Title: The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
Author: Thomas J. Stanley, William D. Danko
Rating: 7.9/10
Goodreads Synopsis:
The incredible national bestseller that is changing people’s lives — and increasing their net worth!
CAN YOU SPOT THE MILLIONAIRE NEXT DOOR?
Who are the rich in this country?
What do they do?
Where do they shop?
What do they drive?
How do they invest?
Where did their ancestors come from?
How did they get rich?
Can I ever become one of them?
Get the answers in The Millionaire Next Door, the never-before-told story about wealth in America. You’ll be surprised at what you find out.
Review:
When you think about millionaires in America, who comes to mind? Famous actors? Musicians? Entrepreneurs? YouTube stars???
What about your nextdoor neighbor?
This book is one of the best personal finance books I have read to date. The authors have gone into a lot of effort to collect all the data from millionaires. And they have drawn some stupidly simple conclusions from this data can help all of us become rich.
What I really liked about this book is that it wasn’t a “how to become a millionaire” book, but rather a variety of studies and observations that separate millionaires in America from the typical American who is living paycheck to paycheck.
Despite being raised with the belief that you need to make a lot of money on a yearly basis in order to become rich, those who earn large salaries are actually not that wealthy. In fact, it tends to be those who earn modest salaries who ultimately become quite wealthy.
It seems quite backwards if you ask me, but it’s the truth. After all, if you earn $100,000 per year or anything over that, of course you’re wealthy! But what if you spend more than $100,000 per year? Are you still wealthy then?
Saving is the Key to Wealth
Whatever your income, always live below your means
This advice is the most important piece of advice in the book.
If you want to get wealthy (or affluent), you need to live below your means. You need to be frugal. You need to save on most of your things. It doesn’t matter if you make $50,000 or $500,000 on a yearly basis, if you spend more than you earn, you are never going to be rich and wealthy.
Most of the examples in the book were of individuals who were making a decent amount of money, generally around $50,000 or more. But you definitely can do the same even if you have a smaller income. As long as you live below your means, you will save some money. And you can invest this money to get you faster to your goals.
Now, before you go thinking that $50,000 isn’t a lot, if you make more than $38,000 on a yearly basis, you are in the top 1 percent of the wealthiest individuals in the world.
Yeah, you’re sitting pretty good. But it might not seem that way because you continuously spend more than you make.
Accumulators of Wealth
Throughout the book, Dr. Stanley classifies two types of people; Under Accumulator of Wealth (UAW) and the Prodigious Accumulator of Wealth (PAW).
There is a simple formula he gives to help you compute which one of them you are:
Multiply your age times your realized pretax annual household income from all sources (excluding inheritance). Divide by ten. This, less your inherited wealth, is how much net worth you should have.
All I can say is that I have a lot of work to do…
If you are in the below quartile, you are a UAW. In the top quartile, you are a PAW. Otherwise, you are just average. For me, this means I should have a net worth of $148,500.
Yeah, I thought I was doing pretty well for myself, but I am so far from this number that it’s not even funny.
Because of this, I am an Under Accumulator of Wealth.
To my defense, I have only been working in Corporate America for almost five years, but I will admit that I have also blown money on some things that I didn’t really need that helped to contribute to my “lack of wealth.”
For me, I don’t plan on paying attention too much to this. The most important thing is that you set your own financial goals to reach. Just make sure they also help build a future where you aren’t having to work your whole life.
The Life of The Rich and Wealthy
Okay, so how do the spending habits of wealthy individuals match with your spending habits?
Great question. This is the part of the book that I found the most fascinating. You would think that millionaires spend their money on fancy things since they have money to spend, right? But again, it’s all backwards.
Let’s take a look at what wealthy individuals spend their money on.
When it comes to professional attire, more than 90% of millionaires say they have never paid $1,000 or more for a custom suit. Likewise, they have never paid more than $300 for a pair of shoes. In fact, when it comes to attire, Dr. Stanley found that the typical family of a millionaire spent less than $8,700 a year on clothing while the typical family of someone who was worth less than a million dollars spent around $30,000 per year.
How about driving too and from work? Surely millionaires roll around in fancy cars… at least that’s what I assumed.
Again, Dr. Stanley proved my assumptions wrong.
The typical millionaire drives a car that is 3 years or older because they understand depreciation.
According to Stanley, “Fifty percent of the millionaires we surveyed never spent more than $29,000 in their entire lives for a motor vehicle. About 20 percent never spent more than $19,950. Eight percent paid $41,300 or less to acquire their most expensive motor vehicle.”
Personally, I always envisioned millionaires driving cars such as Lamborghinis, Bentleys, Porsche, you get the idea. But the typical millionaire actually drives an American-made car such as a Ford or a Chevy.
Final Thoughts
Overall, I have to say that I really enjoyed this book. It gives great insight as to what millionaires actually spend their money on. Most of the time, what they spend their money on is actually the exact opposite of the assumption that I had drawn.
Granted it took me a good chunk of time to read, I still found it to be very interesting. It was nice to see how millionaires are actually living instead of just drawing up conclusions for how we think they are living.
What is especially good about this book is the amount of research that has been done by the authors. It shows that you don’t need to make a million dollars a year to be a millionaire. In fact, you can become a millionaire regardless of your income. How? By living frugally and by living well below your means.
Don’t just take it from me. Take it from a doctor who devoted 10 years of his life to research thousands of millionaires to find this information. If you want to become a millionaire, just know that you can. It’s completely up to you.
So, as always, what’s the next best thing you can do? What’s the next best thing you can do for yourself to someday become a millionaire?
Now act on it.
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