Frugal couple accumulate large nest egg by choosing not to live beyond means

"On the day I made the final payment on the house, I sealed the envelope and put the stamp on it," said Karen Manzo, 58. "Then I got up and walked through the house as if I owned it."

At a time when the average American family has credit-card debt estimated at $9,000, the Manzos walk a different path. Middle-class people who live completely without debt, they follow the frugal prescriptions of one of their favorite books, "The Millionaire Next Door," a 1996 bestseller written by two professors who studied the nation's affluent.

The way to become wealthy, the Manzos say, is to live as if they're not wealthy. Or, in the words of the book's authors Thomas Stanley and William Danko: "Being frugal is the cornerstone of wealth-building."

The Manzos have made investing mistakes and lost money during the stock market's downturn. But they expect their thrifty lifestyle to bring them to a prosperous retirement in 10 years.

"As a byproduct of just trying to be debt-free, we accumulate wealth," said Karen, a lab technician in New Jersey. They declined to reveal their incomes or assets. But their financial planner, Lauren Locker, said they have accumulated an impressive amount on moderate incomes: "We would all be lucky to be in their position," Locker said.

The Manzos' lifestyle would not work for everyone. Their wedding 30 years ago cost all of $700. They do without cable TV. Karen squeezes the toothpaste tube "till it screams" and buys her clothes at Burlington Coat Factory and Value City (her sister teasingly calls her Karen Kmart).

Their tidy house in Paterson, N.J., was paid off in 15 years. (Danko, a professor at the University at Albany, State University of New York, said millionaires typically own less expensive houses than they can afford.) Though the Manzos, who are childless, are comfortable there, many middle-income families with children would prefer to avoid Paterson's troubled schools.

The Manzos also track their spending meticulously in two spiral notebooks — one green, for money; the other black, because they're always in the black.

As a result, they are able to save all of Karen's paycheck — about 40 percent of their pretax income.

"I think some people feel, 'What's the good of having money if you don't spend it?"' said Joe Manzo, a quality manager at a factory. "But there's a price to be paid. Debt is a self-inflicted injury. It's the choices you make. I like SUVs, but I drive a '99 Ford Escort. Our identities aren't tied to possessions. You could lose your possessions. Who you are is not what you own."

It's not that the Manzos never spend money. They go to Broadway shows, sponsor a scholarship at a Paterson Catholic school and have vacationed in Costa Rica, Panama and Europe. Being thrifty, Karen said, means "I can purchase anything I want because I have a financial nest egg."

Although the Manzos describe their income as average, "The Millionaire" book points out, "Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high."

The book gives the following yardstick for measuring assets: You should have an amount equal to your age times your annual income, divided by 10. So, for example, a 40-year-old couple with $100,000 income should have net worth of $400,000 — not including home equity.

If you have double that, you're wealthy. The Manzos say their assets put them in the wealthy zone — before the stock-market bubble burst.

"We made — and lost — a fortune in the stock market," Karen said. She ignored her husband's advice to sell tech stocks before their value collapsed in 2000.

After that, they went to Locker, the financial planner, for help. Karen also joined an investment club affiliated with the National Association of Investors, which advocates long-term investments in companies selling at the right price.

Karen's frugality was born of an Indiana childhood watching her parents struggle to raise five children on her father's salary as a draftsman. Her mother didn't hold down a job or even know how to drive. Karen wanted wider horizons and financial security.

She took 10 years to work her way through college. The fact that her education was so hard-won makes her even more determined not to squander the money it has helped her earn.

Her husband had help from his parents to pay for college, but it came at a great sacrifice to his father, a welder.

Karen is such a believer in debt-free living that she keeps a copy of "The Millionaire Next Door" at work to show to co-workers and summer interns. She recently spoke about her strategies to about 15 of Locker's clients. "She doesn't have a nickel of debt — there's not another client I have like that," Locker said.

But several of them told her they could not imagine cutting their spending so radically. Even if they could, they said, their spouses would be unlikely to go along.

The Manzos know they couldn't have reached their financial goals without working together — a point also made by "The Millionaire Next Door."

"We don't agree on everything, but these are the core beliefs that have sustained us for the 30 years we've been together," said Joe.

"There is no arguing about money," Karen said. "That argument is never in our household. One of the byproducts of a debt-free lifestyle is that you eliminate the Number One cause of marital breakdown."

That may be one reason why, in the book's words, "financially independent people are happier than those who are not financially secure."

"I'm definitely a contented person. I'm happy with my life," Karen said. "We have everything we want."

Great story - good people - however I would say that no one ever owns property in the USA, even when there is no mortgage.

But you do own the exclusive right to do with it whatever you choose. As long as it is a State approved use, of course.

Now that I've read through it, it is an interesting thread. Perhaps even thought-provoking. Here's a subject that gets us all thinking about the financial balance and compromise we deal with in life. Do we save now for the future, blow our income as fast as we can, or look at all of our goals and live accordingly. Perhaps this will promote some financial soul-searching among those reading the thread.

"You still pay the government "rent" in the form of property taxes. And, if you don't pay, your "free and clear" home is gone. Got it!"

Never hapen!

Being in California with Prop. 13, I have enough cash to pay the property taxes on my home and condo for over 60 years and there is no way i'm going to live that long since i'm 66 now.

. I'm going to write a book on an alternative startegy for anyone who wants a life that consists of more than counting your pennies.

