The Armchair Millionaire

( 4 )

Overview

With more Americans than ever before taking responsibility for their own financial futures, it's no surprise that ever-larger numbers of investors -- both novice and experienced -- have reacted to all the dizzying headlines with a call for more information and less noise. At the Armchair Millionaire web site, real people come together every day to share their own stories of investing success, centered around a time-tested long term wealth building strategy called "The Five Steps to Financial Freedom." THE ...
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Overview

With more Americans than ever before taking responsibility for their own financial futures, it's no surprise that ever-larger numbers of investors -- both novice and experienced -- have reacted to all the dizzying headlines with a call for more information and less noise. At the Armchair Millionaire web site, real people come together every day to share their own stories of investing success, centered around a time-tested long term wealth building strategy called "The Five Steps to Financial Freedom." THE ARMCHAIR MILLIONAIRE explains both the mechanics and the motivations that produce true financial independence among ordinary people taking the first steps in their lifelong wealth-building efforts.
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Editorial Reviews

From the Publisher
Robert Safian Editor, Money Magazine A fantastic 'how-to' guide!

Carmine Gallo Co-Host, TechTV's The Money Machine Living next door to a millionaire is one thing, but having one in your own home is another. Here's the book that shows you how to build your own fortune. Best of all, it's simple!

Steven D. Kaye Executive Editor, Mutual Funds Magazine New investors can get a good jump start towards financial security using the Armchair Millionaire's mutual fund strategy.

Armchair Millionaire member "habitatmom" Losing weight is simple: eat less, exercise more. But as many of us know, it's not easy. Only when motivation overcomes resistance do we make progress. Likewise, spend less, save more is simple, but not easy. Savor the struggle that will make you stronger....Hang in there and make your financial plan work.

Armchair Millionaire member "jujubee71" I can identify with anyone who has a feeling of desperation about their finances. I was in the same boat until a friend advised that I take control of my money and gave me hints on how to begin....The first revelation was that I didn't need to be as broke as I was.

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Product Details

  • ISBN-13: 9780743411929
  • Publisher: Atria Books
  • Publication date: 3/1/2002
  • Edition description: First Fireside Edition
  • Edition number: 1
  • Pages: 224
  • Sales rank: 1,409,286
  • Product dimensions: 0.52 (w) x 5.50 (h) x 8.50 (d)

Meet the Author

Lewis Schiff created Armchair-Millionaire.com by drawing on the years of personal-finance advice he had been giving to his friends and family. He is also a co-founder of Investorama.com, one of the leading Web sites for financial learning. In 1995, when the Internet was in its infancy, Schiff worked for Worth magazine, and launched Worth Online.

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Read an Excerpt

Chapter 1: What Is an Armchair Millionaire?

When you visit Armchair Millionaire on the Web (www.armchairmillionaire.com), you'll see this phrase scattered throughout our site. It means that being an Armchair Millionaire is not about having a million dollars, but having the attitude that will get you there. It is a state of mind, rather than a number in a bank account. When you are an Armchair Millionaire, you are mindful of the future, walking on a path toward an attainable goal of financial freedom.

You'll discover as you read this book and meet actual members of our community that Armchair Millionaires come from all sorts of backgrounds. They are in different stages of life, and their portfolios are of widely varying sizes.

But there are some distinct characteristics that all Armchair Millionaires share. Once you understand these traits and begin to adopt them for yourself, you too will become an Armchair Millionaire. Even those of you who are terrified to start digging around in your personal finances. And those of you who don't think you have enough time to actually maintain an investing plan. And all the folks who dare to dream of being financially secure but don't have the first idea how to go about it — especially you!

An Armchair Millionaire Is...

Someone with a Goal

The basic goal for every Armchair Millionaire is financial security. Even though there are an infinite number of ways to define "security," we can probably all agree on this basic definition: Security is having more than you need to survive; not living paycheck to paycheck; and not lying in bed at night worrying what would happen if you lost your job or got sick.

On the other hand, having more than you need to survive doesn't necessarily mean having the best of everything — such as shaved mink coats and multiple luxury cars and adorable little six-bedroom summer cottages. If your goal is to live extravagantly, you're missing the Armchair Millionaire mantra. Money is our friend, but it's not our savior. And the less we spend, the more we'll have. Even fabulously wealthy people can spend themselves into the poorhouse. An Armchair Millionaire is too smart to do that. Which brings us to our next characteristic:

Someone with Common Sense

An Armchair Millionaire is a skeptic. Not a cynic, mind you, but a skeptic — someone who likes to know the facts before jumping to any conclusions. And someone who knows there probably aren't any quick and easy fortunes headed our way. Armchair Millionaires know the idea of getting rich quickly is a waste of our time. For that reason, we probably won't be spending our hard-earned money on lottery tickets. (Not unless the prize is really big.)

But Armchair Millionaires know that it is possible, and even likely, to get rich slowly.

One quick look at the growth of a single dollar at a 10 percent annual rate of return over two centuries ($190 million!) will show us that time and compounded returns — as you'll learn in Step 5 — are very powerful tools for making a lot of money. More powerful tools than expensive brokers, or elaborate investment theories. In other words, an Armchair Millionaire is...

