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Step 4 to Financial Success: Spend Wisely, Living Wayyy Beneath Your Means!

Your ring finger signifies commitment. No matter how great your salary, you'll never build wealth unless you commit yourself to spend less than you make. Even Oseola (see step one), working as a clothes-washer, could accumulate over a quarter of a million dollars by spending less than she made and investing the rest. (1) Warren Buffett  would have had no personal funds to invest had he spent all his earnings from elementary through high school. (2)


Learning from Millionaires

Teacher's Hint: Have students either read this opening article for homework (online or print) or have several good readers read it aloud in class. At the end of the article, you'll find some activities, discussions and questions to reinforce this lesson. 

When professors Stanley and Danko decided to study millionaires, they first looked for them in high-priced neighborhoods. But to their surprise, they often found that these high livers were often big spenders rather than big investors. Many had the outward look of wealth, but little actual wealth. As they say in Texas, "Big hat, no cattle." 


Stanley and Danko eventually found the truly wealthy - people who'd actually accumulated over $1,000,000 - typically living in average neighborhoods driving average cars. And most weren't lawyers and doctors. They were spread out in over 200 occupations, including farmers, welders, scrap metal dealers, publishers, printers, chicken farmers, pest controllers, home repair/painters, and janitorial contractors. 


What distinguished these wealthy people from the rest of us wasn't what they bought, but what they didn't buy. They spent way less than they made, allowing them to save and invest for the future. (3)

That's the way Benjamin Franklin did it, 

"gaining money by my industry and frugality...." (3.5)

"Industry" is working hard (step 2). "Frugality" is spending little more than what you need. To Franklin, it was such a key to financial success that he mentioned it repeatedly in his autobiography. (3.6)


A Pretty Smart Guy Tells How to Accumulate Money

Ron Blue spent most of his life writing and advising people about their money. He's written over twelve books about personal finance. One day somebody asked him to try to sum up all he'd learned about personal money management in a few words. Here's how he responded:

"Spend less than you earn, and do it for a long time." (4) 

Do you want to start accumulating wealth? If so, don't wait until you start making more money. Start now, while you have less expenses and have more time for your money to grow. Let's discover how each of us can begin this millionaire habit now. 


How Can I Save Money With My Measly Income?

First, Oseola refused to pay out interest to others in the form of credit card debt. As she put it,

''I save my money till I can buy something outright.'' (5)

The average American carries $8,500 in credit card debt. They pay out over $1,000 per year in interest. It's one of the biggest drains on people's money. If they'd save up for things, they could save that $1,000.


Second, she started early, saving and investing her money little by little over time. Here's what she says about her "secret":

''The secret of building a fortune is compounding interest.  It's not the ones who make big money, but the ones who know how to save who get ahead.  You've got to leave your investment alone long enough for it to increase.'' (6)

Activities and Discussions

Activity #1 (Computation): Discover the Power of Early - "The Twenty Dollar Solution"

Imagine that you work a job, but your expenses eat almost all your earnings.  All you can scrape together at the end of each week is a $20 bill. If you invested that $20 each week at 10% interest, how much money would you have in 50 years? (Ask how they would figure it.)

First, multiply the $20 (amount per week) by 52 to find that you'll invest $1040 per year. Now search Google with the words "compound interest calculator." Once you've found a good calculator, type $1040 in as the amount of yearly investment at 10% for 50 years.  

The answer is $1,331,511.36


Is that astounding or what!?! By starting early and investing only $20 per week, an average person can become a millionaire! We call it the Twenty Dollar Solution, or the TD Solution for short. Every time you see a $20 bill, realize that it can become over one and a quarter million dollars over time, if invested every week!


Alternative Angle: "3DPD - The Three Dollar Per Day Solution." Three dollars per day comes out slightly more than twenty dollars per week. The benefit of the Twenty Dollar Solution is that a person can more easily find ways to earn an extra twenty dollars per week, like baby-sitting or mowing a yard. 


But some may still think of $20 as a lot to invest. By breaking it down per day, some are more likely to think, "Hey, ANYBODY can come up with $3.00 per day! That's nothing!" Marketers use this angle to convince consumers how easily they can finance their product: "This computer can be yours for only dollars per day!" 


