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head”
  • Hedge Funds
    • Most hedge funds charge high fees, don’t beat the market, and suck your money dry

Creative Planning Principles for Diversification

  1. “Asset Allocation Drives Returns”
    • “Diversify globally across multiple asset classes” – See above for his descriptions
  2. “Use Index Funds for the core of your portfolio”
    • Broad diversification with low fees
    • Use index funds of all sizes
  3. “Always have a cushion”
    • To prevent having to sell your stocks at low prices, keep a financial cushion for yourself during those time
  4. “The rule of 7”
    • “Have seven years of income set aside in income-producing investments”
  5. “Explore”
    • Outside of the core index funds, find opportunities for different strategies to make money
  6. “Rebalance”
    • Taking a look at your portfolio to make it match your desired allocations

Section 3  – The Psychology of Wealth

Chapter 8: Silencing the Enemy Within

“This chapter is designed to give you the key insights and tools you can use to free yourself from the natural psychological tendencies that derail…financial freedom.”

The 6 mistakes investors make:

MistakeDescriptionSolution
Mistake 1: Seeking confirmation of your beliefsConfirmation Bias - Human's "seek out and value information that confirms our own preconceptions and beliefs."

This mistake happens to investors when they find a stock or investment in their portfolio, so you ignore proof of its future failure based on facts
"Actively seek out qualified opinions that different from your own."
Mistake 2: Mistaking recent events for ongoing trends"Recent experiences carry more weigh in our minds when we're evaluating odds of something happening in the future."

For investors, this will hurt their recognition of a long performing investment under the most recent events.
"Don't sell out. Rebalance"

"Best investors...create a list of simple rules to guide them when things get emotional, they stay the course and remain on-target for the long term."
Mistake 3: Overconfidence"We consistently overestimate our abilities, our knowledge, and our future prospects."

Investors should ask themselves, am I really qualified to find investments that will do better than the market?
"Get real, get honest"

If your an average investor, "invest in a portfolio of low-cost index funds, and then hold them through thick and thin."
Mistake 4: Greed, Gambling, and the Quest for Home Runs"The best way to win the game of investing is to achieve sustainable long-term returns."

Don't pay attention to media hype - they are trying to invoke emotions that change your guide from solution to mistake number two above. There is no get rich quick scheme that works. In life, success comes to those who work hard and work smart as they grow through their journey.
"It's a marathon, not a sprint."

Create a "wholesome information diet." AKA make a blog feed of intelligent commentary on from top investors (Bogle, Buffet, Cahn, etc).
Mistake 5: Staying home"home bias...leads people to invest disproportionately in their own country's market - and sometimes ...in their employer's stock."

US Stocks only make up about 50% percent of the world stock market
"Expand your horizons"

Diversify your investments in assets and in location
Mistake 6: Negativity and Loss AversionHumans tend to "recall negative experiences more vividly than they do positive ones"

In part 1, Tony describes the various seasons and how Spring always returns. Remember that to stay on course.
Prepare for the winters by having a diversified portfolio as discussed in chapter 7

Now that you know of the mistakes our human tendencies commit, you are better equipped to using the solutions given to beat them!


Chapter 9: Real Wealth

Our favorite quote in the book: “Real wealth is emotional, psychological, and spiritual. If you’re financially free, but…suffering emotionally, then what kind of victory is that?

In the last chapter of Unshakeable, Tony defines the real wealth in our lives and gives his principles on obtaining a beautiful state. Before getting to the emotional states, he gives two areas of life to excel in that lead to an extraordinary life.

3 Fundamental Steps of Achievement:

  1. Focus
    1. “Where your focus goes, your energy flows”
  2. Go beyond hunger, drive, and desire, and to consistently take massive action
    1. Follow the “do something” principle. Talk is cheap. An action is expensive – take it!
  3. Grace
    1. “The more you acknowledge grace in your life, the more you seem to have it!”

The art of fulfillment:

“If you master the external world without mastering the internal world, how can you be truly and sustainably happy?

