The Adventist Way to Financial Success, Part 3: Seven Key Factors that Produce Real Wealth

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The Adventist Way to Financial Success, Part 3: Seven Key Factors that Produce Real Wealth

To begin traveling on the road to financial independence, if there is one skill or mental ability that I would like you to develop, it is this: The ability to sketch out on a blank piece of paper precisely where you are financially, where you want to be eventually, and then I can help you find multiple pathways there. The second ability is self-discipline to carry out your own plans.


In order to be successful in investment planning and wealth accumulation, one has to internalize a way of thinking that often strikes the rest of the world as contrarian or even absurd. Words like stingy, tight-wad, frugal, extreme, are often thrown about when the topic of financial independence or early retirement comes up in polite circles. On the whole, I’ve found that the idea of taking initiative to save and invest at a pace that exceeds 99 percent of the population, strikes most people as crazy.


Meet the Fake Millionaires Next Door


Middle 2004, I opened my own math tutoring business. The very first client I had was a young Indian boy who had failed Algebra I three years in a row at the local Public High School. His graduation from High School depended on him passing this course. Over the years, his parents had tried several after-school programs and had hired personal tutors but to no avail—he kept failing year after year.


In desperation, his mother asked my uncle if he knew of anyone who could teach him—he suggested me. I showed up at the house at 4PM and rang the doorbell. After a few introductions, I sat down with him in his bedroom and began to explain the basic concepts of Algebra I, and had him work a few problems in my presence.


A week or two later, he passed his first quiz with 100%. Two weeks later, he aced his chapter exam and a month or two later, he solved the entire book and moved on to his favorite preoccupation: girls. He eventually aced the class and graduated. The word was out.


Every Indian/Pakistani family in Loma Linda wanted me to teach their children. Soon the Korean, Japanese and Romanian families in the area found out about this “miracle teacher” too. I rebranded myself as a “high performance” math tutor. For a couple of years, I was so successful that I think I single-handedly may have caused the local Adventist and non-Adventist academy after-school tutoring programs to collapse.


The reason I mention this is that my tutoring business allowed me to walk into the homes of some of the richest doctors, lawyers, restaurateurs in the Inland Empire. My fees for tutoring would range between $600 and $800 a week. These parents were motivated to see their children succeed and many of my students went on to top-tier universities on the West Coast. It was a bit disconcerting to me to drive up in my paid-in-cash Mercury Tracer 1996 Station Wagon and park it next to high-end Porsche, Range Rover, and Lexus SUVs.


As 2006 rolled around, suddenly many of the parents were suddenly unable to pay my fees. Soon the luxury cars started to disappear from the driveway. This was the first time that I learned the difference between having true wealth and “wealth” by monthly payments. I had assumed that just like in Pakistan, most people here bought their cars and houses for cash. The reality was very different. I didn’t understand any of this at the time, but life for my client’s parents were going to be very different in less than a year and a half.


Occasionally, the stress my student’s parents were undergoing at the time would spill out in the open, when I would witness a screaming match over money that was due to me. Things got so bad that I would have $3500 or more in outstanding payments and nothing in my pocket.


So, upon my uncle’s advice, who got tired of loaning me cash to cover my shortfalls, I went from earning on average $35-$50 per hour in my business to working at a local hospital for a “regular” paycheck at $12.41 per hour. That is when I “upgraded” to a Nissan Maxima 2002 that cost me $14,000. This would be the first and last time, I would buy anything on credit.


After losing my $12.41 job, and working in a $7.50/hr. job, for a few months, I was desperate to get something else. I had heard of the “crazy” amounts of money that Real Estate agents were making. So one evening, an Indian co-worker and I, showed up at a local Real Estate office to sign up for training. The flyer had said 7 pm, and we were a bit early. We wanted to make a good impression on our future bosses—so were ten other hopeful millionaire real estate agent’s to be.


