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The Millionaire Next Door (Millionaire Set Book 2) Kindle Edition
Most of the truly wealthy in the United States don’t live in Beverly Hills or on Park Avenue. They live next door.
America’s wealthy seldom get that way through an inheritance or an advanced degree. They bargain-shop for used cars, raise children who don’t realize how rich their families are, and reject a lifestyle of flashy exhibitionism and competitive spending. In fact, the glamorous people many of us think of as “rich” are actually a tiny minority of America’s truly wealthy citizens—and behave quite differently than the majority.
At the time of its first publication, The Millionaire Next Door was a groundbreaking examination of America’s rich—exposing for the first time the seven common qualities that appear over and over among this exclusive demographic. This edition includes a new foreword by Dr. Thomas J. Stanley—updating the original content in the context of the financial crash and the twenty-first century.
“Their surprising results reveal fundamental qualities of this group that are diametrically opposed to today’s earn-and-consume culture.” —Library Journal
From Library Journal
Copyright 2001 Reed Business Information, Inc. --This text refers to an alternate kindle_edition edition.
- ASIN : B07XB487HP
- Publisher : RosettaBooks (November 30, 2010)
- Publication date : November 30, 2010
- Language : English
- File size : 4486 KB
- Text-to-Speech : Enabled
- Screen Reader : Supported
- Enhanced typesetting : Enabled
- X-Ray : Enabled
- Word Wise : Enabled
- Print length : 329 pages
- Lending : Enabled
- Best Sellers Rank: #34,166 in Kindle Store (See Top 100 in Kindle Store)
- Customer Reviews:
Top reviews from the United States
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It was interesting to hear how frugal his collection of millionaires are (although I wonder if his sample size was sufficient to avoid over-generalizing). And his warnings about the perils of hyper-consumption are worth heeding.
But these are two of his major conclusions that he states in the book:
1) Most millionaires are owners of their own business
2) Most businesses fail within a few years
I’m certainly no entrepreneur and, even if I were inclined to try, it does not seem very wise to do so when the vast majority of new businesses fail so quickly. He even states that many of his millionaires don’t want their kids to follow their footsteps.
So if that’s the message of the book, I don’t see how it can help me.
He does mention one self-made millionaire who never made more than 80k per year. But he gives no details about how that person became a millionaire with that income level.
Perhaps the closest to giving practical advice was when he stated the rule of saving 15% of your pretax income. But what level of income are we talking about saving 15% of to reach x million dollars by x years? There’s just a lot of practical questions left unanswered.
The book also seems dated. Even though a new preface is dated 2010, I didn’t see any data collected after 1996. So I really wonder if what was true for his collection of millionaires that he sampled is still true for the current generation of people trying to achieve financial independence by 2030 or 2040. Given the extreme rise in the cost of college and grad school tuition and the cost of healthcare, I really doubt that parents of this generation can afford to sock away the kind of savings he’s talking about while still providing for their kid’s education and healthcare expenses (especially if they have multiple kids), no matter how frugal they are.
So, for me, this book made some interesting observations about how frugal millionaires are but it gave me no practical advice on how to get there myself. Perhaps it’s good for our society to hear about the perils of hyper-consumption but I was already aware of that.
The book focuses on facts derived from extensive research of millionaires and thus were wealthy including those who were younger and becoming wealthy. In a clear, albeit oversimplified view of the world the authors split the world into two groups Prodigious Accumulators of Wealth (PAW) and Under Accumulators of Wealth (UAW) .
Not emphasized in the book were two points that this reviewer reflects on: One is the difference between correlation and causation and the other being that life is not all about accumulating financial wealth. As to the first point, one might ask: while wealth is clearly correlated with frugality, is it that frugal folks become wealthy but one might reasonably ask if individuals have the ability and discipline to control their personalities and overcoming their genetics and upbringing, for example, their impulses in order to force themselves (with their spouses) to be frugal giving up short term pleasure for long term gains. The other point being that between the extremes of being a millionaire (PAW) and a pauper (UAW), folks can strive for an intermediate range of savings in between such extremes. None the less the extremes and the anecdotal case studies of how those at those extremes behave and the results of that behavior are enlightening.
