Finance 1050 E-Portfolio

1. Explain the following concepts: Big Hat, No Cattle refers to a person who holds status in the highest regard. Someone who show-boats trying to build up their image in the eyes of others, even when their assets and/or credentials amount to much less than they would lead people to believe. Go to Hell Fund is a fund accumulated that typically is equal to one years salary for the individual in question. This is an emergency fund in case of job loss. The theory is to be able to maintain the same life style for one whole year even if unemployed. PAW: Prodigious accumulator of wealth. The best builders of wealth within their income/age category, PAWs are worth more than their expected net worth by typical calculations. UAW: Under accumulator of wealth. UAWs may or may not have a high annual income, but play terrible financial defense (over spending) and therefore do not accumulate their wealth as would be expected. 2. Why is Teddy J. Friend considered a UAW? Reason 1. He overspends on luxury consumer items Reason 2. He underspends on financial advice Reason 3. He is constantly working to maintain his extravagant lifestyle, leaving no time to enjoy the things he spends his money on. He plays good financial offense, but terrible defense, working his life away and spending beyond his means. What was the message Teddys parents sent him about consumer behavior? Teddys parents had a very simplistic understanding of their finances: when you had money, you spent money, when the money ran out, you stopped spending it and when you needed a big ticket item, you saved the money you needed to acquire the

item. The showed him that spending money was a luxury and a fun activity rather than a necessary task to keep the household functional. Their limited understanding about investments and stocks limited their accumulated wealth significantly and hindered their ability to pass valuable information on to their son to help him in his adult life. 3. In the example of Mr. W.W. Allan, a self-made multimillionaire: -He never extended credit to people who exhibited the Big Hat, No Cattle philosophy. Why?: Because they spend, spend, spend, in anticipation of having money before they even earn it. If your goal is to become financially secure, youll likely attain it but if your motive is to make money to spend on the good life,... youre never gonna make it.(pg. 110) -Why did he decline the gift of a Rolls-Royce?: It wasnt a vehicle that was in line with his values or ideals in life. A RollsRoyce was not functional for the lifestyle that Mr. Allan chooses to live and owning such a vehicle was a threat on his way of life. It would show-boat his income which is not how Mr. Allan chooses to use his accumulated wealth. He does not see value in appearing well-off. His values are in being financially secure, and keeping his simple, happy way of life. Owning a Rolls-Royce would be out of place in his day to day life, and therefore only make him uncomfortable to drive it. 4.Regarding Economic Outpatient Care (EOC): -Define EOC: the substantial economic gifts and acts of kindness some parents give their adult children and grandchildren. -Like the example of James, many EOC receivers (inaccurately) view themselves as: self-made they believe that they earned every dollar they ever made. (pg. 156) -As illustrated in the example of Henry & Josh, what is the fundamental rule regarding wealth building?: Whatever your income, always live below your means.

-Why did Laura succeed?: She worked to develop a good foundation in her business and interpersonal skills and she had integrity in everything she did. 5. Now that youve finished reading The Millionaire Next Door, give your thoughts. -What are the two concepts you found most useful? The offense/defense concept & the Go to Hell Fund -How will you apply them into your life? The offense/defense concept helped to put things in perspective and state the theory in a way that made sense to me. I plan to follow a tighter budget, to protect the money that I work for more and make my dollar go further in my household. Realizing that working hard for your money isnt enough to plan for your future, but working hard to save money and spend what you have to wisely will go a long way too will be extremely beneficial for me. I have always had a savings plan, but the Go to Hell Fund concept has given me a better idea of what a short term goal should be outside of my long term savings plan. I now realize that it is important to have a large emergency fund (the go to hell fund), as well as a retirement fund that is there to only be used after retirement. Dipping into the retirement fund for emergency situations will only delay long term saving goals, and possibly the ability to retire in comfort.

Reflective Writing: Compose 2-3 paragraphs explaining how reading The Millionaire Next Door helped you achieve at least 2 of the SLCC Learning Outcomes: The Millionaire Next Door served as a wealth of information for me on how to better manage my expenses now, and also plan for my financial future. The concepts put forward on how to accumulate wealth were simplified enough to be practical to instill in my everyday life. The book is relatable to the point that I found myself reflecting on my own situation in relation to the chapter topics. This critical thinking about my own situation

has led me to create an action plan and a budget for my household to better reach our financial goals, and obtain financial independence. The knowledge I have obtained from this book about budgeting, playing good financial offense and defense, the importance of saving as well as earning, and the importance of your investment portfolio have made the process of creating a plan for my own future much easier to understand, and much less intimidating to someone who has little to no experience on the topic.