12 TMND (TIME, ENERGY, AND MONEY)

TIME, ENERGY, AND MONEY

THEY ALLOCATE THEIR TIME, ENERGY, AND MONEY EFFICIENTLY, IN WAYS CONDUCIVE TO BUILDING WEALTH.

Exticiency is one of the most important components of wealth accumulation.

Simply: People who become wealthy allocate their time, energy, and money in ways consistent with enhancing their net worth. Although both prodigious accumulators and under accumulators of wealth state similar goals about achieving wealth, these groups have completely different orientations when it comes to how much time they actually spend on wealth-building activities.

PAWs allocate nearly twice the number of hours per month to planning their financial investments as UAWs do.

There is a strong positive correlation between investment planning and wealth accumulation. UAWs spend less time than PAWs consulting with professional investment advisors; searching for quality accountants, attorneys, and investment counselors; and attending investment-planning seminars. PAWs, on average, spend less time worrying about their economic well-being. We have determined that under accumulators are much more concerned than prodigious accumulators with the prospects of:

◆ not being wealthy enough to retire in comfort.

◆ never accumulating significant wealth.

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Are their concerns realistic? Yes. Yet UAWs spend more time worrying about these issues than taking proactive steps to change their tendencies to overconsume and underinvest.

What type of person recently indicated that he was afraid and worried about the following two issues?

1. Experiencing a significant reduction in his standard of living.

2. Not having an income high enough to satisfy his family’s purchasing habits.

Who is this person? Perhaps he is a mail carrier with two children in college. Or perhaps he is a single, low-income parent who has to raise three children. Do you envision a middle-aged corporate manager who recently found out that his position would be eliminated? Certainly these are logical guesses. People in these categories would very likely express fear about having to reduce their standard of living and not having the income to satisfy their family’s buying habits. But none of these people is the one we are about to profile.

The respondent who actually expressed these fears and worries is a surgeon in his fifties whom we shall call Dr. South (see Table 3-1). He is married and has four children. Why should he be worried about his standard of living and his income? Could it be that he’s down on his luck, perhaps unable to continue to practice medicine because of a disability? No. Actually he is a fine physician who earned more than $700,000 during the year prior to our interview with him! But in spite of his high income, his net worth in real terms is declining. He has reasons to be afraid and worried.

Dr. North is very similar to Dr. South in age, income, and family composition. But Dr. North is a PAW. His profile is also detailed later in this chapter. Dr. North has far fewer worries than Dr. South. He is not afraid of being forced to reduce his standard of living. Unlike Dr. South, he is not concerned that his income will not be high enough to satisfy his family’s purchasing habits. This is especially interesting given that both Dr. South and Dr. North have similar incomes. The case studies that follow will introduce you to these physicians and their families. You will learn a lot about how each man makes use of his time, energy, and money. But before we profile these two physicians in detail, we will discuss the income and wealth-accumulating habits of physicians in general.

TABLE 3-1 CONCERNS, FEARS, AND WORRIES: DR. NORTH VS. DR. SOUTH

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Type of Wealth Accumulator : PAW ( Dr. North) ; UAW [ Dr. South ]

I. YOUR ECONOMIC WELL-BEING 

PAW ( Dr. North) ; UAW [ Dr. South ]

Not being wealthy enough to retire in comfort (Low) ; [ Moderate]

Not having an income high enough to satisfy your fomily’s purchasing habits (Low) ; [ Moderate]

Having to retire (Low) ; [ Low ]

Having your job/occupational position eliminated (None) ; [None]

Especially a significant reduction in your standard of living (Low) ; [High]

Never accumulating significant wealth (Low) ; [ Moderate]

Having your own business fail (Moderate) ; [ Low ]

Not being able to protect your family financially in case of premature death (High) ; [ Low ]

II.YOUR CHILDREN 

PAW ( Dr. North) ; UAW [ Dr. South ]

Having to support your adult children financially (Low) ; [ Moderate]

Having adult children who spend more than they earn (Low) ; [ Moderate]

