The Millionaire Next Door, a Review
The Millionaire Next Door by Thomas J. Stanley and William D. Danko, published by Longstreet Press is subtitled, The Surprising Secrets of America's Wealthy. And that just about sums up the book. You will be surprised to learn that many of the myths surrounding the wealthy in America are just that – myths that do not reflect reality. On the other hand there is much about America's wealthy that will not surprise you once you apply a little common sense to the subject.
The book is all about who is wealthy in America and how did they become wealthy from a behavioral point of view. The text describes who the rich are, what they do, where they live and shop, what do they drive, how do they invest, and even their ethnic heritage. It may answer the question of whether you can become a millionaire.
The primary characteristic of the wealthy is that they live well below their means. They are frugal, frugal, and frugal. They are very efficient in allocating their time and energy as well as their money. They are unconcerned about social status and are very concerned about financial independence. Their parents did not provide adult financial assistance, and they don't provide it to their children. They are careful about their occupations and take advantage of market opportunities.
An ongoing theme of the book is that millionaires are not what you would expect. They don't look like millionaires. They buy and drive used cars, inexpensive suits, modest homes, and don't wear expensive shoes or watches.
Their wives are true partners in wealth building. They are planners and so are their wives. They believe education is important, but above $100K in income, there is a negative correlation between education and wealth. The wealthy work hard but not excessively, about 45 to 55 hours per week.
The wealthy are usually first generation millionaires. They invest regularly, and they invest in a way to minimize their tax obligations.
The authors do a good job in comparing and contrasting what they call PAWs, prodigious accumulators of wealth, and UAW's, under accumulators of wealth.
As you might expect, UAWs exhibit the opposite behavior of PAWs in most cases. They live in high status neighborhoods. They drive high status cars. They do a poor job of shopping for cars. They do not plan their budgets or life's goals. They support their adult children if they can to help their adult children maintain a high status lifestyle. They tend to weaken their weak children with added support and strengthen their strong children by providing little support.
PAWs treat their adult children as adults and expect them to earn their way through life. PAWs have taught their children “how to fish” instead of buying the fish for them.
If there is one lesson to be learned from the book, it is that frugality translates into wealth. The second lesson may be that behaviors that lead to wealth are observable and can be emulated.
For those of your wishing to become millionaires, the book is a good start, but it also offers one important bit of information. Millionaires have a good income from which to build. In 1996 dollars, the median income was $131,000, and the average was $247,000. The lowest income millionaire the authors found was earning $70,000.