To share examples of the style and content, the authors write: “Since 1980 I have consistently found that most millionaires do not have all of their wealth tied up in their stock portfolios or in their homes. One of the reasons that millionaires are economically successful is that they think differently. Many a millionaire has told me that true diversity has much to do with controlling one’s investments… Consider the profile of a millionaire-next-door-type couple, Ms. T and her husband. To most, this couple’s lifestyle is boring, even common. This millionaire’s brand of watch is a Timex;… The couple buys their clothes at… J.C. Penney, and TJ Maxx. They have purchased only two motor vehicles in the past 10 years: both Fords… The really compelling story was not the millionaire population in general. Rather it was the low-profile millionaires, the ones who lived in modest homes situated in middle-class, even working-class neighborhoods… I had the opportunity to meet with more than 500 millionaires… The large majority was keenly interested in being financially independent. That’s why they lived below their means … as I have said many times, the large majority of the rich live well below their means. Unfortunately, most Americans think that they are emulating the rich by immediately consuming any upward swing in their cash flow.”
The authors write: “In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods… Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier… Wealth is what you accumulate, not what you spend… If you make a good income each year and spend it all, you are not getting wealthier… Wealth is… often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline… Without Social Security benefits, almost one-half of Americans over sixty-five would live in poverty… 65 percent of the households have equity in their own home, and more than 85 percent own one or more motor vehicles. Cars tend to depreciate rapidly. Financial assets tend to appreciate… millionaires … could maintain their current lifestyle for years and years without earning even one month’s pay… More than 80 percent are ordinary people who have accumulated their wealth in one generation. They did it slowly, steadily… Eighty percent of America’s millionaires are first-generation rich… we discovered seven common denominators among those who successfully build wealth. 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…. What have we discovered in all of our research? Mainly, that building wealth takes discipline, sacrifice, and hard work.”
The authors write: “[Some] think millionaires own expensive clothes, watches, and other status artifacts. We have found this is not the case… This concept is perhaps best expressed by those wise and wealthy Texans who refer to our trust officer’s type as… Big Hat No Cattle... Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires. Also, three out of four of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants… Many of the types of businesses we are in could be classified as dull-normal… (97 percent) are homeowners... About 80 percent of us are first-generation .. affluent… We live well below our means. We wear inexpensive suits and drive American-made cars… As a group, we are fairly well educated. Only about one in five are not college graduates. Many of us hold advanced degrees…. As a group, we believe that education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the educations of our offspring.”
The authors write: “About 95 percent of millionaires in America have a net worth of between $ 1 million and $ 10 million… this level of wealth can be attained in one generation. It can be attained by many Americans…. the longer one is generating income, the more likely one will accumulate more and more wealth. So higher-income people who are older should have accumulated more wealth than [those]… younger.”
The authors offer a definition of “millionaire” or aspiring one and go on to write: “If you are in the top quartile for wealth accumulation, you are a PAW, or prodigious accumulator of wealth. If you are in the bottom quartile, you are a UAW, or under accumulator of wealth. Are you a PAW, a UAW, or just an AAW (average accumulator of wealth)? … PAWs are builders of wealth—that is, they are the best at building net worth compared to others in their income/ age category. PAWs typically have a minimum of four times the wealth accumulated by UAWs… UAWs tend to live above their means; they emphasize consumption.”
The authors write: “To [some], superior people have excellent tastes in consumer goods. But it is easier to purchase products that denote superiority than to be actually superior in economic achievement… What are three words that profile the affluent? FRUGAL FRUGAL FRUGAL.. Johnny, like most millionaires, does not buy high-priced footwear… Johnny’s consumption habits are mundane. His rewards are more intangible than product-related: financial independence; discipline; and being an excellent family provider, a fine husband, and a father of well-disciplined children… Fully one-half of the millionaires surveyed never in their lives spent more than $ 235 for a wristwatch...”
The authors write: “The affluent tend to answer “yes” to three questions we include in our surveys: Were your parents very frugal? Are you frugal? Is your spouse more frugal than you are?... Not only are the most prodigious accumulators of wealth frugal, their spouses tend to be even more frugal… Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth if one of its members is a [hyper-consumer]…”
The authors write: “The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning… Why would someone who is a millionaire need to budget? Our answer…: They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way… Have you ever noticed those people whom you see jogging day after day? They are the ones who seem not to need to jog. But that’s why they are fit. Those who are wealthy work at staying financially fit. But those who are not financially fit do little to change their status… Most people want to be physically fit. And the majority know what is required to achieve this. But despite that knowledge, most people never become well conditioned physically. Why not? Because they don’t have the discipline to just do it… It is like becoming wealthy in America… You don’t have the discipline to control your spending.”