Having children who are underachievers (Moderate) ; [ Low ] 

Finding that your adult children have moved back home (Low) ; [ Moderate]

Finding out that your son/daughter married on unfit spouse (Moderate) ; [ Moderate ]

Having adult children who think that your wealth is their income(Low) ; [ Moderate]

III. YOUR PHYSICAL WELL-BEING

PAW ( Dr. North) ; UAW [ Dr. South ]

Having cancer and/or heart disease (Moderate) ; [ Low ] 

Having visual or hearing problems (Moderate) ; [ None ] 

Being mugged, raped, robbed, or burglarized (Low) ; [ Moderate]

Contracting AIDS (None) ; [ Low ]

IV. YOUR GOVERNMENT

PAW ( Dr. North) ; UAW [ Dr. South ]

Increased government spending/ federal deficit (Low) ; [High]

Increased government regulation of business / industry (Low) ; [High]

Paying increasingly high federal income taxes (Low) ; [High]

A high rate of inflation (None) ; [ Moderate]

Having your family pay high taxes on your estate (Low) ; [Low]

V. YOUR DOMESTIC TRANQUILITY 

PAW ( Dr. North) ; UAW [ Dr. South ]

Having your children feud over your wealth (Low) ; [ Moderate]

Having your family fight over your estate (Low) ; [ Moderate] 

Being accused of financiolly favoring one adult child over the other(s) (Low) ; [ Moderate]

VI. YOUR FINANCIAL ADVISOR 

PAW ( Dr. North) ; UAW [ Dr. South ]

Being swindled by a financial advisor (Low) ; [ Moderate]

Not receiving high-quality investment advice (None) ; [ Moderate]

VII. YOUR PARENTS, CHILDREN, AND GRANDCHILDREN 

PAW ( Dr. North) ; UAW [ Dr. South ]

Having your children exposed to drugs (None) ; [ Low]

Having your parent(s) / inlaw(s) move into your home (Moderate] ; [Low]

Having too little fime to devote to your children / grandchildren (Low) ; [Low]

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DOCTORS, PAWS, AND UAWS

On average, physicians earn more than four times the income of the average American household: $140,000 versus $33,000. But Dr. South and Dr. North are hardly average physicians. They are gifted and highly trained specialists. In fact, the average annual income for someone in their specialty is more than $300,000. But again, they are extraordinary even among their cohorts. Last year they each earned more than $700,000.

In spite of his income, Dr. South has a relatively small level of accumulated wealth. He spends a lot, invests little. Our research has found that physicians in general do not tend to be wealth accumulators. In fact, among all major high-income-producing occupations, physicians have a significantly low propensity to accumulate substantial wealth. For every one doctor in the PAW group, there are two in the UAW category.

Why are doctors lagging behind on the wealth scale? There are several reasons. Foremost among them is the correlation between wealth and education. This relationship may surprise some people. For all high-income earners (those earning at least $100,000 annually), the relationship between education and wealth accumulation is negative. High-income PAWS are significantly less likely than UAWs to hold graduate degrees, law degrees, or medical degrees. Millionaires typically indicate on our survey “business owner” with “some college,” “four-year college graduate,” or “no college.”

Warning: Parents should not suggest that their children drop out of college and start a business. Most businesses fail within a few years of their conception. Only a small minority of business owners ever earns a six-figure income. But those who do tend to accumulate more wealth than others in the same income cohort.

The “some college,” “four-year college graduate,” and “no college” types who have high incomes often had a head start on many well-educated workers. Doctors and other well-educated professionals get a very late start in the earnings race. It is difficult to accumulate wealth when one is in school. The longer one stays in school, the longer one postpones producing an income and building wealth.

Most experts on wealth agree that the earlier one starts investing one’s income, the greater the opportunity to accumulate wealth. 

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Mr. Denzi, for example, is a business owner with two years of technical school training in data processing. He started working and building wealth at the age of twenty-two. Today, thirty years later, he has benefited greatly from the meteoric increase in the value of his pension plan.