Good idea. When a guy hits his death bed I don't think he'll be reminiscing over his net worth as much as the things he did or didn't do, the adventures he had or didn't have, all that he stood for or all that he failed to stand for.

I'm getting old enough now to consider my eventual demise, but I'll tell you one thing: If I ended up homeless tomorrow, I still wouldn't trade a million bucks for all that I have done in my life to date (and I still intend to do significantly more).

When a guy hits his death bed I don't think he'll be reminiscing over his net worth as much as the things he did or didn't do, the adventures he had or didn't have, all that he stood for or all that he failed to stand for.

My sentiments exactly...

"Mortgages are down to 5.8% (mine)"

That makes getting a home (big) loan even better.

"cars are available at very low rates"

may be true but not tax deductible.

"investments don't yield what he claims they do"

He claims "stocks have been averaging more than 10% since 1926" and that appears to be accurate. I found "S&P 500 was invented in 1926, it has returned 10.47% a year, and the Dow industrials 9.99%."

Where I live real estate is a fantastic investment. As the saying goes location location, location. Nothing is for certain but my house should do very very well. It is way more house than I need which means I'll make twice as much appreciation if I'd bought something half it's price. Since I'm a fairly good handyman I can do the maintenance myself and improvements to further force it's value up. It the princpal of leverage.

"I fully expect to have spent a good deal of my wealth prior to passing on"

My mother always told us to get with it and make our own way since her will was going to say "being of sound mind, I spent it!"

It wasn't entirely true but my parents did enjoy their money.

A life spent in perpetual fear of lawyers is a life not worth living.

Socrates --- 2004.

It doesn't hurt to practice a bit of proactive self defense, though.

Everyone has some help along the way.My father paid off his home in 5 years but I recall he always gave credit to my grandmother for giving him the $1000 down, a very large amount in '37 and in '37 a $6000 home was a big amount but the paying off made his life better as he had all the money that would go to bank for his family.I recall my mother was in 60's before she had 2 credit cards and she was mad but she could not rent a car when she travel with out them.

I think what you're missing is that there shouldn't BE any mortgages/credit card bills/liabilities. Mortgages maybe. But credit cards a definite no-no, and liabilities would automatically be low. Mortgages can be accelerated to pay them off sooner, which is wise.

I am just about to have all of my credit cards and loans paid off, within a month or so. I am so looking forward to that! I have taken the time to set up a spreadsheet to play "what-if" games with my finances, and I'm amazed at what I'll be able to do. The key is to keep my standard of living from creeping up. I plan to buy a home when I figure out where I want to live. My mobile home is paid for, so I may stay here for a while just to build up my savings, and get myself financially healthy again.

PS I live alone, no wife, the kids are out on their own.

I don't mean to brag but I've seen that I save money better than most people I know. For example, a friend and I both retired from the same place of employment (we're both federal retirees) and I was much better off than she was, because I took 400 hours of annual leave into retirement. The agency stretched that AL into the future and said that it covers four federal holidays, so I get paid for those four federal holidays, a bonus I hadn't expected. All that came to $10,000 which is tiding me over as I get accustomed to partial retirement checks until the final amount is determined and I get regular checks.

I carried over the maximum annual leave for at least the past ten years. My co-workers would express surprise: nobody carried over that much. But I looked forward to the future, and saved. I still took vacation time, but I never took the whole five weeks. It added up, because I was frugal.

buys her clothes at Burlington Coat Factory and Value City (her sister teasingly calls her Karen Kmart).

I'm sorry. There is absolutely no challenge in this. Yes, I dress well, and from the major department stores - but, unless I have to go to a wedding in two hours, I shop the clearance racks. The rule is never spend more than $10 on anything if you can help it.

Since I'm a fairly good handyman I can do the maintenance myself and improvements to further force it's value up. It the princpal of leverage.

I acted as GC for my house and moved in with over 20% equity and virtually no money down. I can never lose money on my house. I am very handy myself. I did the electrical, plumbing, minor carpentry, cleared the land, painted and did the landscaping. It was darn tough but worth it. Still, like I said, I don't have the time nor the capability to play the market and keep up on the stocks.

I read an article that claimed as he does. It was based on the premise of a windfall of money coming in. If I was to pay off my house I would no longer have to pay the mortgage and could invest the extra money anyway. I would still have the equity to borrow against. I don't get the theory behind his thesis?

I would rather die with "just $100,000" in the bank, and get nicer clothes, than die with $400,000 sitting in line at the K-mart waiting for the blue light special.

Agreed. I would also add that I'd rather raise a family and enjoy the grandkids than to be a couple of frugal fogies. Heck, I'm 43 with three kids. One is married and has a 2 year old. One is living on her own. The last in the nest is 16, plays high school baseball, basketball and bowls. I smoke, drink, own a 21 foot Palm beach center console (paid for) slipped in a NJ marina, drive a 97 Suburban (paid for), will have the mortgage on the house paid off in a year and have no other debt than the mortgage. I don't quite live up to the formula (Salary $110,000 and non-equity savings/investments of approximately $300,000), but I'd much rather live my life than Mr. Frugal and Mrs. Barrenhouse. Besides, since you never know when your ticket will be puncged, you better reach for the brass ring every day you are fortunate enough to wake up.

Of course. But you fail to take into account the fact that the person who is frugal can do more and have more adventures than the person who is constantly in debt and worried about making the mortgage payment with his next paycheck.

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