A Do-It-Yourselfer

After all, how else are you going to know that your investment plan is being done right? Sure, we'd love to have it done for us, but when it comes to the really important things, it's worth knowing how to do it ourselves — especially if we are going to rely on it.

There's another advantage to running your own plan. One of the most common investing mistakes, so common that it's legendary in investing circles, "is selling into a panic." Everyone's heard a story (or has one of their own) in which someone sold their stocks or mutual funds when the market was in a downward spiral — only to see the market quickly rebound.

When you understand how your investing plan works and how the stock market has worked historically, then you'll understand why selling into a panic is irrational. Armchair Millionaires know how their investing plans work. And they never invest in anything they aren't comfortable with.

By bringing the control over your financial freedom into your own hands, you achieve ultimate security. It's captured best in the old saying, "Give a man a portfolio and he'll invest for a day. Teach a man to invest and he'll eventually become a millionaire." (Okay, so maybe the saying doesn't go exactly like that, but you get the drift.)

Someone with a Plan

There isn't an Armchair Millionaire out there without a saving and investing plan that's intended to build their wealth over the long term. That's a given. But what really sets an Armchair Millionaire apart from other investors is that an Armchair Millionaire's plan can run on autopilot. The plan requires some planning, a little implementation, and then basically you never have to think about it again. Of course, if your personal style is to spend time researching investments and plotting your course, you can do so. But an Armchair Millionaire's plan works reliably and on its own while you sleep, when you're on vacation — all the time. You don't ever have to break a sweat. Just sit back and relax. Once you master the basic skills and disciplines — emotional and intellectual — that you need to build wealth, then you can use the twin levers of short-term desires vs. long-term gains to build your portfolio at any pace you want. So every Armchair Millionaire is...

Someone with a Portfolio

There's one last thing that any Armchair Millionaire will eventually have. It's the inevitable result of a lifetime investing program: a seven-figure portfolio.

What an Armchair Millionaire Is Not

Okay, so now you know more about what an Armchair Millionaire is. Here's a brief rundown on the things an Armchair Millionaire is not:

A Cheapskate

Yes, it's true that the less money you spend, the more money you'll have. But that doesn't mean you have to deny yourself anything that could be construed as a luxury. After all, it isn't unreasonable to want to enjoy the well-deserved fruits of your labors. Modern life is demanding and we all deserve to pamper ourselves now and again. What you'll learn as you develop your plan is that you can create a personalized balance between short-term desires — such as the desire for an expensive cup of coffee, or a cushy new couch — and long-term goals, such as financial freedom. This balance will decide how fast your portfolio will grow. So you can still be an Armchair Millionaire and spend money on nonessential items; you'll just take a little longer to reach your goal. The choice is entirely up to you. If you're deep in debt as you read this, your story may be a little different — but we'll cover that shortly.

An Extravagant Spender

When you hear the word millionaire, chances are you imagine someone with deep pockets, eating fancy dinners, ordering custom-made shirts, and flying on the Concorde for dinner in Paris. In other words, someone who never worries about money.

This image of a millionaire is so firmly entrenched in American mythology that it's hard to shake. But as we've said before, even millionaires can spend their way into the poorhouse. The first way to become an Armchair Millionaire is to curb your frivolous spending. But before you panic and say you'll never be able to do it, please finish reading this book. The Armchair Millionaire Five Steps to Financial Freedom can help you overcome your preconceived notions about money and build a commonsense savings plan that will make you rich. In other words, you'll learn how to make money work for you, not against you.

"The most popular watch among millionaires is a Seiko, a fine timepiece, moderately priced. This is also the most popular brand among CEOs of Fortune 500 companies."

— From The Millionaire Next Door

Bet you were expecting a Rolex, weren't you?

Someone with a Perfect Credit Report

Many Armchair Millionaires were once in debt. And they never want to be there again. Some have never been in debt, because the idea of owing just isn't for them. Still others are digging themselves out of the hole one bill at a time. As far as being an Armchair Millionaire is concerned, where you are when you start isn't important — it's where you're headed that matters.

The real beauty of the Armchair Millionaire's plan to help you achieve financial freedom is that it can work for anyone. So take a deep breath and repeat after us: "I'm ready to be a millionaire!" And turn to the next chapter....

Copyright © 2001 by Lewis Schiff

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Table of Contents

Introduction xi
Part I Getting Ready for the Journey
Chapter 1 What Is an Armchair Millionaire? 3
Chapter 2 Financial Freedom Can Be Yours 9
Chapter 3 Preparing Your Head and Heart for Achieving Financial Success 26
Chapter 4 Dealing with Your Debt 36
Part II Five Steps to Financial Freedom
Chapter 5 Step 1: Max Out All Tax-Deferred Savings 63
Chapter 6 Step 2: Pay Yourself First 90
Chapter 7 Step 3: Invest Automatically--and Benefit from Dollar Cost Averaging 107
Chapter 8 Step 4: Use the Armchair Investing Strategy 122
Chapter 9 Step 5: Start Today--Put the Power of Compound Interest to Work for You 162
Chapter 10 Fulfilling Your Dreams 176
Appendix A How to Use the Armchair Millionaire Web Site and This Book 187
Appendix B Index Funds You Can Use in the Armchair Investing Strategy 189
Appendix C Brokerage Firms and Mutual Fund Companies 194
Glossary 195
Index 201
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Customer Reviews

