The Millionaire Next Door
Thomas J. Stanley and William D. Danko
What is it about?
The findings of a series of surveys comprising over twenty years of research into the correlating patterns of behaviour amongst America’s millionaire class.
How long is it?
Is it easy to read?
It’s dry in parts, but as financial books go it’s not too bad.
Is it any good?
Yes, it is revelatory in many parts and often cited as one of the best books on personal finance.
How will it inspire me?
The book is a detailed breakdown of the wealth accumulating behaviours and spending patterns of American households that have a net worth of a million dollars or more. The book splits people into two groups, the PAWs (prodigious accumulators of wealth) and UAWs (under accumulators of wealth) and examines the lifestyles of both. It essentially tries to show what habits to avoid and what habits to adopt when it comes to building your fortune.
Whether you like it or not money is going to play a huge part in your life. It’s ubiquitous throughout the world and so it’s vital that you have some basic competency when it comes to it. Now I don’t believe money will bring you happiness, but being broke all the time will definitely make you miserable. A good safeguard against that will be to read books such as this one.
This is the first finance book I’ve chosen to include because it exposes a pervasive myth that a lot of people have about the ‘rich’. The central premise of the book is that most millionaires don’t actually look and live how you would imagine them to. The image of yachts, supercars, lavish mansions and designer clothes is not actually the norm. It also shows how it is not the case that earning a lot of money each year is the key to amassing a net worth of over a million dollars. Neither is it the case that a person needs to become a genius at economics or a trader on Wall Street to become wealthy. In fact so much of the preconceptions you may have about millionaires are false. What makes the book so great are the simple, mundane, easily replicable behaviours that the authors uncover when it comes to becoming wealthy.
The book goes into great detail to show that most millionaires in America, live well below their means, live in lower middle class areas, have basic cars, run their own modest businesses and have small sensible investments. They stick to these behaviours and build their wealth over a long period of time, that’s it. Being thrifty and frugal is ‘the cornerstone of wealth building’ which seems like such a simple concept but it’s one that the authors show is lost on most Americans.
The saying ‘we buy things we don’t need, with money we don’t have, to impress people we don’t like’ seems to have a lot of poignancy in the book. One of the key differences in PAW and UAW behaviour is the type of spending habits they have and whether a person is more interested in becoming rich or just looking rich. The authors themselves were shocked to find that most millionaires don’t spend more than a few hundred dollars on suits, don’t belong to exclusive clubs with high membership fees and the most popular watch is a Seiko not a Rolex.
The idea that all rich people have amassed fortunes through amoral greed, dodging taxes, cheating the poor and exploiting the planet is simply false. Most are just hard working, thrifty individuals, who as the title suggests probably live next door to you. That should be an inspiring concept as it shows that real wealth accumulation is a lot more attainable than you might have thought.
-The advertising industry and Hollywood have done a wonderful job conditioning us to believe that wealth and hyperconsumption go hand in hand. Yet, as I have said many times, the large majority of the rich live well below their means. Unfortunately, most Americans think that they are emulating the rich by immediately consuming any upward swing in their cash flow.
-Would you like to be Mr. Friend? [A big consumer of expensive things] His lifestyle is appealing to many people. But if these people really understood Mr. Friend’s inner workings, they might evaluate him differently. Mr. Friend is possessed by possessions. He works for things. His motivation and his thoughts are focused on the symbols of economic success. Unhappily, he has never convinced himself. In essence, he works, he earns, and he sacrifices to impress others.
-How do you become wealthy? Here, too, most people have it wrong. It is seldom luck or inheritance or advanced degrees or even intelligence that enable people to amass fortunes. Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.