The Home that a Future Millionaire Must Buy

January 11, 2005

Everyone who lives in Beverly Hills is a millionaire, but not all millionaires live in Beverly Hills, or in a highly upscale neighborhood, for that matter. In fact, about half of the millionaires in America live in non-exclusive high-status neighborhoods, according to the book, "The Millionaire Next Door", which was authored by Dr. Thomas Stanley and Dr. William Danko. I believe the same is true in other parts of the world.

Buying a home is one of the most major investments that a person will make in his lifetime. Unlike other forms of investment, buying a home is not just about protecting the value of one's money. It is about providing a secure place for the family to live in, where the kids can grow up and everyone will share moments worth reminiscing many years down the road.

Home purchase is unquestionably a very important and serious piece of business. Despite this fact, however, many people buy a house for the wrong reason. For instance, quite a number of people I know purchased their home as a status symbol, to announce to the world that they've finally 'made it.'

Many people will have no qualms about buying a home that's almost beyond their means. The result - the mortgage on their house eats up a huge chunk of their income, which forces them to live from paycheck to paycheck for many years after buying their home. This is perhaps OK if you just want to own a nice home, but not if you want to be a millionaire and retire early.

Buying a home with a mortgage that devours bulk of your income is not advisable, according to "The Millionaire Next Door." Doing so will deprive you of an important tool to make more money, which is money. Without extra cash, you'll lose good investment opportunities that come along from time to time. Without making good investments, you will not be able to accumulate wealth.

If you are not yet a millionaire, but want to be one someday, then listen to this piece of advice from Dr. Stanley and Dr. Danko: never purchase a home that requires a mortgage that is more than twice your household's total annual realized or taxable income.

For instance, if Mr. Brown has a taxable annual income of $90,000, then buying a house that's worth no more than $180,000 will give him some elbow room to make investments that will accumulate more wealth for him. Furthermore, he'll find it easier to keep up with his neighbors in his community, removing any social pressure on him to strain his wallet just so he'll be like the Joneses.

On the other hand, Mr. Spencer, who has the same taxable annual income of $90,000, will be making a poor decision if he buys a $320,000 home, especially since his goal is to become a millionaire soon and retire early. Doing so will bring him into a world of high taxes and high status living, preventing him from accumulating any further wealth.

It will indeed be very likely even that Mr. Brown, who initially bought a $180,000 house, will end up years later in a house that's larger than Mr. Spencer's $320,000 house. Mr. Spencer, on the other hand, may still be in the same house, much older by that time and still paying his monthly mortgage dues.

So, do you really want to be a millionaire someday? Then be careful, the house you buy today might be the last house you can afford to buy.

What Millionaires Drive; Economic Outpatient Care

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