The Millionaire Next Door – Book Review

I read this book within three weeks and when I read a WHOLE book that quick it says indexsomething. The book features the findings and trends of a large detailed survey that was done with American millionaires in the 1980s. Credit to the two authors: Thomas J. Stanley and William D. Danko for their work.

Now my review will give you a small summary of what the book contains but it will do it no justice. It goes into so much detail and topics range from a millionaire career, net worth, spending habits, investing and how they invest in their children. Below I will list my biggest takeaways from the book and try not to spoil too much. Enjoy!

For my quick readers here are a few statistics that the author gathered from his survey:
  • 50% of millionaires own a business
  • 32% pay for their children’s graduate school education
  • 30% of the households in America that live in homes valued at $300,000 have annual household earned incomes of $60,000 or more
  • 80% of American millionaires are first generation
  • 20% of millionaires are retired
  • 97% are homeowners
  • 46% give at least $15,000 annually to their adult children

And for my avid book readers here are more details. While just starting to read the author gave us seven common denominators among the affluent “millionaires”. These factors should be your foundation if you look towards becoming wealthy. I listed all seven below:

  1. They live well below their means. No matter how much you make continue to live below your means so you have extra money to invest and save with.
  2. They allocate their time, energy and money efficiently in ways conducive to building wealth. In the book it give several examples of how millionaires spend their time. They put forth the hours in planning their finances and studies.
  3. They believe that financial independence is more important than displaying high social status. In Texas they say “Big Hat No Cattle”. Living the high life is great but make sure you can afford it. No need to keep up with the Joneses.
  4. Their parents did not provide economic outpatient care. Without your parents giving you an annual cash gift it allows you to realize how money works and how much your lifestyle cost. For the children who did receive such cash gifts our authors have found that they have a lower net worth than those who didn’t receive any cash gifts.
  5. Their adult children are economically self-sufficient. Adult children that continue to need money annually are basically another bill. Raise your children to be money conscious and understand how to be self-sufficient adults. Otherwise they become your problem for life.
  6. They are proficient in targeting market opportunities. They do their due diligence when it comes to venturing into a new opportunity (investing or purchasing a business) and more importantly they have the money ready to take action. Take advantage of future opportunities by planning on them today.
  7. They chose the right occupation. Pick an occupation you are happy with, as there is no sense in living a rich unhappy life. Research the salary ceiling and if you don’t like it look towards owning your business. There the salary ceiling is a figment of your imagination.

Another important piece of the book can be summed up from the #1 common denominator but let’s get into the details shall we. Picture a lawyer in your head. Got it? Good!!!

  • How do they dress?
  • Where do they live?
  • What kind of car do they drive?
  • What restaurants do they frequent at?
  • What is their net worth?
Before reading this book I imagined lawyers, doctors and bankers were living the high life with caviar every day and they do live that life. That is what most people equate wealth to and we would imagine their net worth is in the millions as well. But from the surveys those with high status jobs tend to have a much lower net worth than they should.  They live the high life but quite frankly spend too much money. The author continues to break this common stereotype in a few of the chapters. Here is my reason I gathered from the book as to why those with high status jobs have a net worth that isn’t impressive.

They don’t live below their means!!! With a high status job you feel the need to impress others by wearing expensive clothes ($$$$), driving nice cars ($$$$), live in a large house ($$$$), pay for your adult children needs ($$$$$) and vacation lavishly ($$$$). You can now probably imagine how a $150K annual income gets eaten up little by little. At the end of the day you don’t have much to invest or save with. The author describes this genre of people as high-income earners and “Big Hat No Cattle.”

Your average millionaire spends below their means, own a business, wear regular clothes, stay in a middle class neighborhood, drive a regular car and don’t give cash gifts to their adult children. The author goes on and states that these types of people are considered a PAW and those who are high income and high spenders are classified as a UAW.

PAW (prodigious accumulator of wealth) = Builders of wealth. They are best at building their net worth.

UAW (under accumulator of wealth) = High-income spenders. They are best at spending and typically have a lower net worth.

My personal review of this book is 4 out 5 stars. I wish the book was more organized but the information it provides is gold. I got a lot of information out of this and I would say the most important lesson in the book is to live below your means and be FRUGAL FRUGAL FRUGAL!!! Wouldn’t recommend it for anyone who isn’t concerned with what others do. Strongly suggest it for readers who plan on becoming a millionaire and care about their net worth. Worth the money and time!!!

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