In keeping with last week’s blog about student loan debt and starting salaries, I would like to share with you some of the financial dreams that many MBA students have... to become wealthy. A topic that I have recently become very interested in is personal finance. In the near future I should be making substantially more income than I have ever made before, and properly managing that income will be vital if I am to meet my financial goals.
Much of this newfound interest in personal finance comes from a class that I am taking this session, titled “Acquiring Wealth, Power and Success” by Professor Dennis Torres. Professor Torres is the perfect professor for this course not only because he is a Pepperdine Alumni, but but because he is a multi-millionaire. Taking financial advice is much easier when the source of the information is living proof of the strategies he is sharing with you. Professor Torres has had an incredibly amazing life and he has many real life examples that he shares with us. An example of a Professor Torres story: One time to get a better perspective on life, he went to live in the Amazon Rainforest by himself and lived in the jungle for 6 months living off the land.
The class has a very non-traditional feel to it to say the least. The class seems like much more of a discussion session than a traditional lecture-style class. The format is very open and our conversation topics change often. In a single 4 hour class session, we could cover consumerism in America, global poverty, women in the workforce, global warming, major purchase decisions, lifestyle perceptions, religion, politics, occupational choices, management theory and more. Professor Torres has a very “probing” style of facilitating class discussions. Anytime a student makes a statement, you can be assured that Professor Torres will respond with, why do you think like that, how do you know that or what’s so good or bad about that? His style is very effective at developing our critical thinking skills. In a nonjudgemental and non-offensive way, he is able to effectively challenge any belief or perspective that we bring to the discussion.
This class has created a fire inside me to fully understand money and the process required for creating true wealth. In the class we learned a very universal, yet relatively odd truth. That truth is that “Almost everyone wants to be wealthy, yet almost everyone doesn’t become wealthy”. It seems strange to me that having wealth is such a universal desire, but people don’t make the right decisions to make that dream a reality for themselves. For example, in class we learned a very interesting fact. A researcher did a survey among varies income groups, ranging from households that made $30,000 a year to $500,000 per year. The question has how much money would you need to feel comfortable with your financial situation. The amazing thing was the answer... across all income groups the answer was about 20% more! So it didn’t matter really how much money the people in the survey were making, the end result was that none of them felt comfortable with their financial situation.
I have always been a goal oriented type of person. Every day I wake up and create “my list” for the day listing all of the things I want to accomplish that day. This class about acquiring wealth I’m taking during my MBA program I believe will have the greatest overall impact on my life compared to my other classes. This class has inspired me to become knowledgeable about my personal finances, my lifestyle choices, and about planning out a strategy that will lead me to becoming truly wealthy in my future.
The first question usually asked is, “what exactly is wealth?” In one of our textbooks, “The Millionaire Next Door” it states that being wealthy is being able to maintain your current lifestyle for 10+ years without earning another dollar from your traditional job. One of the main concepts taught in the book was the difference between true millionaires and aspirationals (people who display nice things, but will never be wealthy). The authors compare this two groups in almost every category of life such as home purchases, car purchases, investment decisions, lifestyles, hobbies, incomes, occupations, educations, etc. Then in a follow up book by the same author called, “Stop Acting Rich and Start Living Like a Real Millionaire”, he turned the data from the first book into practical advice when making financial and lifestyle choices. Both books are very accessible and not requiring someone to have their MBA to make sense of them.
An interesting fact brought up in the books, was that often times households that make $70,000 in annual income often times acquire more wealth than households that make $200,000 in annual income. At first I didn’t believe him... how could a family make twice the money as another but then not acquire nearly the same amount of wealth? The answer came from lifestyle choices. For example, the traditional $70,000 earning family could consist of a plumber, a pair of teachers or a person in sales. Those “blue-collar” workers usually live in lower middle class homes, don’t drive fancy cars and don’t send their children to private school. Their lifestyle is a very low-cost lifestyle. Their is very little societal pressure on them to conform to lifestyles above their means. In contrast, look at the occupations of households that earn around $200,000 a year. This group could consist of lawyers, physicians and middle level corporate managers. Those occupations face more societal pressures to live in bigger houses, drive imported luxury cars, have country club memberships and purchase luxury items. Everything in their life pushes them to spend more money than they make.
The book summarizes the money game into two broad aspects, offense and defense. Offense is the amount of money that your household can earn. Defense is the ability to be frugal and make conservative spending decisions. The book and our class talks a lot about maximizing our offensive potential, while playing great defense. If I can grasp those two concepts, I will be well on my way to becoming wealthy someday.
