The Quiet Millionaire: Part 2 – Major Obstacles to Financial Success

by Julie Rains on 26 October 2007 2 comments
Photo: foxypar4

Want to have the wealth you need to follow your dreams? Brett Wilder, Certified Financial Planner and author of The Quiet Millionaire suggests that there are 7 major obstacles to financial success. They are:

  1. Undisciplined Spending
  2. Materialistic Thinking
  3. Burdensome Costly Debt
  4. Taxes
  5. Inflation
  6. Poorly Structured Investment Portfolios
  7. Unforeseen, Life-Changing, Financially Devastating Events

For those starting out, #1 (undisciplined spending) and #3 (burdensome costly debt) are great candidates to tackle first.

#3 (burdensome costly debt) largely represents credit card debt, which should be avoided and, if incurred, paid off as quickly as possible. #1 (undisciplined spending) and #2 (materialistic thinking) may have caused such debt; or, if you are like me, acquisition of basic assets (clothing to wear to work, a sofa rather than pillows for seating in a living room) on an entry-level salary. At some point, you'll move beyond real-world start-up expenses and can focus on controlling your spending and even saving and investing.

#2 (materialistic thinking) is described by Mr. Wilder as

preoccupation with owning physical assets and things rather than pursuing intellectual and spiritual endeavors to enrich your life.

Materialistic thinking can happen at any stage of your life but may start to intrude at the point where you can finally afford the house in a nice neighborhood with great schools, the luxury car, real-wood furniture, and tailored clothing. It's not the purchase of these items that are obstacles but rather the unending pursuit of the latest model car or newest home in the best neighborhood, which may prevent you from investing and protecting your assets. 

Consumerism has also entered a new realm. After reading Carrie's post on a day trip to an apple orchard (and considering the cost of organized, back-to-nature trips I've investigated), I'll also note that pricey experiences are being packaged and sold more prevalently, perhaps as a supplement to or substitute for expensive things. Pursuits, even worthy ones, can be obstacles to financial success.

If you've paid off your credit card debt and are focusing on enjoying the free but finer things in life, you may have time to review your spending. You are welcome to track every penny you spend but it's reasonable to track your expenses for a couple of months to detect patterns; you'll also need to add in non-monthly expenses such as insurance payments, property taxes, or car maintenance expenses. Mr. Wilder has a Cash Flow Planning Worksheet (PDF) available for download in the planning tools section of his book's website to get you started. Here's another way to break it down:  

+ Income

  • Amount of the check from your job (your pay less deductions)
  • Earnings from other sources

- Savings (negative for cash flow but positive for net worth)

  • Savings or investments paid from your paycheck or other earnings (doesn't consider payroll deductions for direct deposits to 401ks, savings accounts, etc.)

- Fixed Expenses (you can change these but it would involve a significant disruption to your life, such as moving to a new house or changing your child’s school)

  • Housing
  • Car Loans
  • Student Loans
  • Other Loans
  • School Tuition
  • Childcare

- Controllable Expenses But Not So Easy to Adjust

  • Phone
  • Internet
  • Subscriptions (TV, radio, magazine)
  • Transportation (parking fees, gas, bus passes)
  • Utilities 
  • Insurance (Life, Health, Property)
  • Gym Membership

- Most Controllable on a Day-to-Day Basis

  • Groceries
  • Meals Eaten Out
  • Clothing
  • Entertainment
  • Supplies (school, office)
  • Gifts

- Big Ticket Items – To Be Planned for

  • Travel
  • Furniture
  • Appliances
  • Home Remodeling
  • Car

 +/- Other (add year-end bonuses and winnings from sweepstakes; subtract other, miscellaneous expenses)

 When you evaluate your spending, you may see that you are:

  • capable of saving more than your realized;
  • not controlling your spending;
  • controlling your spending on a monthly basis but not preparing for non-monthly expenses.

Just taking a look at your finances can prompt you to consider ways of reducing unnecessary expenses. Wise Bread has some great resources for making the most of your money; many are found in Food & Drink, DIY Projects, and Health & Beauty on the Frugal Living channel.

When you start to generate positive cash flow, then you can start saving and investing. Even if you have just $25 or $50 per month extra, you can invest through a DRIP (dividend reinvestment plan), mutual funds including green funds, or stocks using ShareBuilder or an online brokerage account. As you accumulate wealth, you'll start being concerned about #4 (taxes incurred from the sale of investments), #5 (inflation, are your investments giving you a return above inflation?), and #6 (poorly structured investment portfolios as protecting wealth can be trickier than accumulating it). All along, you'll need to consider #7 (unforeseen, life-changing, financially devastating events -- some of which can be made less financially devastating through the purchase of insurance coverage for life, health, long-term care, and more).

Having major obstacles defined by Mr. Wilder has made achieving and maintaining financial success seem less daunting. And, wherever you are in your path to wealth, you can keep moving along.

Note: I was given The Quiet Millionaire so that I could review the book for Wise Bread readers.

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Guest's picture

This is a very good post, and I will certainly check out the Quiet Millionaire. I think the key to the 7 items is to focus on what you can control as opposed to what you can't. Obviously, spending, portfolio construction, credit expenses, and materialism can be controlled, but items like inflation and taxes really can't. Sure you can do some tax planning, but unless you are a small business owner you are limited in the avoidance tactics you can pursue for taxes. As far the unexpected events, you can prep for the most common: have disability insurance, proper medical insurance, home/auto/liability/life insurance. But, beyond insuring against known possible acts, it is hard to prepare.

So focus on what you can control.

Julie Rains's picture

Agreed that it is best to focus on what you can control. Tax planning/deferment/avoidance is possible for the employed, beginning with 401(k) plans and cafeteria plans (if available). Roth accounts and 529 accounts don't offer immediate tax benefits but can offer tax avoidance when you access the funds for retirement and educational purposes. I'll be posting about tax strategies when I get that chapter. However, I will tell you that you are ahead of the curve in regard to taxes, just by knowing that tax preparation is different than tax planning. Thanks for reading and stay tuned...