- “The Millionaire Next Door” challenges stereotypes about millionaires, revealing that most are frugal, unassuming individuals who prioritize savings and investments.
- The book is based on extensive research and offers practical advice on building wealth through disciplined financial habits.
- It is a highly recommended read for those interested in achieving financial success and debunking myths about wealth in America.
Thomas Stanley and William Danko conducted the most comprehensive study ever on wealthy Americans and discovered that the prevailing assumptions about millionaires are just plain wrong.
- For starters, most Americans with over $1 million in net worth rarely purchase fancy cars or homes. The typical millionaire lives in a neighborhood where they are outnumbered by non-millionaires three-to-one and half of millionaires live in the same house for at least 20 years.
- Most Americans with over $1 million in net worth live way below their means. The median (50th percentile) net worth of a millionaire is $3.1 million with an annual household income of $250,000, but they spend like someone who makes only $85,000 a year (numbers are inflation-adjusted for 2023).
- And lastly, most Americans with over a million dollars in net worth are not privileged people who inherited money. 50% of millionaires didn’t inherit a cent from their parents. They were self-made and self-employed.
Here is a closer look at these three surprising findings and specific steps you can take to become an unassuming millionaire:
Table of Contents
Most millionaires don’t care about looking rich
More than one-third of millionaires buy used vehicles, and more than half drive a vehicle that is more than two years old. The average price they pay for a vehicle is just $4,000 more than the average American spends. When you see a luxury car or SUV on the road, it’s probably not driven by a millionaire. Stanley and Danko found that “many people who live in expensive homes and drive luxury cars do not actually have much wealth.” Just as people act confident when they’re insecure, many people look rich when they have little in the bank or invested in appreciating assets. The truly wealthy know that the thrill of buying a luxury car, a suit, a watch, or any other high-status artifact lasts about a month, but the pride of buying assets and increasing financial independence lasts a lifetime.
Whenever you’re tempted to buy nice things to keep up with your friends and neighbors, recall the words of one millionaire doctor in the book, “I’m not impressed with what you own. I’m impressed with what you achieve.” Forget accumulating nice things and focus on your craft.
Most millionaires live well below their means
“Millionaires play both quality offense and quality defense. And quite often their great defense helps them outscore/outaccumulate those who outearn/have superior offenses. The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.”
Nearly every millionaire in Stanley and Danko’s study saved a minimum of 15% of their annual income. If 15% seems impossible, upload your credit and debit card spending into a budgeting app that breaks out your discretionary spending, and you’ll quickly see opportunities to spend less while maintaining your quality of life. Whatever area of discretional spending you see as an opportunity for saving money (eating out, entertainment, travel, hobbies, gadgets, home decor, and anything else beyond your basic needs), make a budget for it and stick to it.
One significant difference between the wealthy and non-wealthy is that wealthy families spend twice as much time analyzing and planning their spending than non-wealthy families do. Review your spending at least one hour each month to continually find ways to save at least 15% of your annual income. Then, as you earn more, keep your spending the same to gradually increase your savings rate from 15% to 20% – which is the average savings rate of millionaires in the wealth study.
Most millionaires are self-made and self-employed
“Self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires… Three out of four self-employed millionaires consider themselves to be entrepreneurs, and most others are self-employed professionals, such as doctors and accountants.”
Being self-employed requires hard work, persistence, diligent planning, and incredible self-discipline, all of which are traits of most self-made millionaires. “Much of a (self-employed millionaire’s) success depends on living a frugal existence while building their business,” which becomes a lifelong way of thinking.
When the authors looked at the types of businesses self-employed millionaires start, they found most could be classified as “dull” businesses that few people at a cocktail party would be interested discussing. Having a “dull” business (like a paving contracting service or a pest controller service) is great because it doesn’t attract much competition, and the demand for their offering stays elevated during downturns and recessions.
One other common characteristic of self-employed millionaires is that they find opportunities to serve other wealthy people in one of three ways: create service companies for expensive products, create professional practices that help people manage their wealth, and simplify and sell products that wealthy people will pay a premium for.
“Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement. What are three words that profile the affluent? FRUGAL FRUGAL FRUGAL” – Thomas Stanley & William Danko
Thomas J. Stanley is an author, lecturer, and researcher who has studied the affluent since 1973. He lives in Atlanta, Georgia.
