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Book Review: 'The Millionaire Next Door'

Updated on January 25, 2018
tamarawilhite profile image

Tamara Wilhite is a technical writer, industrial engineer, mother of 2, and a published sci-fi and horror author.


The Millionaire Next Door by Thomas Stanley and William Danko was a ground breaking study of true millionaires when it came out in 1996, defined by those with a million dollars or more in net worth. This book review is on the 2010 updated version of “The Millionaire Next Door” by Danko and Stanley.

Cover of the Book "The Millionaire Next Door"
Cover of the Book "The Millionaire Next Door" | Source

Pros in Favor of This Book

If you want to know what makes someone a millionaire, this book thoroughly explains how it is done. In short, the millionaires are not those who make a million dollars a year. It is, instead, the people who steadfastly save a portion of their income every month for years, building up their net worth.

This book gives excellent comparisons of high income high spending individuals, high income lower lifestyle individuals, frugal savers on modest incomes and those who spend all they have. You get to read about how much those with a million dollar net worth really spend on shoes, clothing, housing and other categories. (Hint: It isn’t nearly as much as the high income, big spenders do.)

The Millionaire Next Door demonstrates how too many people move into big houses and high cost neighborhoods in the hope of becoming rich while essentially making it impossible to save.

The book The Millionaire Next Door gives straightforward equations for a number of key financial metrics. For example, if you want to be able to become wealthy one day, don’t spend more than three times your annualized income on a house. The Millionaire Next Door is most famous for its measure of how wealthy one should be. The original equation was (income x age) / 10. The average accumulator of wealth should have that result as their net worth.

There are a few guidelines in this book that many people need to know. For example, you’ll never become wealthy if you give “economic outpatient care” or personal bailouts to your family members. The book even demonstrates how doing this undercuts the income and net worth of those who receive significant cash gifts from their parents.

Dave Ramsey fans will enjoy learning that most millionaires budget, knowing where their money goes and controlling expenses so that they can save. It tells you that the average millionaire saves 20% of their income. The wealthy generally became such by diligently saving and investing over time. Of those that didn’t budget carefully, they became wealthy by “investing in themselves” and saving a large chunk of their income first, then spending only what was left while avoiding debt. There was only a small minority, mostly those who inherited their wealth, who didn’t

The Millionaire Next Door does a good job of explaining the link between business and wealth. Starting a business won’t make you wealthy, but a disproportionate number of business owners are wealthy. For those who make it, their businesses are usually dull-normal like construction firms, trailer park owners and farmers, not technology start-ups. In fact, auctioneers are among the most likely to be millionaires, because they’ve witnessed the emotional aftermath of bankruptcy sales and foreclosures while being able to buy property and assets at bargain prices.

Cons Against This Book

This book lacks some of the financial guidelines Dave Ramsey gives, such as never having more than half your total annual income tied up in things that go down in value, such as all the cars in your family and recreational toys like boats. It simply dedicates a whole chapter showing how millionaires rarely ever buy new cars.

The book Millionaire Next Door doesn't clearly enough communicate the danger debt poses to long term wealth building.

The book Millionaire Next Door dedicates an entire chapter to career recommendations that are dated at best. It suggests that people go into trust law, property appraisal, medicine and other areas that cater to a larger, wealthy and elderly population. It missed, however, the value of setting up businesses in elder care, something that has boomed as Baby Boomers age.

The book by Stanley and Danko touches on the topic of how time is money, such as the fact that prodigious accumulators of wealth spend twice as much time tracking spending and investments as under-accumulators and the inverse relationship between time spent shopping for cars versus net worth. However, it doesn’t dedicate much time to the topic compared to others – but it does waste nearly two chapters on how the non-wealthy buy cars, negotiate for cars and their car preferences.

Notes About The 2010 Version of Millionaire Next Door

Due to the economic downturn that started in 2007, the revised version of this equation exempts the value of your primary residence from this equation. Far too many people thought they were wealthy because their homes were worth a million dollars on paper. This in fact contributed to the Great Recession, where many people borrowed against the inflated value of their homes to spend, so that they had no equity when it was impossible to make the house payments when interest only or variable rate loan rates spiked or they had to sell due to the loss of one income in the household. This revision to the classic net worth equation may or may not be necessary any more now that property values have rebounded.

I’ve read both the 1996 and 2010 versions of The Millionaire Next Door. I was disappointed that they didn’t index the prices or incomes into 2010 dollars for the updated book.

Is There a Follow Up to The Millionaire Next Door?

"The Millionaire Mind" by one of the two authors of "The Millionaire Next Door" attempts to explain the mindset that led to the rich becoming so.Dr. Stanley alone authored "Stop Acting Rich…and Start Living Like a Real Millionaire", detailing the spending habits and saving habits of millionaires in greater detail than the Millionaire Next Door book.

For those who want to get out of debt so they can save more money, Dave Ramsey’s books are a good follow up to “The Millionaire Next Door”. For those who want to move into setting up a business or rental real estate, the first several “Rich Dad, Poor Dad” books are a good resource. For women afraid to stop giving money to adult children, who feel guilty about earning much money or saving for their own goals, Suze Orman’s "The 9 Steps to Financial Freedom" is a good first step along with Dave Ramsey's "Financial Peace University". "The Courage to Be Rich" is only for those who wrongly associate savings and wealth with negativity and immorality, and thus find themselves giving away anything they save to avoid feeling bad about it.

"The Millionaire Mind" tries to go deeper into analyzing the behaviors and mindsets that allowed millionaires to become such.
"The Millionaire Mind" tries to go deeper into analyzing the behaviors and mindsets that allowed millionaires to become such. | Source


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