Principle 1: You must keep growing

  • “Everything in life either grows or dies – same for relationships, business, or anything else.

Principle 2: You have to give

  • “We’re driven by our desire to contribute. If we stop feeling that deep sense of contribution, we can never feel truly fulfilled

From here we dive into mental states that drive us to a fulfilling life.

Two emotional and mental states:

  1. Beautiful state – “When you feel love, joy, gratitude, aw, playfulness, ease, creative, driven, caring, growth, curiosity, or appreciation
  2. Suffering state – “When you’re feeling stressed out, worried, frustrated, angry, depress, irritable, overwhelmed, resentful, or fearful”

We can choose which state we are in by focusing our thoughts on the correct state! To do so, we need to be aware of the three triggers for suffering:

  1. Loss – Focusing on a problem that will cause or has caused you to lose value or something to lose value
  2. Less – Focusing on an idea that “you have less or will have less”
    1. Examples – Less money
  3. Never – Focusing on an idea that “you will never have something you value”

Tools for getting back to the beautiful state:

  1. 90 seconds rule – Whenever you start suffering, give yourself 90 seconds to stop it then return to your beautiful state
    1. Change your thoughts to focus on things you appreciate – gratitude is the #1 emotion for true happiness
  2. Two-minute gratitude meditation -> check it out on www.unshakeable.com if you’re interested!

Money doesn’t make people happy. Fulfillment, growth, achievement, and relationships do. By being in a beautiful state you are working to better yourself to put together the pieces of happiness. By building your kingdom, you are already on your journey to creating a wealthy life for yourself.


Our overall review and comments:

Pros:

  • There were many great quotes from his interviews with the top investors that helped drive many of his points home
  • His examples helped solidify that you can stay psychologically strong during the “winters”
  • He broke down his rules or principles to allow us to easily digest and follow (if we agree) them, along with anecdotes to realize they are possible to follow
  • All profits go to feeding those in need

Cons:

  • We felt the book was a bit repetitive at times, making it take longer to read. It felt at times it was too long and a bit unorganized when moving from story to principle back to stories.
  • The book didn’t give a specific action plan, more like guidance on creating one or hiring a financial advisor to help you
  • For those who have been into personal finance or have read a few blogs, most of the topics in this book are topics you know. For advanced readers, this may not be worth your 4-5 hours of reading time

Usefulness:

Overall we were glad to give this book a read. Did it live up to its hype? In some ways yes, the principles and values were very good, but it didn’t give people an exact plan to execute to reach freedom. We understand as each person has a different situation, so it can be tough to give a generic plan. Even Peter mentions how financial advisors should be creating one specifically for you. The book also psychologically solidifies some of the principles we have read in the past while providing some great example that followed them. Tony interviewed top minds and is helping the average investor create wealth. We totally respect him and his motive for the book!


For our readers, we have created a plan to help you stay unshakeable during the winter seasons! We want you to reach your financial dreams and build your kingdom. We are here to help!! With that being said – thank you for taking the time to read part 2 of our Unshakeable review. If you enjoyed the summaries: buy the book and enjoy!

Build an Unshakeable Kingdom – Part 1 – Book Review: Unshakeable by Tony Robbins

Unshakeable - A guy standing on a high rock with barely any room looking at a elevated view.

Hello my fellow dukes, and welcome to our first book review!

Tony Robbins released Unshakeable last week as your financial freedom playbook. The book was co-authored by Peter Mallouck from Creative Planning. After reading it this weekend, we want to take you through highlights of each section/chapter, and provide our thoughts or share the great knowledge.

Before we start the review, I want to highlight that each purchase of this book will result in 50 meals from Feeding America. Tony has partnered with them and all profits will be going there way! Basically, for our $15 donation to feeding America, we were able to get financial knowledge from the 50 top financial minds he interviewed for the book!!!

Buy the book below to feed 50 people!