After thirty minutes of waiting, a lady came out to us in the lobby. She said that there would be no training. As of five minutes ago, the trainer had been fired and this branch office was closing down. We left, and I distinctly remember going to the Barnes and Nobles store.


My mother had inculcated in me a life-long love for reading and this store was one place where I could read books for free. During my free time, I would go to the local ABC and read every book I could, and then go to Barnes and Noble and do the same.


Occasionally, if I found something that I absolutely felt I would read again, I would save up money to buy it. On this particular evening, I picked up a book at Barnes and Noble called The Intelligent Investor. I sat down to read it.


Over the next three hours, this classic book on Value Investing changed my entire outlook on investments and money management. It put into perspective the entire housing market crisis and the reasons why my former clients’ parents were unable to pay me. I finally began to understand the high consumption culture that many around me had bought into.


I couldn’t afford to buy the book but when I went home, I googled it and found a free PDF copy online. I started from the beginning and began applying its principles to the market. I kept a small notebook in which I “gifted” myself $50,000 and began to virtually “invest” into undervalued companies. Over the course of five years, I kept up this hobby. When I got sick and was in the hospital, I would go over the performance of my virtual portfolio which by now was providing me a “virtual” income that was well over $175,000 a year.


After watching a docuseries on TV on hedge funds, I decided to contact one of the managers that were featured on the show. He graciously called me from London and spent an hour or so going over my investments. After reviewing my performance, he offered me a job on the spot to join his team. Unfortunately, for me, at that time, I still wasn’t sure that I would recover so I turned down that opportunity. Perhaps in later articles, I’ll run through the basics of value investing but if you would like to get a head start, you can read the list of books in the order that I have included here in this citation.[1]


Meet the Real Millionaires Next Door


Sometime around the time I picked up the book Intelligent Investor, I also was either referred to or I found the book the Millionaire Next Door. This book changed my entire outlook on the definition of wealth and how to go about acquiring it. I will use its conservative approach to wealth creation and management for this series.


In this article, let us first establish a few common points of reference for personal finance, net worth calculations, savings rate, personal finance ratios, etc. In this article, I am going to assume that apart from student loan debt or a mortgage, you are by and large debt-free, and you have a reasonable source of income that is well above your standard of living. It is also highly likely that you make contributions to your retirement fund and pay your taxes on time. You are married and have a two-income household and perhaps have some kids or want to have kids someday.


Mastering the Internal Game: Factors that Determine Success in Money Management


Over the course of a more than a decade of helping people get out of debt and become financially independent, I’ve found that as Dr. Thomas Stanley and his research partner, Dr. William Danko wrote in their book, The Millionaire Next Door, “there is a strong positive correlation between investment planning and wealth accumulation.”[2]


According to the writers for the book The Millionaire Next Door their research is the most comprehensive ever conducted on who the wealthy are in America—and how they got that way. Much of this research was developed from the most recent survey that they had conducted and from studies, they had conducted over the past twenty years and focus group interviews with more than five hundred millionaires and surveys of more than eleven million high-net-worth and/or high-income respondents.[3]


RELATED LINK: Gather up the Fragments


Stanley-Danko Wealth Net-Worth Calculation


To keep our notion of net-worth on an easy to measure level we will use Stanley-Danko’s formula here:


Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.[4]


To illustrate this formula, we take their given example and designations of PAW, UAW, and AAW:[5]


If Mr. Anthony O. Duncan is forty-one years old, makes $143,000 a year, and has investments that return another $12,000, he would multiply $155,000 by forty-one. That equals $6,355,000. Diving by ten, his net worth should be $635,500.[6]


We also will use our own numbers for someone who is younger and makes less money.


If Julie is twenty-eight years old, and makes $30,000 a year, and has an investment account that returns another $2385, she would multiply $32,385 by twenty-eight. That equals $906,780. Dividing by ten, her net worth should be $90,678.


