Customer Reviews

The Millionaire Next Door

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The Millionaire Next Door by Thomas J. Stanley and William Danko is a fun to read book for anyone interested in understanding America's wealthy, defined by Stanley and Danko as those people who have net worth of $1 million dollars or more.

The Millionaire Next Door claims that there are seven key factors that lead to wealth accumulation. Included are: 1. Living Well Below your financial means. In other words being frugal. Buying the reliable used car versus the shinny new BMW or Porsche.

2. Spending your time wisely and in ways that lead to building wealth, such as studying investment. 3. Being more concerned about financial independence rather than showing off how much wealth you possess.

This is a book that will make you feel good about yourself if you are a compulsive coupon clipper or if you keep telling your kids to shut the door as they are letting the heat out of the house and it is costing you money. The book claims that it will teach you how to join the ranks of America's millionaires. Who could resist reading such a book?

To get rich, you must first learn not to be a hyperconsumer. In other words don't buy a lot of expensive stuff you don't need. You need good "offense" or generating earnings of at least $60,000 or more a year. Then you need good "defense" or saving a goodly portion of what you earn. Then you need to get old.

In fact, even if you don't have a million dollars, you can still be "rich" by being a PAW. PAWs or "Prodigious Accumulators of Wealth" have more money than you would think they would based upon their age and income. In contrast are the wasteful UAWs or "Under Accumulators of Wealth." There are also AAWs (Average Accumulators of Wealth) but they aren't discussed much. No mention is made of how much EWOKS tend to accumulate. But, I'm betting those furry little fellows save a lot.

So even athletes worth tens of millions of dollars can be UAWs. There is something reassuring in that! There is a lot of interesting knowledge to be gleamed from this book. We learn that 3.5 of every 100 households in America have a net worth of $1 million dollars or more. But that 22 of every 100 households headed by Russians have a net worth over $1 million dollars.

We also learn that self-employed people account for over 2/3 of the wealthy in America. But Stanley and Danko do not tell everyone to start their own business. That's too risky, the authors say. In later chapters they do mention some businesses that they believe are poised for growth in the future. Businesses that cater to millionaires.

Danko and Stanley seem to see a glimpse of successful businesses when they suggest starting professional businesses. Such businesses tend to need to generate less revenue to make an equivalent level of profits. But this is equivalent to starting a business with high net margins. Many non-professional businesses also have relatively high profit margins. Many college drop outs have built computer-programming based companies, for example.

Despite having studied wealth for decades, and holding PhD's, Stanley and Danko seem to have some misunderstanding about the nature of wealth building via entrepreneurship. It is pointed out that many corporate businesses fail to report profits in any given 12 month period. No allowance is made for businesses like amazon.com which are growing rapidly and establishing themselves. The implied message seems to be that running a business is just too risky. And, it is pointed out that many businesses demand considerable resources like land for coal mining. But, before this the authors are toting investing in assets that appreciate. Land is one of those assets.

We are told that one key factor of the rich is that they minimize their tax bite. The rich tend to pay a much smaller percentage of their overall wealth in taxes than most people. But, here it seems Stanley and Danko are mixing up cause and effect. Yes, the rich think about taxes. But, it is precisely because they have already saved a lot, and have retained wealth that is not taxed, that they pay a smaller percentage of their wealth in taxes.

But Stanley and Danko can be excused for any oversight as they hold PhD's and "being well educated has certain drawbacks" with regard to the creation of wealth.

The flaw of pursuing spending to show you are affluent and have financial status is very thoroughly trashed, as it rightfully should be. All successful people tend to be achievement oriented. But, I think the book could do a better job of following up upon the fact that 2/3 of America's wealthy are small business owners. It seems an injustice to just sweepingly say that likelihood of success in business is tenuous, and imply you should get a professional degree so that you have high earnings to save. Maybe this is what some business owners tell their children, but it is not how they acquired their wealth. To really understand wealth creation, you need to understand business, and I feel Stanley and Danko could do a better job expanding upon this.

Finally, there is some very interesting food for thought about how wealth will affect your children. I like this book a lot and recommend it. Peter Hupalo, author of Thinking Like An Entrepreneur.

"The Millionaire Next Door" by Thomas J. Stanley and William Danko is a fun to read book for anyone interested in understanding America's wealthy, defined by Stanley and Danko as those people who have net worth of $1 million dollars or more.

"The Millionaire Next Door" claims that there are seven key factors that lead to wealth accumulation. Included are:

1. Living Well Below your financial means. In other words being frugal. Buying the reliable used car versus the shinny new BMW or Porsche.