3DPD helps people realize that something as simple as cutting out two fast food soft drinks and a candy bar from the vending machine per day can translate into millions. Ask your students which approach is more motivating to them and why. 

Activity #2: "The Treasure Hunt"

Treasure hunts capture people's imagine. Just think of the popularity of  "The DaVinci Code" and  "National Treasure," which were basically treasure hunts. 

Accumulating wealth has some characteristics of a treasure hunt. You have to search for ways to make and save money. Those who find these ways and put them into practice typically find their treasure over time. 


To help students begin to see successful money management as a game, hide a candy bar somewhere in the classroom, like taped onto the bottom of a seat. Then, hand out a sheet of paper with the clues to find the "hidden treasure." For the first clue, perhaps they have to answer some math problem to know how many steps to take into the classroom from the door. Use your creativity!


Then, explain that accumulating wealth is much like a treasure hunt. You've got to "find" $20 each week to save and invest. You can either find it in some new way to make money or some new way to save money. If you can "find" that much money each week, you'll have your treasure! 


The following activities might help you find your treasure. 

Activity #3 (Discussion): Brainstorm Possible Sources of Income

Let's say that Sam is 15 years old. He doesn't have a job, but neither does he have any expenses.  He decides to do something each week to come up with $20 to invest. What could he do? 

Answers might include: 

  • Ask his parents what extra chores he could do to earn that much. 

  • Mow a few yards each week during the Summer, earning $50 per week and letting that make up for less money during the school year. 

  • Baby sit for a neighbor who works during the day.

What are some things Warren Buffett did to make money in his early years? (They should come up with some of these from Step 1):

  • selling Chicklets (small bits of candy-coated chewing gum)

  • finding and selling golf-balls and hiring other kids to help

  • caddying

  • running paper routes

  • buying pinball machines and putting them in barber shops

What other jobs have you heard of, or can you imagine, that people your age can do to earn money? 

What are you doing, or what could you see yourself doing to begin earning money?

(Quote on successful entrepreneurs started early, from article. Rather, put this in the "work hard" article.)


Activity #4: Track Your Expenses

Many people say that they can't come up with $20 per week. But usually they can find that money if they take a closer look at where their money goes. Financial counselors recommend that their clients write down every expense for several months to determine exactly where their money is going. As boring as this sounds, it's incredibly important. Do you remember Ron Blue's advice from a lifetime of helping people with finances? 

"Spend less than you earn, and do it for a long time."  

If you don't have anything left over at the end of each week, how will you ever save? How will you know where to cut if you don't know where your money's going?


Since we don't have several months to wait for you to track your actual expenses, take the next 10 minutes and try to estimate where your money goes each week. 


Think through each day of the week. Do you purchase coffee or biscuits on the way to school? Do you pay for a soft drink or water or a snack from a machine? Those little costs add up!  


Here are some categories to consider. (I have two free sample budgets that you can personal and print, one for adults [more complete] and one for students.)

Eating Out 

Auto Expenses 




Hair Cuts, Manicures, etc.

Other Purchases




Video Games

Movie Rental






Activity #5 (Group Learning): Find Creative Ways to Save

Norma Jean Thurston, a high school classmate of Warren Buffett, remembers him wearing the same tennis shoes year-round, which made him come across like a country bumpkin. Fellow students would joke about it. Norma Jean observed,

"Most of us were trying to be like everyone else. ...I think he liked being different. ...He was what he was and he never tried to be anything else." (7) 

By high school, Buffett had saved enough to easily be the most impressive dresser on campus. But he wasn't into impressing people with his clothes. He knew that money spent on fancy clothes would be less money to invest. 


Getting more mileage out of your tennis shoes may seem trivial, but it's significant. This is the way millionaires think. They find creative ways to cut back so that they can save more for the future. (8)


Get together with about three other people. Talk about specific, creative ways you can cut back in your spending, in order to have money to save and invest. (Give them a few minutes to discuss, until the talking dies down.)


Now, tell the class some of the ways you came up with. (Write them on the board or overhead. Let the class help calculate the savings in each case.)