The advantage of using their formula is that it is relative to a person’s age, income, and net-worth. While they list their threshold for being wealthy at a higher point than where our mythical Julie is currently if her net worth were any multiples greater than $90,678 she would be considered wealthy for her range of factors.


Their formula provides a concrete point of reference that takes into consideration a different set of data points than what most would use to describe wealth. Pause here and do the math now for yourself.


Figure out Your Net Worth:


Given your age and income, how does your net worth match up? Where do you stand along the wealth continuum? If you are in the top quartile for wealth accumulation, you are a PAW (prodigious accumulator of wealth). If you are in the bottom quartile, you are a UAW (under accumulator of wealth). Are you a PAW, a UAW? Or just an AAW (average accumulator of wealth)?


They also developed a simple rule. To be well-positioned in the PAW category, you should be worth twice the level of wealth expected. In other words, Mr. Duncan’s net worth/wealth should be approximately twice the expected value or more for his income/age cohort, or $635,500 multiplied by two equals $1,271,000.

If Mr. Duncan’s worth is approximately, $1.27 million or more, he is a prodigious accumulator of wealth. Conversely, what if his level of wealth is one-half or less than expected for all those in his income/age category? Mr. Duncan would be classified as a UAW if his level of wealth were $317,750 or less (or one-half of $635,500).[7] In our example, Julie should have $181,356 in net-worth to be a PAW.


Their research led them to establish seven factors that they identified as being statistically co-related to the successful accumulation of wealth in one’s lifetime from nothing.


The Seven Factors of Millionaires Next Door are:[8]


  1. They live well below their means.
  2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
  3. They believe that financial independence is more important than displaying high social status.
  4. Their parents did not provide economic outpatient care.
  5. Their adult children are self-sufficient.
  6. They are proficient in targeting market opportunities.
  7. They chose the right occupation.


Stanley-Danko’s net-worth formula shuns the traditional view that Americans and the Webster’s Dictionary has for wealth. They wrote,

We define wealth differently. We do not define wealthy, affluent, or rich in terms of material possessions. Many people who display a high consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights, or timber land. Conversely, those people whom we define as being wealthy get much more pleasure from owning substantial assets than displaying a high-consumption lifestyle.[9] 

The Threshold of Wealth

They went on to define the threshold of being wealthy as having a net worth of $1 million or more.


Based on this definition, only 3.5 million (3.5 percent, in 1997) of the 100 Million households in America are considered wealthy. About 95 percent of millionaires in America have a net worth of between $1 million and $10 million. Much of the discussion in this book centers on this segment of the population. Why the focus on this group? Because this level of wealth can be attained in one generation. It can be attained by many Americans.[10] 


I will add a caveat here on using certain assets like your house in your calculation of net-worth. Some people mistakenly believe that their house is an asset the moment they buy it. It is as if they magically add $550,000 to their net-worth balance. So in a bull market, when the price of their house rises to sky-high projections, let us say $635,000, they think they have added $85,000 in “net-worth.” This kind of thinking skews their reasoning towards an “optimist” stance on their net-worth.


In reality, using the principles of accounting, your “share” of ownership in the house proportionally grows as you pay down the debt you owe on it. Market valuations have nothing to do with the value of your house unless you decide to sell it, pay the taxes, and minus out what the bank really owes on it.


Many try to “time” the market by “buying low” and “selling high” but this kind of thinking and trying to ride the market is what caused the crash in 2008. This is why, even on the app when you put down your house, and cars, it can artificially raise your net-worth and give you a false sense of security. It is entirely okay to add your portion of the house that is truly yours which is the principal you have paid down on the house, but keep in mind that until you sell the house or truly pay it off, that portion may or may not be realized.