Section 1  – Wealth: The Rule Book

Chapter 1: Unshakeable

The book begins with a definition of its title – “An unwavering and undisputed confidence; a steadfast commitment to the truth; presence, peace of mind, and a calm amidst the storm”.

Being unshakeable from a financial perspective means that even when the stock market collapses, real estate market prices drop, or the economy is in a recession (like the 2008 era), it is imperative to be the calm in the storm. We must “focus on what we can control” and know that you don’t need to be able to predict the future to win in the financial game. Tony explains that becoming unshakeable isn’t “wishful thinking or lying to ourselves, or merely thinking positive.” You need to have the “insights, the skills, the expertise, and the specific strategies…to achieve true and lasting prosperity.”

He believes that by putting the plan he will describe in the book in place, you can keep your financial freedom plan on target with only 1-2 hours per year. I find this one a bit tough to agree with, because even budgeting for us here at Duke of dollars takes >= 30 minutes a month. Later in the book, he does recommend using a financial advisor and that will offload a bit of the work. At Duke of Dollars, we don’t discourage using a financial advisor with the caveat that it does cost you moolah galore. If your situation is not complex, then following our roadmap will be your advisor :).

Some Top Financial Minds

  • Ray Dalio
    • “Most successful hedge fund manager in history”
  • John C. Bogle
    • “Founder of Vanguard and revered pioneer of index funds”
  • Mary Callahan Erdoes
    • “Oversees $2.4 trillion in assets at JPMorgan Chase & Co.”
  • T. Boone Pickens
    • “Billionaire oil tycoon”
  • Carl Icahn
    • “America’s formidable activist investor”
  • David Swensen
    • “transformed Yale into one of the world’s wealthiest universities”
  • John Paulson
    • “Head fund manager who personally earned $4.9 billion in 2010
  • Warren Buffet
    • “Most celebrated investor ever to walk the earth”

What a list! Lastly , or chapter one, the 3 reasons being writing the book are listed:

  1. This book was written to be “a concise companion that contains all of the essential facts and strategies you need to transform your financial life.”
  2. Winter is coming in the financial world. This means that the stock market will fall, but it never last forever. “Unshakeable will show you how the masters of the financial world prepare themselves – how they profit by anticipating winter, instead of just reacting to it.”
    • Example: January 2016, first 10 days the stock market plummeted and $2.3T went up in smoke. It was the worst 10 day start in history. If you follow Mr. Robbin’s “all-seasons” portfolio suggestions, then instead you would have profited during this crazy 10 days.
  3. Avoid the Sharks by choosing financial advisors that are legally required to help you and want what is best for you. More details on this in a later chapter.

Chapter one ends with a story about a Buddhist monk traveling on his way home. He catches sight of a poisonous snake blocking his way, panics and runs for dear life in the opposite direction. The next morning, he returns to this scene of terror. But now, in the brightness of day, he realizes that the coiled snake in his path was just a harmless piece of rope. In other words, “you can’t win this game, unless you have the emotional fortitude to get in it and stay in it for the long term”


Chapter 2 : Winter is Coming… But When?

As humans, we owe much of our power in the world to our development of the ability to recognize patterns. As we changed into an agriculture society, the annual seasons became one of our most important realizations. We learned that planting crops in the winter did not reward us much, and this is how our power continued to grow…learning best timing to reap the most reward. This capacity is “the number one skill that can empower us to achieve financial prosperity.” We are able to recognize the market patterns and get the biggest reward as we did for crops. Throughout the chapter Tony uses winter as a metaphor for down turns, and spring as upturns.

The Power of Compound interest

Investopedia definition – “Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

  1. An example from the book to drive its benefits home
    • Bob and Joe both decide to invest $300 a month.
      • Joe starts at 19 and stops at 27 (8 years), for total savings of $28,800. With 10% compounding rate, he will have $1,863,287 at age 65
      • Bob starts at 27 until 65 (29 years). His money compounds at the same rate, he retires with $1,589,733.
      • The craziness???
        • Joe invested a total of $28,800, while Bob invested 5x more, $140,000. The difference? $273,554 for Joe. That’s the time of compounding!!

