Posted on 01/04/2004 1:31:24 PM PST by Holly_P
"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."
"Because we did," said her husband, Joe, 56.
"That was a powerful moment for me," Karen said.
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."
His wife sums it up: "I want to be as common as an old shoe."
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."
I personally wouldn't want to wear a coat from K-Mart, but if it works for that woman, fine. But if you shop smart and use store coupons, you can get decent deals at the mall department stores. Or look into catalogue shopping.
My first thought reading this was how different life without children would be. Those poor people.
We have three wonderful children, the youngest now almost an adult. Braces, camps, tuition, not to mention the clothes and the long showers have cost us a pretty penny. Kids aren't cheap, but they are worth every cent.
It doesn't hurt to practice a bit of proactive self defense, though.
That is why I have insurance.
That is also why I have a very aggressive law firm protecting my interests........As my former corporate partners found out when they thought they could blackmail me with the threat of their lawyers but, instead, ended up losing everything that I had once been willing to buy from them when I started my own corporation.
Forget about the formula.
It's not realistic, especially if you are doing so well in your business that you are constantly bumping your income up. I've been falling short of that formula for 12 years and all it means is that my income has tripled during that time.
What is important is the concept of not being mired in debt and you fit the frugal profile recommended by the book.
You have almost paid off a house that you can obviously afford instead of crushing yourself with a mortgage that you have no hope of repaying. You drive a 6 year old car that is almost paid for instead of buying a new car every 2 years. You have no other debt as opposed to the guy that is scrapping by to pay the minimun payment on a huge credit card debt that he is carrying at 18% per year.
If an accident crippled you physically tomorrow, you would probably do O.K. The guy working as hard as he can just to pay of the interest on his debt every month, however, would be in financial dire straights.
I hate to burst your self-image as a care-free, "reach for the brass ring" kinda guy but you are just a boring, responsible frugal fogy like I am. ;-)
http://www.dallasnews.com/latestnews/stories/011703dnbusnuforeclosure.9eedb.html
Trajan88
No he isn't. Go back and re-read.
Thanks for this analysis, Eaker. Took some of the shock out of it for me!
Excellent post.
I had a car paid off, but got married to someone who had no car. Marriage over, he took my car, and I have another 18 months of car payments. Sigh...
We could be in better financial shape than we are, but if I can get the youngest through college, I'm not worrying about a darned thing after that.
First of all, an essential way to be in a fine financial position in your fifties (when the tire starts to hit the pavement and retirement may be hitting the horizon!) is to marry well and avoid divorce. This was not mentioned, and IMO is very important. The people I know in bad shape managed their lives pretty well except for losing big in divorces.
I'm glad your kids are out of college--have you seen how tuition has gone up recently? When I was in college, many people worked their way through and emerged debt-free. That's not within reach these days. The hikes in tuition, are, IMO also, a huge fraud.
And the academics I know have good insurance and other nice bennies--one reason why everyone wants to be a professor.
Knowing a few cheapskates myself, they get a kick out of boasting of their cheapness. I call it "poor mouthing"--
Now, watch who gets flamed...
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