In sharp contrast, consider the situation of Dr. Dokes, who graduated from high school the same year as Mr. Denzi. Dr. Dokes opened his private medical practice more than a dozen years after his classmate, Mr. Denzi, started a business. During that twelve-year period, Dr. Dokes spent his time studying and spending his savings, his parents’ money, and money he borrowed for tuition and living expenses. During the same time, Mr. Denzi, who designated himself as “not college material,” focused his resources on building his business and becoming financially independent.

Who is in the UAW category today? Is it the “not-college-material” business owner, Mr. Denzi, or the valedictorian of his high school class, Dr. Dokes? The answer is obvious. Mr. Denzi is a prototypical PAW, while Dr. Dokes is a UAW. Interestingly, both earned approximately the same income last year (nearly $160,000). But Mr. Denzi has five to six times the wealth of his high school classmate. And he has no debt.

Mr. Denzi can teach us all something about accumulating wealth. Begin earning and investing early in your adult life. That will enable you to outpace the wealth accumulation levels of even the so-called gifted kids from your high school class. Remember, wealth is blind. It cares not if its patrons are well educated. So the authors have an excuse. How else does one explain why two experts on wealth are not wealthy? In part, because they spent a combined total of nearly twenty years pursuing higher education!

Another reason very well-educated people tend to lag behind on the wealth scale has to do with the status ascribed to them by society. Doctors, as well as others with advanced degrees, are expected to play their parts. Mr. Denzi is a small business owner. In spite of being wealthy, he is not expected by society to live in an exclusive neighborhood. He would not be out of place living in a modest home or driving a nondescript sedan. His domestic overhead is significantly lower than Dr. Dokes’s.

Many people tell us that you can judge a book by its cover, meaning that high- grade doctors, lawyers, accountants, and so on are expected to live in expensive homes. They also are expected to dress and drivein a style congruent with their ability to perform their professional duties. How do you judge the professionals you patronize? Too many people judge them by display factors. Extra points are given to those who wear expensive clothes, drive luxury automobiles, and live in exclusive neighborhoods. 

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They assume a professional is likely to be mediocre, even incompetent, if he lives in a modest home and drives a three-year-old Ford Crown Victoria. Very, very few people judge the quality of the professionals they use by net worth criteria. Many professionals have told us that they must look successful to convince their customers/clients that they are.

Of course, there are exceptions. But people who spend many years in college, professional school, or graduate school are more likely to have higher levels of household overhead than less educated people. As a rule, doctors have exceptionally high levels of domestic overhead. The concern in many of these households is with consuming, not investing.

Physicians often find that there are disadvantages to living in affluent neighborhoods. People who live in expensive areas are often bombarded with solicitations from “cold-calling” investment experts. Many of these callers assume that people in upscale areas have money to invest. In reality, many people who live in luxury have little money left over after funding their high- consumption lifestyles.

Some naive cold callers purchase prospect lists that fit two criteria. First, prospects must be physicians. Second, they must live in exclusive neighborhoods. It’s no wonder physicians are the favorite targets of some of America’s most aggressive sellers of investment ideas. Too often doctors who receive such solicitations assume that the callers are “just as professional as physicians.” Many physicians have told us that they have had bad experiences with investing via cold callers. In fact, many have been burned so badly that they never again invested in the stock market. This is unfortunate given the overall growth in the real value of the equity market. And, in rejecting the stock market, they figured that left them with more money for spending. This attitude is not as rare as one might think:

A plastic surgeon added that he had three boats and five cars but hadnt gotten around to assembling a pension plan. Financial investments? Didn’t have those, either. Speaking ofhis colleagues, the surgeon said, “I don’t know even one guy who hasn't been beaten to death in the financial markets. As a result, they don’t have anything. At least I’m going to enjoy spending my money.”

Later on, this doctor summed up his financial philosophy: “Money,” he said, with a wave of his hand, “is the most easily renewable resource” (Thomas J. Stanley, “Why You’re Not As Wealthy As You Should Be,” Medical Economics, July 1992).