The lesson here is that you can’t “earn your way to financial freedom””, you have to invest money so it can compound over the years to earn money for you while you sleep!

How much do you need to retire?

The book recommends a financial advisor for your unique situation, and/or 20 times your income. Here at Duke of Dollars, we will be providing an article for building your milestone map that will help you determine this. We agree that each person has their own situation and goals, like financial security vs. financial independence. Student loan vs credit card debt, etc. But we disagree that a simple multiple of your income is an accurate representation of your retirement needs. Instead, we advocate measuring your actual expenditures, adjusting them for retirement-related changes, and using real spending figures – not income – to determine your golden years’ budgets.

Where should I put my money?

Low risk savings accounts and high quality bonds do not return as much as they used to. When you factor in inflation, it is next to nothing, sometimes less! This is why stocks are the best choice for return on your investment. Even though there is much uncertainty based on the unrelenting valuation rise in the last 7 years, the stock market has a “financial winter…on average, every year.” For this reason we can stay unshakeable during the winters by sticking to an effective approach.

There are 7 Freedom Facts that will “free you from all of the fear and anxiety that dominate most people’s financial lives.”

2 Terms before the facts:

Correction – When markets fall by at least 10% from its peak

Bear market – When markets fall by at least 20% from its peak

In either case, the “biggest danger isn’t a correction or a bear market, it’s being out of the market.”

Freedom Facts:

  1. “On average, corrections have occurred about once a year since 1900”
    1. Average length = 54 days
  2. “Less than 20% of all corrections turn into a bear market”
  3. “Nobody can predict consistently whether the market will rise or fall”
  4. “The stock market rises over time despite many short-term setbacks”
    1. “Despite a 14.2 average drop within each year, the US market ended up with a positive return in 27 of the last 36 years.”
  5. “Historically, bear markets have happened every three to five years”
  6. “Bear markets become bull markets, and pessimism becomes optimism”
  7. “The greatest danger is being out of the market”

The chapter ends by iterating again that financial winters always come, and spring always follows. By taking advantage of the winters by planting seeds, you will be reaping the harvest well during the Spring!


Chapter 3: Hidden Fees and Half-Truths

The reason most people invest in is freedom! It is a wonderful, and achievable dream. But how can you sail off into the sunset if your boat has a hole in it? Fees are the hole in your investments! “Excessive fees can destroy two-thirds of your nest egg!”

Actively Managed Funds – Active managers attempt to generate market-beating returns. Does this sound good to you?

For most individuals, picking individual stocks is a losing game. This is where mutual funds come in to save the day right? They provide diversification to reduce risk. Unfortunately, “mutual funds extract enormous sums from investors in exchange for providing a shocking disservice”. They are incentivized to think short term, raising fees by trading stocks regularly. Trading constantly creates fees from the brokers who charge for trades and results in far too much money diverted away to taxes. Actively managed funds must pay salaries to the managers and keep cash on hand instead of in the market for “great opportunities.” This + fees + taxes are destroying your nest egg in the meantime.

Tony instead recommends low-cost index funds, which attempt to replicate the returns of the market instead. They have low fees and follow the indexes that make up the stock market bench marks, meaning there is no need for an active manager to actively pick stocks for the fund. This reduces the fees, reduces the taxes, and helps you build your nest egg!

One of my favorite metaphors from the book to explain the cost of active funds vs index funds is quoted below:

Background: An actively managed fund charges you 3% a year vs an index fund that charges you .05%. This is 60 times more expensive!!

Real life example: “Imagine going to Starbucks with a friend. She orders a venti caffe latte and pays $4.15. But you decide that you’re happy to pay 60 times more. Your price: $249!”

This chapter truly highlights the value of using index funds as an average investor just looking to get returns with the market. It comes back to the old says, “if you can’t beat them, join them!”