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  • Anonymous

    Posted April 17, 2001

    Commonsense advice in plain English

    I read this book with an eye to giving it to my sons, who are in their 20's. My hunch was right. The book is, first of all, readable, well-formatted and entertaining. So there is a good chance my kids will actually read it. Second, the strategies it proposes and the stories from actual cases, give the book verisimilitude and depth. With the stock market behaving so erratically, it is essential for investors to have a perspective that allows them to put what is happening in perspective and see their way to continue investing on a regular basis. This book accomplishes that purpose.

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  • Anonymous

    Posted April 5, 2001

    Smoothing Out Emotions for Relaxed Investors to Earn More

    This book is a well-written cross between John Bogle's Common Sense on Mutual Funds and Suze Orman's The Courage to Be Rich. Emotions are the biggest challenge that investors face. Although stocks have always gone up in the long-run historically, it is very gut-wrenching to lose money in sharp bear markets (such as the Nasdaq has been experiencing since March 2000). As a result, many people can't stand it, and sell out at low prices after horrible losses. These same people are often inspired by euphoria at high prices to buy too much. The book seeks to solve this problem by putting you into an investment plan that you can easily follow, spend small amounts of time on, and should give you superior investing rewards compared to most alternatives. The proposal is to put all the money you can into tax-deferred savings, pay yourself with automatic deductions ten percent of your after-tax earnings and invest it monthly on an automatic basis to get cost-averaging benefits, invest the money equally in S&P 500, Russell 2000, and the Morgan Stanley EAFE index funds, and start doing this today. I have two basic problems with the book that caused me to grade it down a little. First, that exact mix of index funds isn't perfect for everyone. If you are fairly near retirement, you should be easing into money markets (see Charles Schwab's new book). If you are quite young, you should probably favor the Russell right now over the other two. Second, we have a market that is heading south very rapidly. By waiting a few weeks, you can probably get a much better deal on stocks. Although normally you should not try to time the market, when you are in the middle of a collapse, I would suggest waiting a bit to start. Many stocks could still fall another 50 percent. Why start out with large losses? So, if you start today, I'd say be heavy on money market funds of government securities. If you have severe psychological hang-ups about money and investing, this book won't be heavy duty enough for you. If you are just open minded and ignorant, this book should be helpful. I really liked the writing style. It is simple, direct, and filled with helpful metaphors. 'Investing is a lot like buying a car.' 'As a consumer, you've got many choices but there's no such thing as the 'best' car for everyone.' '[There's] only one that's right for you.' ' . . . [A] solid investment strategy is every bit as crucial as a car.' The book also offers the back-up of a web site where you can get advice from others who are further along with their investing. This can help you feel more confident at times like this when television is blaring bad economic and financial news. The book is enlivened and improved by many quotes from on-line comments and questions by investors. The attitude you are encouraged to develop is one of setting a goal and then being a common sense, do-it-yourselfer in pursuing this through a plan of savings and investing that gives you the portfolio that will succeed. You are reminded that 'even millionaires can spend their way into the poorhouse.' I thought that the best piece of advice in the book was to 'take all the ideas you have about investing and throw them right out the window.' Most inexperienced investors have very peculiar and incorrect ideas about investing. Consciously discarding those, while being skeptical, is a good approach as you seek better information. But remember, 'your investing plan and your relationships will work only if you're going to stick together through ups and downs, for better and worse.' After you review this book, be sure that you do set explicit financial goals that you write out as a first step. Then, be sure you do develop a plan to meet those goals that avoids any unnecessary risk. If you are a new investor, I would still like to see you read Rich Dad, Poor Dad and Common Sense

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  • Anonymous

    Posted April 7, 2001

    Genuine Commonsense

    This book combines good commonsense wisdom about how to emotionally prepare yourself for investing with good commonsense wisdom about how to construct a killer portfolio for long term investing. I love the fact that the author's have proved out their thesis with their own money. That means a lot to a reader like myself. Here's an example of the commonsense wisdom in the book that helps you get emotionally ready for the book: 'If you don't have a goal, or if your goal is something vague like 'I want to be rich' or 'I want to make money fast,' chances are you'll never get there. I know that sounds incredibly obvious. But to me, it was also very important. Kind of like a knock in the head that results in better clarity. On the investing side, their 'Five Steps to Financial Freedom' are equally commonsensical. And equally powerful. They couldn't be clearer in telling you what you need to do to build a $1 million portfolio. They tell you what to buy, when and where. And they include more than 30 years worth of numbers and data to back it up. Honestly, THE ARMCHAIR MILLIONAIRE tells you what you need to know to get the job done. They didn't mess around. That's what I really liked about it. I'm going to give it to some friends of mine who seem like they are confused by the prospect of investing but also seem to have the desire to get started. I hope they enjoy it as much as I did.

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  • Anonymous

    Posted October 16, 2010

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