Executive Summary – “The Millionaire Next Door” written by Thomas J. Stanley and William D. Danko gives an insight into the real millionaires of United States. It gives detailed research on how the millionaires live and how they accumulate wealth by living frugally, saving money and investing smartly. It has listed the characteristics of the millionaires. It is a good book to read and understand how to build wealth. But it is repetitive in some parts and might appeal more to people above 40 and those nearing retirement as the book caters more to that audience.
The book, “The Millionaire Next Door” is written by Thomas J. Stanley and William D. Danko. It does not preach too much on what to do to be a millionaire but talks about people who are millionaires already and what they have done to reach there and has some case studies regarding the same. It is a book that talks about millionaires in United States who do not fit the definition of a typical millionaire that others who are not millionaires have in mind.
The book talks about the traits of these millionaires after doing a research on millionaires in United States. It gives an insight on how one can make a million dollars by spending, saving and investing properly. The book describes seven characteristics of the members of the millionaire club -
- They live below their means
- They spend time and energy to build their assets
- Financial independence is very important for them
- They were not supported by their parents financially
- They do not support their adult children financially
- They invest smartly
- They have stable occupations that pay well
The research shows that the real millionaires have lower priced cars, do not own large mansions as houses and do not invest only in traditional investment avenues. They do not have a flashy lifestyle. It has examples of people who are millionaires but one would not guess they are as people have fixed notions of the rich like they wearing flashy clothes and driving luxury cars. It gives examples of such millionaires. For example, a person from Texas had a successful business in rebuilding diesel engines was a millionaire but did not look the part at all as he lived in a small house with neighbours who were not rich and did not wear expensive clothes. Ross Perot is very rich but manages to get more and more affluent as he takes steps to increase his wealth. He minimized his tax bill by investing in tax free bonds, tax sheltered real estate and long-term stocks.
The book differentiates between UAW (Under Accumulators of Wealth) and PAW (Prodigious Accumulators of Wealth). UAWs have less wealth when compared to their income and PAWs are people who save more, invest smartly, take more calculated risks and build more wealth than expected from their income. These people have a higher chance to be millionaires.
Should one read the book? The content of the book is good but seems to have a bias for older people as it has more of content of how older people i.e. people around the age of 40 and people closer to retirement can become millionaires. The book is a little old and therefore the numbers and research may seem outdated. It does not talk about how entrepreneurship can build wealth which might be more relevant today considering many success stories today. It has formula of how much networth a person should have -
Age * Income * 0.1
This does not sit well with all scenarios and seems to work more for people who are older. Some chapters are repetitive and say the same thing over and over again which can make it a tedious read.
But overall it is a good read as it connects living frugally, saving and investing to become a millionaire. It is good read for a person who is above 40 as it focuses on that age group more. It talks about retirement and how should one deal with one's children regarding financial matters.