William D. Danko is associate professor of marketing in the School of Business, University at Albany, State University of New York.
Genres
Nonfiction, Business, Personal Finance, Money, Self Help, Economics, Personal Development, Psychology, Consumer Behavior, Rich People, Marketing, Sales, Social Sciences, Social Stratification, Social Classes, Biographies, Memoirs, Professionals and Academics, Introduction to Investing, Motivational Management, Leadership, Business Motivation, Self-Improvement
Table of Contents
Foreword Sarah Stanley Fallaw, Ph.D. v
Tables ix
Preface xi
Introduction 1
1 Meet the Millionaire Next Door 7
2 Frugal Frugal Frugal 27
3 Time, Energy, and Money 71
4 You Aren’t What You Drive 109
5 Economic Outpatient Care 141
6 Affirmative Action, Family Style 175
7 Find Your Niche 211
8 Jobs: Millionaires versus Heirs 227
Acknowledgments 246
Appendix 1 249
Appendix 2 251
Appendix 3 256
Review
Introduction: In this book, Thomas J. Stanley and William D. Danko challenge common stereotypes about millionaires. They argue that many millionaires are not the flashy, materialistic individuals often portrayed in the media, but instead, they are regular, unassuming people who have accumulated wealth through prudent financial practices.
Key Themes: The book primarily focuses on the following key themes:
- The difference between income and wealth: The authors highlight that having a high income does not necessarily equate to being wealthy, as wealth is determined by one’s ability to save and invest.
- The importance of frugality: The wealthy individuals studied in the book are typically very frugal, living below their means and avoiding excessive consumption.
- Financial discipline: The book emphasizes the significance of disciplined financial habits, such as budgeting, saving, and investing.
- The role of entrepreneurship: Many millionaires are business owners who have built their wealth through entrepreneurship and wise investment decisions.
Main Points: The book presents a series of key findings based on extensive research, surveys, and interviews with millionaires. These findings include:
- The majority of millionaires in America are first-generation wealthy individuals.
- Most millionaires do not have extravagant lifestyles and often live in modest homes.
- They are diligent savers and investors, regularly allocating a significant portion of their income to savings and investments.
- They tend to avoid debt and are conservative in their financial decisions.
Summary: “The Millionaire Next Door” offers readers a closer look at the habits and lifestyles of America’s wealthy, debunking the myth that wealth is always associated with lavish living. The book provides practical insights into how individuals can build and maintain their wealth by adopting a frugal and disciplined approach to personal finance.
Overall Impression: “The Millionaire Next Door” is a thought-provoking and eye-opening book that challenges common misconceptions about wealth. It is well-researched and provides valuable insights into the financial behaviors of millionaires.
Strengths:
-
- Thorough Research: The book is based on extensive research, including surveys and interviews with actual millionaires, which lends credibility to the authors’ claims.
- Practical Advice: The book offers practical advice for anyone looking to improve their financial situation. It emphasizes the importance of saving, investing, and living within one’s means.
- Challenging Stereotypes: The book challenges preconceived notions about wealth and success, offering a more realistic and attainable path to financial security.
Weaknesses:
- Somewhat Dated: The book was published in the late 1990s, so some of the financial data and examples may not be as relevant in today’s economic landscape. However, the core principles of frugality and financial discipline remain applicable.
Relevance: “The Millionaire Next Door” is highly relevant for anyone interested in personal finance, wealth-building, and understanding the habits of financially successful individuals. It’s a must-read for those seeking to improve their financial situation.
Recommendation: I would highly recommend “The Millionaire Next Door” to anyone interested in building wealth and achieving financial success. It provides a refreshing perspective on how ordinary individuals can attain financial security by following proven principles of frugality, discipline, and sound financial management.
Personal Insights: This book challenges the conventional image of millionaires and highlights the importance of financial discipline and long-term thinking. It reinforces the idea that anyone, regardless of their income, can accumulate wealth by making prudent financial choices.
“The Millionaire Next Door” remains a timeless classic in the realm of personal finance literature, and its principles continue to hold value for readers seeking financial independence and security.