The authors write: “More than half of the [non-budgeters] invest first and spend the balance of their income… Many call this the “pay yourself first” strategy… These people invest a minimum of 15 percent of their annual realized income before they pay the sellers of their food, clothes, homes, credit, and the like… only two millionaires of all those we interviewed ever told us that their goal was to “spend my last dollar the day that I die!”… Financially independent people are happier than those in their same income/ age cohort who are not financially secure…”
The authors write: “Are all high-income people who came from humble beginnings destined to become UAWs? …Absolutely not… Perhaps they would have lived differently if someone had educated them about the mathematics of wealth appreciation… How can someone change when they have more than twenty years’ experience as a UAW? First, they must really want to change. Second, they will likely need some professional help.”
The authors write: “If you’re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income.” And go on to write: “For every one doctor in the PAW group, there are two in the UAW category… Warning: Parents should not suggest that their children drop out of college and start a business. Most businesses fail within a few years of their conception… Planning and controlling consumption are key factors underlying wealth accumulation… Your spouse’s orientation toward thrift, consumption, and investing is a significant factor… it is very difficult to accumulate wealth if [one’s spouse] is a spendthrift.”
The authors write: “The goal is to enable you to set aside for investing purposes at least 15 percent of your pretax income each year. By the way, this “15 percent method” is [a] simple strategy for becoming affluent… more than half the millionaires we interviewed never paid more than $ 30,000 for a motor vehicle… UAWs tend to produce children who eventually become UAWs themselves… This living below their means is precisely why PAWs throughout the income spectrum tend to produce children who are economically disciplined and self-sufficient adults. PAWs tend to produce children who become PAWs… PAWs build wealth slowly. They do not live a spartan existence, but they do have a regimen when it comes to balancing working, planning, investing, and consuming....”
The authors write: “PAWs are more likely to invest in categories that usually appreciate in value but do not produce realized income… UAWs hold… assets that tend to depreciate… You Aren’t What you Drive…. Mr. W. W. Allan is a self-made multimillionaire. He and his wife have lived in the same three-bedroom house in the same middle-class neighborhood for nearly forty years… Money should never change one’s values… Building wealth is not something that will change your lifestyle… How do millionaires go about acquiring motor vehicles?... 25.2 percent have not purchased a motor vehicle in four or more years… Moreover, not all of these millionaires purchased new vehicles… ”
The authors write: “The members of this group typically acquire low-mileage vehicles that are two to four years old… Behind their frugal behavior is a strong set of beliefs. First, they believe in the benefits of being financially independent. Second, they believe that being frugal is the key to achieving independence.”
The authors write: “My family in Nebraska understood the value of a dollar. Dad used to say seeds are a lot like dollars. You can eat the seeds or sow them. But when you would see what seeds turned into… ten-foot-high corn… you don’t want to waste them. Consume them or plant them. I always get a kick out of watching things grow… Being frugal is a major reason members of the used vehicle–prone group are wealthy.”
About economic outpatient care (EOC), the authors write: “Many of today’s distributors of EOC demonstrated significant skill at accumulating wealth earlier in their lives… What’s the result of this largesse?... in general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.” And go on to write: “32 percent of America’s millionaires pay for their adult children’s graduate school education… Adults who sit around waiting for the next dose of economic outpatient care typically are not very productive. Cash gifts are too often earmarked for consumption and the support of an unrealistically high lifestyle… Cash gifts earmarked for consumption dampen one’s initiative and productivity.”
The authors write: “You may ask, “Will I spoil my adult children if I give them cash gifts?” All the effects of cash gifts on the adult children of the affluent cannot possibly be presented in one chapter… Note that in eight of the ten occupational categories, gift receivers have smaller levels of net worth (wealth) than those who do not receive gifts… Gift receivers in only two of the ten occupational groups have higher levels of wealth than [non-receivers]… gift receivers who are high school/ elementary school teachers have higher net [worth than non-receivers].” And go on to write: “Remember, expensive homes are typically located in what we call high-consumption neighborhoods. Living in such neighborhoods requires more than just being able to pay the mortgage… Thus, a gift of a down payment, whether full or partial, can place a recipient on a treadmill of consumption and continued dependence on the gift giver.”