1) Drive to school only one day a week instead of five days a week. Figure out how much money would be saved in gas. 
2) Don't buy the food out of the machine each day (or the ice cream or the extra drink) saving $5 per week. 
3) Drink free water when you eat fast food, saving $1.25 or so per meal. 
3) Don't get your hair done so often, or let a brother or sister learn to cut it. 
4) Eat out less per week. 
5) Go out to a movie twice a month rather than once a week. 

Idea: Do a taste test with small paper cups, comparing the taste of generic soft drinks (like Big K Cola) with brand names. Don't tell them which is which. The idea is not to try to decide which is the brand name. The idea is to take each in its own right, seeing which you like better. Finally, compare the price of generics with name brands, showing how much could be saved each week. 

Activity #6: Prepare a Budget

Many hate the "B" word, but it doesn't have to be so complicated. In activity #3 you found out where your money is going by mentally tracking your expenses. (You really need to do this over a period of months, preferably an entire year.)

Now go back to your spending pland and write down how much you plan to spend in each category. 

A budget is simply taking control of your spending, rather letting your spending control you. A budget is how you take control of your finances. 

Once you've spent your budgeted amount for say, movies, then don't spend any more that month. If you have trouble going over your budgeted amount in a category, then try the envelope method. It works for many adults as well as youth. 


The Envelope Method

Label envelopes for each category you want to monitor. On your payday, allot the amount you plan to spend in each appropriate envelope. Let's say you're using the envelope method to cut down on eating out expenses. When you go to eat out, you spend money from that envelope. When the envelope is empty, you either stop eating out till the next payday, or must borrow from another envelope. It's a great way to learn limitations.(9)

Activity #7: Eating Out Versus Eating In

How much could you save each week by eating in instead of eating out? If we knew, we might think twice before ordering that pizza or picking up fast food. To find out, compare the prices of some foods you tend to eat out. Example: Compare a McDonalds Quarter Pounder with the cost of purchasing the ingredients (1/4 pound of ground beef, bread, etc.) separately. Compare two eggs and two pieces of toast at Waffle House (including tip) with the same prepared at home. Now, see how much that would save you each week and how much it would be if invested. Is it worth the extra time in food preparation? 

Companion Text

This section goes along with section two of MONEY: HOW TO MAKE IT, SAVE IT, INVEST IT AND ENJOY IT! It's not due out until Fall, 2008, but can be used by select schools to get input. E-mail webmaster@character-education.info if you're interested

Chapters in this section include: 

Chapter 7 – Live WAY Beneath Your Means

Chapter 8 – Save on Food and Clothes 

Chapter 9 – Save on Cars

Chapter 10 – Save on Houses

Chapter 11 –Ten Popular Ways to Lose Lots of Money

These chapters can be used by a few schools to get input prior to publishing. E-mail webmaster@character-education.info if you're interested. )


End Notes

  1. Simple Wisdom for Rich Living, Oseola McCarty (Atlanta: Longstreet Press, 1996).
  2. Read about his early years in Lowenstein, Buffett: The Making of An American Capitalist (New York: Main Street Books, 1995)
  3. Thomas J. Stanley and William D. Danko, The Millionaire Next Door: The Surprising Secrets of America's Wealthy (Atlanta: Long Street Press, Inc., 1996), especially chapter 2 - "Frugal Frugal Frugal," pp. 27ff.
    3.5) Benjamin Franklin, The Autobiography of Benjamin Franklin (Unabridged Dover Thrift Edition, Mineola, NY: 1996), p. 21. 
    3.6) Ibid., see, for example, pp. 36, 37, 38, 50, 51, 55, 70, 74, 75.
  4. Ron and Judy Blue, Raising Money-Smart Kids: How to Teach Your Children The Secrets of Earning, Saving, Investing, and Spending Wisely (Nashville: Thomas Nelson Pubishers, 1992), p. 120. 
  5. Simple Wisdom for Rich Living, Opt. Cite,  p. 25.
  6. Simple Wisdom for Rich Living, Opt. Cite; See also Southern Living, ''The Amazing Grace of Miss McCarty,'' by Nancy Dorman-Hickson, Feb., 1998, p. 18.
  7. Buffett, Opt. Cite, p. 26. 
  8. The Millionaire Next Door, Opt. Cite, pp. 27ff. 
  9. Ron and Judy Blue used the envelope system to train their children in finances. See Raising Money-Smart Kids, Opt. Cite, pp. 51ff.