Key Personal Finance Ratios[11]


I will list some samples of the personal finance ratios here. Don’t try to read this section on your phone. Spend time with it when you are on your laptop at home. You can find ratios of them in free textbooks, including the free personal finance textbook that I cite here.[12] Pay close attention to chapters 2-5.[13]


Ratios are simply dividing one line item number on your balance sheet against another. Ratios make it easy to calculate and easy to analyze but it is important to understand the underlying relationships between the numbers.[14]


Many of these ratios can be applied to the analysis of companies with some important accounting considerations. If you get good at analyzing your personal finance income sheet, balance sheet, and cash flow documents that you can learn from a personal finance textbook, those skills can transfer over into value investing later.

Savings Ratio

This is the most important ratio in personal finance. The savings ratio indicates the amount an individual puts aside as savings for future use. It is calculated as savings divided over the gross income.


Savings Ratio = Savings/Gross Income


Savings can include any form of fixed deposits, liquid funds, savings account, and others. Gross income, on the other hand, includes money earned in the form of a salary, business profits, bonus, interest, dividend payments etc. An ideal savings ratio should be at least 10% of your gross income but should be as high as possible in your early years. In a later article, I will show you how to boost it as high as 60%. 

Personal Net Worth

Use the Stanley-Danko Formula From Above 

Liquid Ratio

Liquidity Ratio = Liquid Assets / Net Worth

Liquid assets include all the cash or cash equivalents, equity mutual funds, stocks etc., all of which that can be converted into “liquid” or cash within 3-4 working days. Net-worth is simply any amount left after paying everything you owe or total assets minus total liabilities. An emergency fund that is fully funded up to six months to a year[15] can cover most emergencies.


If you really want to get specific, you can integrate your Income sheet, your balance sheet, and your cash flow sheet of your personal finances and run some ratio analysis in Excel. Alternatively, you can do the math on paper as well. 


You have a choice. You can either decide to build your net-worth on the accumulation of things or you can build your net-worth on assets that produce more income and value for you over time. You can choose to be someone who knows how their money is being spent and earns a reasonable rate of return through judicious investments or you can be someone who merely displays wealth and is over-leveraged.


Take the time today, to read through The Millionaire Next Door and determine to join those ranks as time goes on. This book will help to cure you of some of the materialism/consumerist thinking that may have seeped into your lifestyle. Later in this series, I’ll show you how to completely and ruthlessly cut it out of your life.


In the next article, I will focus on the first factor in the Millionaire Next Door: Living well below their means and how the greatest variable that affects this factor: dating and marriage.

Click here to read the rest of Adrian’s series on Biblical Finance



[1] Value Investing books and Accounting Books Resource List

Little Book that Beats the Market – Joel Greenblatt

Little Book that Builds Wealth – Pat Dorsey

Investing for Dummies 6th edition or higher

You can be a Stock Market Genius – Joel Greenblatt

Beat the Street – Peter Lynch

Personal MBA – Josh Kaufman

Head First Excel – If you need to learn Excel

Little Book on Value Investing

Principles of Accounting*

Financial Statement Analysis – John Tracy

Financial Statement Analysis – John J. Wild**

Intelligent Investor – Benjamin Graham*

Commons Stocks, Uncommon Profits – Phillip Fisher**

Margin of Safety – Seth Klarman**

Theory of Dividend Investments **

Security Analysis **

[2] Dr. Thomas Stanley and Dr. William Danko, Millionaires Next Door (location, State: Publisher, 1997), p. 71.

[3] Ibid., p. 4.

[4] Ibid., p. 13.

[5] Ibid., p. 13-14.

[6] Ibid., p. 13.

[7] Ibid., p. 13-14.

[8] Ibid. pg. 3.

[9] Ibid., p. 11-12; italics supplied.

[10] Ibid., p. 12; italics supplied.

[11] A few ratios are quoted from here.

[12] Free Personal Finance Textbook.



[15] See Ramsey Baby Step 3.

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About the author


Adrian Zahid is a recent survivor of advanced-stage cancer, he is trying to make the most of the second lease on life that God has given him. He is the co-founder of Intelligent Adventist and in his free time enjoys helping nonprofits be sustainable and the Seventh-day Adventist Church succeed in fulfilling the Great Commission.