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What other factors explain why so many doctors are members of the UAW group? Our research shows that they are generally unselfish. On average, they contribute a higher percentage of their incomes to noble causes than do other high-income producers. Also, doctors are among the least likely to receive inheritances from their parents. Their less-educated brothers and sisters are significantly more likely to inherit money. In some cases, physicians are asked by their elderly parents to “help out [their] less fortunate brothers and sisters after [the parents] are no longer able to help pay their bills.” These findings are detailed in Chapter 6.

Doctors often allocate large amounts of their time to serving patients. They rarely work fewer than ten hours a day, thus expending most of their time, energy, and intellect on patients. In so doing, they tend to neglect their economic well-being. Some doctors figure that working hard translates into a large income and that, therefore, there is no need to design a household budget. Some ask why they should waste time planning a domestic budget and investments when there is so much income to be made. Many high-income-producing UAWSs feel this way.

PAWS tend to have just the opposite feelings. To them, money is a resource that should never be squandered. They know that planning, budgeting, and being frugal are essential parts of building wealth, even for very high-income producers. Even high-income producers must live below their means if they intend to become financially independent. And if you’re not financially independent, you will spend an increasing amount of your time and energy worrying about your  socioeconomic future.

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PLANNING AND CONTROLLING

Planning and controlling consumption are key factors underlying wealth accumulation. Thus, one should expect that PAWs like Dr. North take the time to plan their budgets. They do. Conversely, Dr. South has no control over his family’s consumption, other than his household’s income limit. We asked Drs. South and North about their respective planning and controlling systems.

Question: Does your household operate on a fairly well-thought- out annual budget?

Dr. South: No.

Dr. North: Yes ... absolutely!

Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction. The Norths have a budget that calls for them to invest at least one-third of their pretax household income each year. In fact, during the year that we interviewed Dr. North, he and his wife invested nearly 40 percent of their annual pretax income. How were they able to do this? In short, they consume at the same level as the average family that earns about one-third as much as they do.

What about the Souths? They consume at the same level as the average household that earns nearly two times more than they do. In fact, their hyperuse of credit is more in line with that of households that earn several million dollars each year. The Souths essentially spend all of or more than their income each year. This income is their only restraint.

We asked both doctors another set of questions:

1. Do you know how much your family spends each year for food, clothing, and shelter?

2. Do you spend a lot of time planning your financial future?

3. Are you frugal?

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You probably predicted the outcome. Dr. South responded with three noes, while Dr. North responded in true PAW fashion, with three yeses. Consider the frugal orientation of Dr. North. He stated emphatically, for instance, that he never bought a suit that was not offered at a discount or a special price. This is not to suggest that Dr. North is poorly dressed. Nor does he wear cheap suits. Rather, he purchases quality clothing, but not at full price and never on impulse. This behavior was part of his socialization process as a youth:

When I was going to school, my wife taught. We had a small income.... Even then we always had a rule ... to save—even then we saved. You can‘ invest without something. ... The first thing is to save.

Even when I was eleven years old, I saved my first $50 from working in a grocery store. It’s just like today ... only today the number of zeros change.... More zeros, but it’s the same rule, same discipline.

You must take advantage of investment opportunities.... You have to have something to take advantage of excellent opportunities.... It’s part of my background.

Dr. South reported having just the opposite orientation. How much did he and his family spend on clothing during the year prior to our interview? About $30,000 (see Table 3-2). Thus, the Souths spend nearly as much on clothing each year as the average American household earns in total—that is, $33,000.

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TABLE 3-2 CONSUMPTION HABITS: THE NORTHS VS. THE SOUTHS

CONSUMPTION CATEGORY ANNUAL AMOUNTS SPENT

Type of Wealth Accumulator: (NORTHS PAW ) ; [SOUTHS UAW ]

Clothing ($8,700) ; [$30,000] 

Motor Vehicles ($12,000) ; [$72,200]

Mortgage Payments ($14,600) ; [$107,000] 

Club Dues/Fees/Expenses ($8,000) ; [$47,900]

THE HOME TEAM 

Most high-income households consist of traditional married couples with children. Both the South and North households are traditional. We determined long ago that the habits of both husband and wife account for variations in accumulating wealth. Your spouse’s orientation toward thrift, consumption, and investing is a significant factor in understanding your household’s position on the wealth scale.

