Submitted By: Morgan Glenn
A Review of “The Millionaire Next Door”
The Millionaire Next Door explores the characteristics and spending habits of the
wealthy in America, sharing their “secrets” to accumulating wealth with anyone who’s willing to
listen. Thomas J. Stanley, and William D, Danko have conducted years of studies and research to
bring us an overwhelming amount of statistics and evidence to support their ideas. Our authors
begin the book by introducing us to the average millionaire. They give us seven common
denominators among people that are successful in accumulating wealth, some of which are that
they live well below their means, that they believe financial independence is more important than
displaying high social status, and that they allocate their time energy and money efficiently, in
ways conducive to building wealth. Throughout the book these authors show us over and over
again how the average millionaire is not living the lavished lifestyle most people think they are.
They prove to us over and over again that this very lifestyle is one that keeps a person from
accumulating wealth. They reveal to us that the average millionaire could actually be living right
next door to us.
According to Stanley and Danko’s findings, many people who earn high incomes are not
affluent. So many of these people live hyper consumption lifestyles, spending everything they
make and striving to earn more simply so they can spend more. These types of people would not
last long if they were to lose their job. Though their income is high, their net worth is low. In
other words, they don’t have the proper amount of savings, investments, and the like to keep
them going in case of an emergency, and they are nowhere near financial independence. Stanley
and Danko name these people under accumulators of wealth, or UAWs.
On the contrary, those who Stanley and Danko define as wealthy, have a high net worth,
or as they put it, “cattle”. They are the prodigious accumulators of wealth, or PAWs. These
people often have lower incomes than many of their less affluent cohorts. They live frugal
lifestyles, allowing them to build wealth in their investments and savings. A person of this type
does not worry much about losing their job or being faced with what might be a devastating
emergency in life. These people are prepared, and are much closer to financial independence
than most.
To accumulate wealth, one must be frugal. When thinking of millionaires people usually
think high priced import cars, expensive suits, fine wine, and all things “bling bling”. This in fact
is not the case of the average millionaire. There are cases such as those who have inherited their
money or won a large sum of money, but the typical self made millionaire is not a hyper
consumer. Those whom have accumulated their wealth on their own would more likely be found
purchasing suits for less than $600 dollars, more often around $200. The self made millionaire
would more likely own a car purchased for under $30,000. According to Stanley and Danko the
self made millionaire would most likely choose Bud Light over some high priced wine to drink.
The millionaire next door is frugal. He is wise about where his money goes. These types of
people plan their finances in detail. They know where there money is going each and every
month, and they take the extra time in shopping and searching for best deal around. These people
have a set of goals that drive them, their biggest goal being financial independence.
One of the biggest differences between the affluent and the lack there of is simply
planning. Many non affluent people would say that they simply don’t have the time to make a
monthly budget or to do the research it takes to invest in stocks or a pension plan. They are too
busy working. To them, the more they work, the more money they can earn, and therefore the
wealthier they will be. But these people typically earn more, and as a result spend more.
The millionaire next door doesn’t need to earn more. He recognizes that the key to
building wealth is by saving and investing what you already have. Nearly 95% of the
millionaires surveyed by Stanley and Danko own stocks. Most of them have 20 percent or more
of their wealth in publicly trades stocks. Not only are these people investing, but they are
investing a large sum of their net worth. How do they accomplish this? By being frugal, and by
planning. It is not surprising that the person who spends less time planning his future investment
decisions has a lower net worth than that of the person who spends the time needed. The man
who says he has no time is mistaken. According to Stanley and Danko the average millionaire
investor only spends 10 hours a month, or 120 hours a year planning his investments, and
according to the findings in this book it is well worth the time.
Spending more time planning your investments will not automatically make you a PAW.
The book suggests that the habits and characteristics of a PAW should be learned as early as
possible, and will take much time and effort to perfect. Stanley and Danko show us the effect
parents have on their children and vice versa in many aspects. UAWs or more likely to teach
their children to be UAWs. Their hyper consumption lifestyle teaches their children hyper
consumption habits. From an early age they unknowingly tell them that the way things look is
more important than the way things really are. They show them that earning money is important
so that you can spend that money.
Even PAWs sometimes teach their children to be UAWs. Economic outpatient care can
be very damaging to the financial characteristics of both parents and children. Many wealthy
parents feel responsible to care for their children in every area of financial need. They bail them
out when they are out of the job, or dote upon them with lavished gifts all year long because
“they deserve it”. They believe they are helping the ones they love, but what they don’t know is
that they are actually hurting both their children and themselves. They are teaching their children
that their income comes from their parents. There is no need for financial independence when
mom and dad are there to take care of you. As these children get older and have no sense of this
independence mom and dad are forced to continue to care for them. These parents will spend
most if not all of their lives worrying about their kids because they’ve taught them that they
don’t have to take care of themselves. Economic outpatient care is possible to give without
ultimately harming your children’s financial habits, however. The book suggests teaching your
children to fish. They say to “create an environment that honors independent thoughts and deeds,
cherishes individual achievements, and rewards responsibility and leadership” (p.165). It is
possible to aide in your children’s future. The idea is to do it in a way that teaches them to live
on their own.
The Millionaire Next Door provides great insight into what it takes to become wealthy
and how to stay that way. Throughout the time I spent reading this book I have been able to
realize my own hyper consumption spending habits and the lack of planning and saving. By
becoming even just a little more frugal I’ve been able to pay off debt I once couldn’t get a handle
on and begin a savings account in which I hope to invest some day. Being a PAW is a
completely different lifestyle than that of an UAW, and one that takes much time to learn. It’s a
lifestyle that most people would not assume a millionaire would have. I find myself often
wondering if the guy in the car next to me is actually a millionaire, and realizing that the one in
the Ferrari is probably not as well off as I would have originally thought.