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Frugal couple accumulate large nest egg by choosing not to live beyond means
Seattle Times ^ | 01/04/04 | Kathleen Lynn

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."

TOPICS: Business/Economy; Culture/Society
KEYWORDS: homeownership; housing
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To: ironman
Most of what he says in the article no longer holds true. Mortgages are down to 5.8% (mine); cars are available at very low rates; investments don't yield what he claims they do. I have read similar articles before. I am not a stock broker nor do I have the time to track investments like one. I don't buy his thesis.
121 posted on 01/04/2004 5:25:24 PM PST by raybbr
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To: ambrose
Owning a house free and clear isn't a terribly smart move, at least in asset protection terms. If some kid scales your wall and drowns in your swimming pool, your home insurance policy limits could be blown off and the deceased kid's parents would end up owning your house.

So be it.

I own two houses free and clear. One of them now pops out $1,400 per month in rental income and the money that would have gone every month to the bank on the other house gets plowed into building our wealth every month.

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

122 posted on 01/04/2004 5:31:14 PM PST by Polybius
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To: Polybius
YEP....we use the house we mortgage other properties, and make other people PAY our "mortgage." Leverage, my friends, leverage. (Responsible leverage.)
123 posted on 01/04/2004 5:38:09 PM PST by goodnesswins (On the ELEVENTH Day of CHRISTMAS........)
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To: Alouette
I hear you. BUT, a few weeks ago, a sister of a friend of mine died quite by accident. She was a spinster and notorious in the family for being "frugal"...

So she lived in a tiny little house, with adequate furnishings, shall we say "modest".

She'd always intended on making out a WILL, but just didn't get around to it and she was 74 when she died.

As fate would have it, the entire estate...well over a MILLION dollars in cash, plus home and furnishings, etc., are now passed on, by her brothers and sisters. See?...One day, you come back on and let us know if I am right in your brother in law's case....


124 posted on 01/04/2004 5:44:24 PM PST by spectre (Spectre's wife)
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To: dalereed
I know you are a crappy date too. : )
125 posted on 01/04/2004 5:52:34 PM PST by Walkingfeather
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To: ambrose
I thought someone might ask that. Fortunately, I have a spreadsheet for everything.

In the period from 1984 through 2002, I received about $80K from my parents, or roughly $4-5K a year. Now the flow is reversed, and I am helping to put my niece through college, so I cannot save as much as I formerly did.

Looking at the current year, my total income from all sources, including salary, capital gains, interest on retirement accounts and 401Ks, stock dividends, etc, etc was about $135K. This breaks down as follows: savings, $80K, taxes, $31K, living expenses, $24K. A single guy can live decently on $2K a month if he owns his own place and has no debt.
126 posted on 01/04/2004 5:56:22 PM PST by proxy_user
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To: Polybius
No only that, but you can get a $5M umbrella polciy for relatively little, although your houses might cause the price to go up a little.
127 posted on 01/04/2004 5:59:50 PM PST by proxy_user
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To: Mamzelle; ambrose; Conservative til I die; duk; Eaker
"You don't get this much ahead just by driving a modest car and shopping at KMart and living in a rundown neighborhood...They're selling a false hope."

"Don't date or get married either, live in a studio apartment and eat nothing but oatmeal."

Probably the one thing that the journalist didn't write is that these people use every discount coupon that comes their way. My wife cuts our food bill by an easy 40% every month using them.....steaks and prime rib aren't uncommon in our home either. Rundown neighborhoods weren't our style, but neither are the classy ones.

I bought used everything (except bed mattresses) when we were married 26 years ago. I still do but now they're called antiques. LOL

Last month I bought two used, one year old, SUV's, value 60k for 40k, cash. Our crerdit card balances are zero every month. Neither of us ever earned more than $25hr. We always took homemade luches to work. We sent two daughters to college and managed to retire ten years ahead of schedule. Both of us dress reasonably well, no need to look like hobos.

I've never tried to keep up with anyone else's ideas of what good living involves. We always lived within about the 80% level of our take home income and kept the rest invested.

Believe in yourself, not the other guy and you'll be a winner.

128 posted on 01/04/2004 6:06:40 PM PST by B4Ranch (Wave your flag, don't waive your rights!)
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To: RoseofTexas
I'd rather have children than money. What fun is retirement withour grandchildren?
129 posted on 01/04/2004 6:07:39 PM PST by giotto
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To: dogbyte12
You hit it right on the head. My wife and I could be on easy street right now if we had decided to forgo having kids. But our two daughters have brought much joy to our lives, and I can't imagine life without them.
130 posted on 01/04/2004 6:09:46 PM PST by IndyTiger
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To: cyborg
I understand this, and I know I'll be flamed..but what good is money if you don't enjoy it once in a while? I don't know....I live my life a little differently.
131 posted on 01/04/2004 6:16:41 PM PST by Hildy
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To: Holly_P
"At a time when the average American family has credit-card debt estimated at $9,000..."

Am I the only one deeply troubled by that statement? How on earth can anybody amass a credit card debt so large?

132 posted on 01/04/2004 6:17:18 PM PST by meyer
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To: mcenedo
I don't HAVE CHILDREN, but I consider my life rich and rewarding. I have friends and family who love me, I volunteer and give to charity. I also get to enjoy my money have children, and I get to do things because I don't. I don't understand why people with kids always have to judge people who don't.
133 posted on 01/04/2004 6:19:01 PM PST by Hildy
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To: Hildy
I agree with you. I am not rich, and I learned my lesson with college credit cards. However, I can't be cheap. I have to enjoy money. What the heck are we working for???
134 posted on 01/04/2004 6:19:16 PM PST by cyborg
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To: Holly_P
Total bullshit since they have no children.
135 posted on 01/04/2004 6:20:26 PM PST by dennisw (“We'll put a boot in your ass, it's the American way.” - Toby Keith)
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To: dalereed
I've neever owed anyone a cent other than a mortgage and it was paid off 14 years ago.

You still don't "own the house". 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!

136 posted on 01/04/2004 6:25:34 PM PST by jslade (To Alqaida. Don't even think about it!)
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To: dalereed
We don't have childern either but I paid my nephews way through college and what might be left after we die will go to nephews, nieces, and FR.

I can always tell when the Freep-a-thon is taking place. :)

J/K, of course. Nieces and Nephews make up the bulk of my beneficiaries, though I fully expect to have spent a good deal of my wealth prior to passing on. As soon as I accumulate an appreciable amount of wealth, of course.

137 posted on 01/04/2004 6:29:31 PM PST by meyer
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To: BSunday
Or anywhere else. Please name countries that honor the concept of free property. Thanks in advance.
138 posted on 01/04/2004 6:36:08 PM PST by Dec31,1999
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To: Hildy
I don't understand why people with kids always have to judge people who don't.

They don't. It's just that it seems obvious in most cases that they've killed their unborn children. But they might be wrong.

139 posted on 01/04/2004 6:41:52 PM PST by Dec31,1999
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To: ambrose
Some people like to work.

Yes that is certainly very true. We just had a celebratory party for a collegue who's still at it at 90! But for me I imagine I'll do something a little less stressful far away from where I'm at now (DC).
140 posted on 01/04/2004 6:46:28 PM PST by ironman
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