The authors write: “RECEIVERS OF GIFTS INVEST MUCH LESS MONEY THAN DO NONRECEIVERS… There are exceptions to this rule. Teachers and professors who receive gifts appear to remain as frugal or even more so than those who receive no gifts… It is important here to emphasize a point made throughout this book… the fundamental rule regarding wealth building. Whatever your income, always live below your means.”
The authors write: “How is it possible for a teacher to have so much more wealth than an attorney with nearly twice the income?... Stated simply, Henry and his wife are frugal; Josh and his wife are heavy consumers… We find that, as a group, teachers are frugal… During Henry’s first year as a teacher, a senior member of the faculty advised him to enhance his investments by contributing to a 403b deferred annuity program… He has also invested most of the cash gifts his parents have given him each year.” And go on to write: “What intergenerational transfers could help your children become economically productive adults? What should you give them? The affluent have a great appreciation for the value of a high-quality education… millionaires spend a large amount of their resources on their children’s educations. What was the most frequently mentioned gift that millionaires received from their parents? Tuition!”
The authors write: “What can you give your children to enhance the probability that they will become economically productive adults? In addition to an education, create an environment that honors independent thoughts and deeds, cherishes individual achievements, and rewards responsibility and leadership… Teach your own to live on their own. It’s much less costly financially, and, in the long run, it is in the best interests of both the children and their parents… We will say it again: The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more.”
The author writes: “The most successful business owners are the ones who put much of their own resources behind their ventures. Many succeed because they have to succeed. It’s their money, their product, their reputation. They have no safety net.”
The authors write: “I am not impressed with what people own… Tell your children that there are a lot of things more valuable than money…. Good health, longevity, happiness, a loving family, self-reliance, fine friends… if you [have] five, you’re… rich …. Reputation, respect, integrity, honesty!... Money [is] icing on the cake of life.”
The authors write: “Most of the affluent in America are business owners, including self-employed professionals… the character of the business owner is more important in predicting his level of wealth than the classification of his business… Many people ask us, “Should I go into business for myself?” Most people have no business ever working for themselves. The average net income for the more than fifteen million sole proprietorships in America is only $ 6,200! About 25 percent of sole proprietorships do not make one cent of profit during a typical year… Fewer than one in five millionaire business owners turns his business over to his children to own and operate… ”
In summary, the authors write: “The first-generation affluent are typically entrepreneurs. They beat the odds. Their businesses succeed, and they become affluent. Much of their success depends on their living a frugal existence while building their businesses. Luck is often involved. And most who succeed understand that circumstances could have gone against them.”
"Save your money, and don't be too image conscious. "
Of course, that single sentence would not sell millions of books, and make the author a millionaire.
The book focuses quite a lot on the ratio of income taxes paid to total net worth, I thought this was a strange thing to focus on, and wasn’t really all that helpful of a metric.
Otherwise I thought the book was outstanding.
Top reviews from other countries
Moreover, it jumps from various point with no logic it will start describing info in a line of ‘3 out of 192 millionaires wear a watch worth more than 5k; out of these watches one was given as a gift; 7 of 192 millionaires have never spent lots than 1k on a watch;175 out of 192 wear a watch worth less than 500 etc’, this makes it not only a super boring read but leads to a point completely unrelated like their background, which then will lead tot he fact they write a budget and stick to it, to how much they spend on alcohol to someone life story to god knows what else- I did not even finish it but can already Imagine a few pegs written about 80% of 168 out 192 millionaires’ clothing is black or grey so when it is dirty so you cannot see that and 75% do laundry only once a month which allows them to save on the cost of laundry (detergent, water and electricity) ;P
If you are very early on in your wealth creation journey you may find this info eye-opening. If you believe that millionaires drive Ferrari and wear designer clothes you will quickly change your opinion but if you already know that frugality is crucial or in fact you want to drive Ferrari then this book is pointless.
The only info that I found of interest was that they live on 7% of their wealth.
It's a good book to read if you want to make changes. These things are not taught to us in colleges or schools.
- be frugal
- live below your means
- making yearly budget for expenses and investments is as much important as making money
- invest consistently
- invest for long term
Though the book is a little dated, if the reader take the true essence, it is still a.valuable read.