Quit Like a Millionaire summary

Did you know that on average Chinese citizens save 38 percent of their income? Americans, by contrast, squirrel away 3.9 percent of what they earn while the Japanese keep just 2.8 percent for a rainy day. So what’s going on – are the Chinese just inherently frugal? 

Not really. Even before the communists came to power in 1949, corruption was endemic in China. Combine that with the absence of official credit channels like bank loans and you had the makings of a culture which ran on favors. When folks wanted to buy something big, they had a simple choice: take on an onerous personal debt and put themselves in someone else’s power, or save up until they had enough cash to buy it outright. That’s why, historically, debt in China is understood not so much as an “IOU” but an “I own you.” 

Debt is a blood-sucking vampire. It bleeds you dry. Worse, it leaves you terrified of the sunlight, trapping you indoors in an endless cycle of work and repayment. If you want financial independence, you’ll have to put a stake through this bad boy’s heart. 

Consumer debt has the highest interest rates, so that’s where you should start. The first thing you’ll need to do is cut your expenses to the bone. It’s painful but essential. As we’ve seen, the Rule of 72 means your debts grow at an ungodly rate. If you’re saddled with a 10 or 20 percent interest rate, there’s no point trying to save or invest your hard-earned cash – there’s no getting in front of debt. Do whatever it takes, whether it’s finding a side hustle, renting out a spare room, or saying “no” to dinners out. 

What does cocaine have to do with shopping? Surprisingly, quite a lot. Understanding that connection holds the key to getting the most out of the money you decide to spend on luxuries. 

But before we get to that, let’s talk about the brain. When something good happens, the “pleasure chemical” dopamine surges through your mesolimbic pathway, essentially your brain’s main highway, to the nucleus accumbens – a kind of dopamine processing plant. A substance like cocaine triggers this surge – but so does splurging on a Gucci handbag. In both cases, the reward is a massive neural high. 

Lots of folks are cautious about borrowing money, but they usually make one big exception: a mortgage. Conventional wisdom says buying a house isn’t just a rite of passage into adulthood but a wise investment in the future. After all, you can always sell at a profit, right? 

Well, no. In reality, property comes with all sorts of hidden costs. Let’s talk numbers.   

In the last blink, we crunched the numbers and saw that the cost of buying, owning and selling a house outweighed the returns in the case of a fictional American family. The moral of the story, however, isn’t that you should never buy a house – it’s that you need to work out if that’s a good call in your situation.

Ask a realtor and they’ll swear it’s all very simple. If the monthly mortgage payment equals the rent on a similar house or apartment, you’re better off buying rather than giving your money to a landlord. Look more closely, however, and you’ll find it’s a little more complicated. 

The American business guru Robert Kiyosaki once remarked that poor people buy stuff, the middle class buys houses and rich people buy investments. What he meant is that rich people put their money into things that make them more money. But you don’t have to be a multi-millionaire to follow their lead. 

Broadly speaking, there are two ways of investing. The first is to do what Wall Street whizzes do – spend a ton of cash on research and fancy algorithms to pick the best companies. The second variant is cheaper, simpler and, most importantly, less risky. 

Chances are you’ve idly daydreamed about early retirement. Most folks quickly shelve that idea when they take a look at their bank balance, though. If you’re not raking it in, you just can’t afford to stop working before your mid-sixties, right? 

Wrong. Your time to retirement doesn’t depend on how much you earn but how much you save. If you’re making and spending a million bucks a year, you’re entirely dependent on your job and won’t ever be able to retire. If you make $40,000 a year and spend $30,000, on the other hand, you already have a healthy savings rate of 25 percent. 

How much do you need to save to retire early? That’s exactly what researchers asked in a landmark study published in the investment journal AAII in 1998. 

They used stock market data to simulate what would happen to a group of fictional retirees who withdrew different percentages of their portfolios every year after retirement. Would “Alan,” for example, make it over the line or run out of cash if he withdrew 10 percent of his $500,000 nest egg every year?