Who is the tightwad in your household? In the case of Dr. North’s family, both he and his wife fit the profile. Both live well below their means. Both ⁹ to planning their well-thought-out annual budget. Neither objects to buying used motor vehicles. Both can tell you how much their family spends each year for a variety of products and services. new product and service offerings? Who would you advise about a special showing of the latest fashions and motor vehicles?

Why does Mrs. South spend so much money? In classic UAW fashion, her husband has encouraged her to do so. He was the product of a high-income- producing, indulgent set of parents. He, in turn, has given his wife almost a blank check when it comes to shopping. And, of course, the Souths associate with other hyperconsumers. But there is something she and her husband don’t know. They are unique. They are not typical consumers. No one ever told them that most people in their income bracket, including the Norths, never spend money like the Souths do. Unfortunately, the Souths never learned about the prodigious accumulators of wealth.

The Norths are very different from the Souths in their spending behavior. Both Dr. and Mrs. North come from backgrounds of frugality and thrift. Throughout their marriage they have communicated with each other about resource allocations. Their budgeting system is basic to their controlled-consumption lifestyle. Unlike the Souths, the Norths own no credit cards for upscale department stores. That’s right. The North family, whose net worth is more than eighteen times that of the Souths ($7,500,000 versus $400,000), holds no cards from Neiman Marcus or from Saks Fifth Avenue or from Lord & Taylor. They are only “special-occasion” shoppers at such stores. Almost all of their household purchases are placed on one “central” credit card, a Visa (preferred) card. Both their purchases are listed on one single statement each month. Each month theydetermine how much remains to be allocated for each consumption category, and at the end of each year they refer to these statements to compute their total expenditures for each category. Using this statement facilitates budgeting and making appropriations for the following year. Most important, their planning, budgeting, and consuming are coordinated events. Unlike the Souths, the Norths have one joint checking account to help facilitate the budgeting of items not paid for with their credit card.

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What if you want to budget but don’t like the process? We recently interviewed a CPA who offers a household budgeting and consumption planning service. Mr. Arthur Gifford has several hundred high-income-producing clients. Most are either self-employed professionals or business owners. Some are PAWs. Some are UAWS.

We asked Mr. Gifford who uses his budgeting and consumption planning system. His response was predictable in light of the case studies of the Souths and Norths:

Only those clients with considerable wealth want to know exactly how much their family spends on each and every category.

Mr. Gifford is correct. But aren’t PAWs usually price sensitive when it comes to purchasing services? Not always. They are much less price sensitive when buying services that will help them control their family’s consumption behavior.

Do you know exactly how much your family spent last year for each and every category of product and service? Without such knowledge, it’s difficult to control your spending. If you can’t control your spending, you’re unlikely to accumulate prodigious amounts of wealth. A good start is to keep an accurate record of each and every expenditure that your family makes each month. Or ask your accountant to help you set up a system for tabulating and categorizing these expenditures. Then work with her to develop a budget. The goal is to enable you to set aside for investing purposes at least 15 percent of your pretax income each year. By the way, this “15 percent method” is Mr. Gifford’s simple strategy for becoming affluent.

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CAR-SHOPPING METHODS

The Souths outpace the Norths in several consumption categories. During the year prior to our interview, they allocated six times more money for motor vehicles than the Norths ($72,200 versus $12,000). Dr. South also purchased a $65,000 Porsche during the year of our interview. Dr. South is, in fact, a true connoisseur of fine motor vehicles. He spends little time preparing a budget for his household and even less time planning his financial future. But he has a very different orientation when it comes to purchasing automobiles.

There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one’s financial future.