2. Spending your time wisely and in ways that lead to building wealth, such as studying investment.

3. Being more concerned about financial independence rather than showing off how much wealth you possess.

This is a book that will make you feel good about yourself if you are a compulsive coupon clipper or if you keep telling your kids to shut the door as they are letting the heat out of the house and it is costing you money. The book claims that it will teach you how to join the ranks of America's millionaires. Who could resist reading such a book?

To get rich, you must first learn not to be a hyperconsumer. In other words don't buy a lot of expensive stuff you don't need. You need good "offense" or generating earnings of at least $60,000 or more a year. Then you need good "defense" or saving a goodly portion of what you earn. Then you need to get old.

In fact, even if you don't have a million dollars, you can still be "rich" by being a PAW. PAWs or Prodigious Accumulators of Wealth have more money than you would think they would based upon their age and income. In contrast are the wasteful UAWs or Under Accumulators of Wealth. There are also AAWs (Average Accumulators of Wealth) but they aren't discussed much. No mention is made of how much EWOKS tend to accumulate. But, I'm betting those furry little fellows save a lot.

So even athletes worth tens of millions of dollars can be a UAW. There is something reassuring in that! There is a lot of interesting knowledge to be gleamed from this book. We learn that 3.5 of every 100 households in America have a net worth of $1 million dollars or more. But that 22 of every 100 households headed by Russians have a net worth over $1 million dollars. Interesting.

We also learn that self-employed people account for over 2/3 of the wealthy in America. But Stanley and Danko do not tell everyone to start their own business. That's too risky. In later chapters they do mention some businesses that they believe are poised for growth in the future. Businesses that cater to millionaires.

Despite having studied wealth for decades, and holding PhD's, Stanley and Danko seem to have some misunderstanding about the nature of wealth building via entrepreneurship. It is pointed out that many corporate businesses fail to report profits in any given 12 month period. No allowance is made for businesses like amazon.com which are growing rapidly and establishing themselves.

Nor is it pointed out that many businesses are started in a half-hearted fashion and will never succeed. And it is pointed out that many businesses demand considerable resources like land for coal mining. But, before this the authors are toting investing in assets that appreciate. Land is one of those assets.

We are told that one key factor of the rich is that they minimize their tax bite. The rich tend to pay a much smaller percentage of their overall wealth in taxes than most people. But, here it seems Stanley and Danko are mixing up cause and effect. Yes, the rich think about taxes. But, it is precisely because they have already saved a lot, and have retained wealth that is not taxed, that they pay a smaller percentage of their wealth in taxes. (And, capital gains are taxed at lower rates than income, and if you have more, you can invest more and build wealth via capital gains.)

But Stanley and Danko can be excused for any oversight as they hold PhD's and "being well educated has certain drawbacks" with regard to the creation of wealth. And, Stanley has, no doubt, become a millionaire by writing about millionaires.

The flaw of pursuing spending to show you are affluent and have financial status is very thoroughly trashed, as it rightfully should be. But, each socio-economic group has its own views about what is "important." All successful people tend to be achievement oriented. Unfortunately, many academics measure success by the degrees you hold or the degree of knowledge to which you have been formally exposed. Because of this "The Millionaire Next Door" misses that there are many successful endeavors which do not demand eight-year degrees. You will sense a certain academic bias in the book toward pursuing education. (Incidentally, that bias seems to vanish in "The Millionaire Mind." --another great book.) (There is some justification to saying education is good. I saw a Census study that said the average life time earnings of someone with a highschool degree is about $1.2 million. It's about $2.1 million for those with a college degree and about $4.4 million for those with professional degrees.)

Finally, there is some very interesting food for thought about how wealth will affect your children. I like this book a lot.

Peter Hupalo...

I was given this book as a gift and was thoroughly disappointed. This book simply states that you should live below your means, stay out of debt and save money, if you want to be a millionaire. Shocking! The statistical data shows that most millionaires don't live in fancy houses, drive fancy cars, belong to country clubs or eat out a lot. True. Most millionaires are people nearing retirement with large 401(k)s/pensions and houses that have appreciated significantly in value. In order to take advantage of this savings, they'll need to sell their homes and begin to liquidate their 401(k)s. In other words, they will be living off this money as retirees. They will not be dining on caviar and champagne every night nor living on a $500,000 yacht. They will need every dime in this high priced world. In other words, they will not be rich . . . and let's face it, people are buying this book because they want to know how to "get rich" not how to have a safe retirement. I suppose a better title for this book should have been: "A safe retirement is within reach for someone with fiscal discipline". Boring and obvious advice.

Who are the rich in this country?

80 percent of this group didn't inherit their wealth they earned their wealth. They valued education, hardwork, and discipled saving. One word characterizes them, "Frugal". They accumulate wealth by lower their consumption, making careful buying decisions, and saving or investing their excess. They are not super financial traders or wizards, instead, they are smart-long term investors, usually trading in and out of stocks, annually. Most help their children financially to obtain higher education degrees and homes.

