The Millionaire Next Door is a phenomenal book that explodes myths about how wealth is acquired and how wealth is preserved.
Authors Thomas J. Stanley and William D. Danko developed a significant set of original data (through surveys and interviews) with American Millionaires. Through this research, the authors identified seven common factors common to many millionaires.
What Makes Them Millionaires?
- They live well below their means.
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
- They believe that financial independence is more important than displaying high social status.
- Their parents did not provide economic outpatient care.
- Their adult children are economically self-sufficient.
- They are proficient in targeting market opportunities.
- They chose the right occupation.
Projecting Status and Wealth vs. Building Actual Assets
The authors posit a concept of Prodigious Accumulators of Wealth (PAWs), Under Accumulators of Wealth (UAW), and Average Accumulators of Wealth (AAW). I like this frame of reference because it shifts thinking away from projecting status and the appearance of wealth and towards actually building wealth.
Building wealth is a function of having a good "offense" and a good "defense." Offense is your earning power; defense is your ability to save (and not blow through) all the money that enters your life. Naturally, PAWs have both a great offense and great defense.
The authors stress that the media projects a hyper-consuming "millionaire lifestyle" that is completely different from the way the majority of millionaires acquire, grow, and preserve their wealth. The lavish and excessive lifestyle of superstar singers and athletes does not represent how wealth is built; the athletes and entertainers are outliers that represent a small fraction of America's wealthy.
Indeed, according to the book, many people projecting wealth actually are heavily in debt.
A Few Surprising Facts About the Wealthy
- At the time the book was first published in 1996, one of the most commonly owned vehicles for a millionaire was a Ford F150 pickup truck.
- The number one watch brand owned by millionaires is a Seiko.
- 37 percent of millionaires buy used cars.
- 80 to 85 percent of millionaires are self-made (didn't inherit their wealth).
I read The Millionaire Next Door in my early twenties, and Stanly and Danko's book dramatically shifted my thinking about how to build wealth, achieve financial independence, and make my own decisions about how to spend money. That's why it's one of the key books I recommend on the path to financial independence. I suggest you get a copy from your local library.