The Millionaire Next Door
I’ve been learning about and working in personal finance for 20 years. I don’t know why, but I put off reading The Millionaire Next Door until this year. On many personal finance book lists, it is listed in the top 10. After finishing my reading this week, I can understand why.
The Millionaire Next Door is quite a bit different from many of the personal finance books you will read. Many other books focus on principles of managing money and try to get you to adopt their teachings. The Millionaire Next Door set out with a different intention. The authors, Thomas Stanley and William Danko, invested a tremendous amount of time in discovering how America’s millionaire’s lived. What were their habits and behaviours? What were they doing that was different from what everyone else in America were doing. They believed it was this difference that would hold the key between building wealth and becoming a millionaire or not.
Being a bit of a numbers junky myself, I found their research fascinating, but I also discovered something that surprised me as well. I’ll save that for later.
While you’ll have to read the book to truly appreciate all the work that went into the book and the knowledge they share, I’ll entice you to read their book with a few nuggets.
Did you know?
(From The Millionaire Next Door, Copyright 1996)
Only 3.5% of American households were millionaires? (In 2016, the number of millionaire households has increased to 10.8 million or roughly 8.5%)
80% of these millionaires were first generation millionaires meaning they built their wealth.
EOC (Economic Outpatient Care) is almost always is bad for the recipient. This is when a parent supplements their child’s income in some way. Many times this continues on into adulthood and undermines the ability of the child to mature fully and independently often resulting in the adult/child from attaining as much success, income levels or wealth as their peers.
A large number of millionaires, 37%, buy used cars. They prefer to buy automobiles that are 1-3 years old to save money on the depreciation of the car. 50% of the time the priced paid for the car is $30,000 or less.
The average millionaire is very frugal. Choosing frugality over flash. The #1 watch owned by millionaires is a Seiko. The average suit cost $399 or less.
Perhaps one of the most fascinating things I found in the book came when the authors mentioned UAWs and PAWs. UAWs (Underperforming Accumulators of Wealth) and PAWs (Prolific Accumulators of Wealth) exist in the millionaire world. UAWs typically accumulate 1/2 the wealth of the average millionaire for their income level due to their spending, saving and investing habits. By contrast, PAWs typically develop twice the wealth of the average millionaire with their income level. Even with the same income level there are wide spreads of wealth accumulation. It all comes down to how you handle your money. Which one are you?
What I found most surprising in reading The Millionaire Next Door was how closely it fit my family and I. We’ve splurged a bit on some amenities, but overall, The Millionaire Next Door was a virtual match for how we live our lives and manage our money. It’s nice to know I’m on track.
If you want to become a millionaire, I suggest you read The Millionaire Next Door and learn a little something from the guys that studied millionaires.