High-income-producing UAWs like Dr. South spend a great deal of their incomes on expensive automobiles and clothing. But it takes more than money to acquire and maintain large inventories of luxury goods. Such purchases have to be planned. It takes time to shop, and it takes time to care for large quantities of expensive high-status artifacts. Time, energy, and money are finite resources, even among high-income generators. Our research indicates that even these top earners cannot have their cake and eat it, too. Dr. North and PAWS in general, on the other hand, allocate their spare time to activities that they hope will enhance their wealth (see Table 3-6 later in chapter). Such activities include studying and planning their investment strategies and managing current investments. We will study this issue in greater detail later in this chapter.

Conversely, UAWs such as Dr. South work hard to maintain and enhance their high standard of living. Often these high-income-producing UAWs, Dr. South included, outspend their six-figure incomes. So how do they balance their need to maintain their high standard of living with a finite income? Many aggressively shop for bargains.

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THE SOUTH METHOD

Examine the activities that Dr. South undertakes prior to purchasing an automobile. You might get the impression that he is a tightwad. Most UAWs like Dr. South bolster their hyperconsumption behavior by telling would-be critics that everything they buy is purchased near cost, at cost, below cost, and so on. It is true that Dr. South is an aggressive bargain shopper. But he just paid more than $65,000 for an exotic sports car. Is this really a bargain? Dr. South made this purchase at “near dealer’s cost.” But what were the costs of this so-called deal in time and effort? Most high-income generators, whether they are PAWs or UAWs, work more than forty hours a week. Typically, the amount of time remaining each week is allocated in ways that are congruent with their goals.

All too often high-income-producing UAWs spend countless hours studying the market—but not the stock market. They can tell you the names of the top auto dealers, but not the top investment advisors. They can tell you how to shop and spend. But they can’t tell you how to invest. They know the styles, prices, and availability at various car dealers. But they know little or nothing about the various values of equity market offerings.

As an example, contrast Dr. South’s most recent automobile-shopping activities with that of typical millionaires. On average, the American millionaire employs four to five simple bargain-shopping techniques when buying a motor vehicle. Dr. South does it differently. He uses at least nine bargaining/shopping tactics and strategies when negotiating with dealers.

Consider the level of car-purchasing knowledge Dr. South has recently acquired that will never pay capital gains or real dividends or enhance the productivity of his business. He now has knowledge about every Porsche dealer within a four hundred-mile radius of his home. Dr. South also can tell you immediately the dealer’s cost on nearly every Porsche model, the cost of options and accessories, and the performance characteristics of most models. It takes much time and effort to acquire such information.

Dr. South has an interesting style when purchasing automobiles. He first decides on the make and model of the vehicle he wants and the corresponding accessories. Then he goes all-out into information seeking and negotiating. It is not unusual for him to shop around for months “for the very best deal.” In the process he usually discovers the dealer’s cost on the vehicle. This is done prior to entering into serious negotiations with a dealer. Then he telephones all the dealers (his long list) and invites them to compete for his business. He has no problem buying a Porsche from a low-price-oriented, out-of-town dealer. Those dealers who designate themselves as price-oriented are then placed on Dr. South’s short list. The others are dropped from consideration.

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Dealers on his short list are contacted once again. During this stage of the process, Dr. South quizzes the dealers about their willingness to sell at below cost. While doing so, he reminds them of the low prices quoted by other dealers. He also asks about program/off-lease vehicles. But his heart is always set on a brand new model.

At the end of the month, Dr. South recontacts all the low-price-oriented dealers. Dr. South does this because he feels that dealers have “sales quotas and bank notes due” at that time. He invites all these dealers to give their “final lowest bid” for his business. For his most recent purchase, during the last day of the month and after a flurry of phone calls, he finally accepted a bid from an out- of-town dealer.

Dr. South is penny-wise, pound-foolish when purchasing motor vehicles. But he has convinced himself that he is a prudent buyer. After all, he spends much time and energy trying to buy cars at or near dealer cost. But perhaps dealer cost was too high a price to pay. It is difficult to accumulate wealth if you spend much of your time, energy, and money for a so-called dealer cost price on an extremely expensive motor vehicle.