What do they do?

Most have their own business. They operate efficently by keeping their cost down. One case study talked about a man who was the owner of a janitorial service. This man's net worth excessed all the professional doctors, lawyers, and business men in his community.

This group have annual incomes with a few exceptions are less than 100,000 dollars a year. In a small percent their income exceed a million dollars. Most importantly is the fact they have high net value amounts for their age. The medium age being about 56 years old. The important factor about this group of people is they do not spend their money maintaining a certain lifestyle. Their money has very little bearing on their lifestyle. Their Net Value matches or exceeds : 1/10 * age * annual income.

Most have nice homes (paid for), medium value cars, and value oriented assets (land,real estate investments); however, they don't necessary require expensive foreign cars, expensive watches, memberships in multiple country clubs, nor expensive clothing. They are not cultured on gourmet foods, rich social parties, or costly toys.

Where do they shop?

They shop at middle class stores. The wives of this group are disciplined using coupons, and driving for a super bargin, demonstrating patience and researching their options for purchase, and acquiring when they discover a great deal.

What do they drive?

They drive domestic cars. In some case they prefer new car purchases to used because of reliability, brand names like GM, Ford, Crysler, Toyota, Honda, Accura, and Infinity.

How do they invest?

They invest carefully. A significant amount of financial planning preparation goes into their investment decisions. Most have investment and some accumulated the bulk of their wealth through investments. The majority are long term investors and very few trade daily.

Where did their ancestors come from?

The Scottish descendants are the riches group. This group is very thrifty as a group.

How did they get rich?

This group became rich by saving and investing. Their actual worth exceeds their age multiplied by their annual income times two divided by ten. Most quickly moved out of education and into business where they realized cash flow. They used the cash flow too start a business. They didn't spend large amounts of money advertising, instead grew their companies slowly their thrift and careful decisions. Over time these decision resulted in a realized increase in their net worth. They didn't make alot of mistakes along the way.

Can I ever become one of them?

Yes, start by being frugal, reduce consumption, avoid expensive lifestyles, and save or invest the excess money. Its that simple.

I can understand and appreciate that everyone wants to state their opinion on this book, but I really thought or would think that people would read it first and then review it.

When I read reviews like the one by a reviewer that says "Poorly Researched" I have to scratch my head and wonder why these people even bother coming to these boards.

Geesh!

The Millionaire Next Door exposes the myth of American millionaires as being flamboyant consumers with exciting lifestyles. Using self-proclaimed extensive research and seemingly endless case studies, the authors reveal that the vast majority of millionaires are, in fact, frugal bargain hunters with boring exisitences. This, in a nut shell, is the sum and substance of the entire book. With 7 factors to explain how one can attain and maintain wealth, the authors beat the theory to death using both sexist and biased examples to support their thesis. This is not to say that their observation isn't valid, but the authors could have easily written a equally informative pamphlet. As a high school student I found it amusing that the authors completely downplay the importance of higher education in favor of strategic savings. It is hardly a revelation that: "Financially independent people are happier than those in their same income/ age cohort who are not financially secure." Few people would need a 258 page book to drive that point home.

I enjoyed reading this book. The vocabulary used, the humour expressed, the ideas that were fairly often surprising and thought provoking made this book a good companion for a short while. A lot of the facts in the book came back to life in conversations with friends and family members. A lot of the material of this book will stay with me for a long time.

What an amazing book! This book is full of facts, figures and statistics on the wealthy. What a great resource to find out who they are, what makes them tick, what types of businesses they start, and in essence how to target them.

[...]

The accepted view in our society is that wealthy people drive expensive cars and live a lavish lifestyle.However, these people earn a lot, spend heavily, and are often in debt. The people with a very high net worth live below their means. They own small businesses and value wealth building instead of a social status. They also tend to be very frugal in their living habits. They appear to be just everyday middle class people, but in reality have a very high net worth.
This book goes on to explain the difference between the false perceptions of high net worth people,and what the facts bear out.
The benefits of a frugal but well rounded lifestyle, are explained in the book.

With great authors like Dave Bach who has written an excellent book "The Automatic Millionaire", sometimes classics like The Millionaire Next Door get shoved aside and forgotten. The Millionaire Next Door should be read in addition to The Automatic Millionaire. I also recommend More Wealth Without Risk by the late, great Charles Givens.

The Millionaire Next Door shows how the wealthy became wealthy. It wasn't due to luck, politics, inheriting a fortune or help from the government. It was by developing and applying a few simple disciplines. This book will show you how too.