Chapter 4: Rescuing Our Retirement Plans

401(k)s are American’s biggest vehicle for financial security. “nearly 90 million…participate” in one, “with more than $6 trillion invested” in them. With so much being invested, financial firms wanted a piece of the pie, so they discovered a way to get theirs through more FEES. “71% of people enrolled in 401(k)s think there are no fees.  Instead, providers are constantly creating new categories for fees you are required to pay.

Employers pay providers who, in turn, provide funds to you as an employee. Smaller plans have less bargaining power and are often shunted into an undesirable pool of costly, actively managed funds, allowing the provider to still make money from fees. Further, the few index funds they do offer are often marked up significantly.  The Obama administration sought to help fix this through law, via the fiduciary rule. Trump is working to undo the regulation in his presidency.

To analyze the fees you’re currently paying, check out our favorite free analyzer:

Personal Capital
  • Personal Capital is Mint for Investors. They have a 401K fee analyzer that is free and helps you find the leaks in your boat

The tool will show you the fees that you are currently paying and give you an opportunity to talk to your employer about the options provided. Employers also don’t always know how the financial game is working against their employees.


Chapter 5: Who can you really trust?

“More than 40% of Americans now use an advisor…81% of people with more than $5 million have an advisor.” But how do you find an advisor you trust?

Financial advisors come with a multitude of different titles, but what we really need to know is that 90% of them are brokers. Brokers are “paid to sell financial products to customers like you and me in return for a fee.” They are required to produce sales for their company to keep their job, meaning they are incentivized to do what’s best for them, not for you. “They’re working for the house.”

The best financial advisors provide value by helping with everything you need help with. From Investing to taxes to insurance.

3 Categories of financial advisors:

  1. Broker – Sells products for a company in his best interest
  2. Independent Advisor or Registered Investment Advisors – “Have a legal obligation to act in clients’ best interest at all times”
  3. Dually registered advisor – These are advisors who are registered as both 1 and 2 above. They act as if they are investing for you, and your best interest, but are still selling a product they get a commission for.

#2 is the recommend advisor type!

Checklist to vet a financial advisor:

  1. “Check out the advisor’s credentials.” – Make sure the credentials match what you need. Taxes? CPA. Financial Planning? CFP.
  2. Ideally, if you’re seeking an advisor, you should be getting more than just someone to design your investment strategy. They should be able to show you how to “grow overall wealth, save money on mortgage, insurance, taxes, and so on.”
  3. “Make sure our advisor has experience working with people just like you”
  4. “Make sure that you and your advisor are aligned philosophically”
  5. “Find an advisor you can relate to on a personal level”

7 Questions to ask any advisor:

  1. “Are you a registered investment advisor?”
    1. If the answer is no, then he/she is a broker
  2. “Are you (or your firm) affiliated with a broker-dealer?”
    1. If yes, then you’re working with a broker
  3. “Does your firm offer proprietary mutual funds or separately managed accounts?
    1. You’re looking for a no here
  4. “Do you or your firm receive any third party compensation for recommending particular investments?”
    1. You don’t want your adviser conflicted by commission opportunities
  5. “What’s your philosophy when it comes to investing?”
    1. Are the picking individual stocks themselves? Are they using actively managed funds?
  6. “What financial services do you offer beyond investment strategy and portfolio management?
    1. You want a range of options to meet your needs as you go through life’s complexities
  7. “Where will my money be held?”
    1. A third-party custodian should hold your moolah
    2. “Sign a limited power of attorney that gives the advisor the right to manage the money, but never to make withdrawals.”

The financial world, your wealth, and your future are important to us here at Duke of Dollars. By hiring an advisor, you will be paying for their services, using the criteria above to select an appropriate guide.

If you’re interested, Tony partnered with www.getasecondopionion.com for free to get a second look at your situation.

Concluding thoughts for part 1

The first half of the book, section 1 – the rulebook – really gave the overview for to mindsets when building wealth. The mindset with rules to be unshakeable drives the same message we want to share to help enrich the lives of our reads.

Thank you for taking the time to read part 1 of our Unshakeable review – look for part two next week