Consider this fact: Most millionaires we have interviewed never in their lifetimes spent near $65,000 for an automobile. In fact, as we will report in Chapter 4, more than half the millionaires we interviewed never paid more than $30,000 for a motor vehicle. Remember, though, Dr. South is not a millionaire. Certainly in terms of net worth, millionaires are better able to afford a $65,000 automobile. But they ignore such opportunities. As so often is said, “That’s why they’re millionaires!”

Certainly the consumption of very expensive automobiles has a dampening effect on the probability that one will ever accumulate significant wealth. During the year we interviewed him, Dr. South spent more than $70,000 for his most recent motor vehicle purchase, related sales tax, and insurance. Yet for the same period, how much did he place in his pension plan? About $5,700! In other words, only about $1 in every $125 of his income was set aside for retirement. Theamount of time Dr. South took to find the best deal on his car was also counterproductive. We estimated that it took him more than sixty hours to study, negotiate, and purchase his Porsche. How much time and effort does it take someone to place money in a pension plan? A small fraction of this time and energy. It is easy for Dr. South to say he wants to accumulate wealth, but his actions speak much louder than his words. Perhaps that explains why he has lost a considerable amount of wealth through imprudent investing. Investing when one has little or no intellectual basis for one’s decisions often translates into major losses.

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Wayback I am changed 

Dr. North is not a connoisseur of motor vehicles, although he is price-sensitive when making purchasing decisions. We asked Dr. North about his most recent automobile purchase. Remember that Dr. South’s most recent purchase was the current year’s model. Note that fewer than 25 percent of America’s millionaires are driving the current year’s model. And, of course, Dr. South is not a millionaire.

Dr. North proudly informed us that he purchased his most recent automobile six years ago. We anticipate your question: Do you mean he has not purchased a new automobile in six years? Not only has Dr. North not purchased a new automobile in six years, but the one he purchased six years ago was a three-year- old Mercedes-Benz 300 that he bought for $35,000.

Dr. North loves the car: great price, excellent fuel economy—"It’s a diesel.” And, of course, diesel Mercedes often can last for hundreds of thousands of miles before they need an overhaul. It also has classic styling.

How much time and energy did Dr. North expend in purchasing his Mercedes? Let’s examine his decision-making process. First, he decided that he needed to replace his “old car.” After all, it was twenty years old. He knew that many European luxury automobiles depreciate rapidly during the first three years following their initial purchase. So he figured that he might be able to save a considerable amount if he purchased a three-year-old Mercedes Benz.

He confirmed this speculation by determining the original retail price of the model he was interested in purchasing. A quick trip to alocal dealer was all that was required to gain this knowledge. Dr. North then decided that his best choice would be a three-year-old model. He telephoned a few dealers and advised them of his interest. He also examined several advertisements in the classified section of the paper. Finally he decided on a low-mileage model offered by a local dealer. As he explained:

Automobiles? I have always placed a premium on quality. But I never lease, never finance. I drive a Mercedes-Benz. Since I started my practice, I have only had two cars. The first, a Mercedes, I purchased new just after I opened my practice.... Kept it twenty years. Then I bought my second car ... a three-year-old Mercedes. I went to a dealer.... He wanted to sell me a new one. But it was $20,000 more than the used one on the lot.

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Then I just asked myself a simple question: Is the “pride of new car ownership”—and that’s all it is, pride—worth $20,000? The cars are the same. The answer is no. The “pride of new car ownership” is not worth $20,000.

The North method took only a few hours. Contrast this with Dr. South’s automobile-purchasing crusade—a process that took him at least sixty hours. And, of course, Dr. North likes to keep his cars for a long time. So his allocation of purchasing time is spread over several years. On average, he devotes less than an hour a year to purchasing motor vehicles. But Dr.. South likes to buy a new car every year. Thus, his sixty-hour project is typically allocated to only one year.

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