Book Review – The Millionaire Next Door by Tom Stanley and William Danko

I have a confession to make. I love this book. I really love this book. I have it in soft cover, hardback, and as a book-on-CD. I always go back and re-read/re-listen to it once a year. If I would say I aspire to anything, it would be a representative of the people is this wonderful tome. I think everyone should read it, and the world would be a better place if more people followed the lessons in it, instead of just consuming like crazy.

I picked the softcover of this up in 1999 on the remainder shelf of a Border’s bookstore. Read through it while Mrs. 39 months and I enjoy coffee at their snack area. Couldn’t stop reading it, and eventually bought it before we left. It truly was the “kick in the pants” that I needed to start getting serious about living frugally and saving money. Before that, I was only doing the minimal (only put the matching $ in my 401K, no IRA, etc.). After going through this, my savings went into overdrive (see my April 2017 post “A little context” for my timeline).

Written in 1996, the book covers information on Millionaires that the two PhD’s have collected over the previous 20 years. When it first came out, the data surprised a tremendous number of people, and dramatically altered how many companies marketed to the wealthy. For the most part, the lessons learned here, and the millionaires (and they’re habits) remain valid today.

The typical millionaire, according to their research:

  • 57 years old, married, with 3 kids.
  • About 2/3 of those working are self-employed, in “dull-normal” businesses (contractors, pest controllers, rice farmers, etc.)
  • Median household net worth around $1.6M
  • About half have occupied the same house for over 20 years
  • Live below their means (inexpensive suites, drive older cars, etc.)
  • Invest nearly 20 percent of household realized income, on average

The book also gives the reader a “goalpost” where they can see how they measure up. Take your annual realized income, multiply by your age, and divide by 10 (example, $55K a year for you and your wife, 34 years old = $55,000 * 34 / 10 = your net worth should be $187,000 or more. To be considered “wealthy” you should be twice that (i.e. $374,000)

The book then breaks down the seven factors that they believe contribute to individuals being able to accumulate over a million dollars in their lifetimes. Their chapters go into details on each of these seven factors.

  1. They live well below their means (Frugal, Frugal, Frugal!)
  2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth
  3. The believe that financial independence is more important than displaying high social status (they don’t try to keep up with the joneses)
  4. Their parents did not provide them economic outpatient care (i.e. no money from Mom & Dad, or major inheritance)
  5. Their adult children are economically self-sufficient
  6. They are proficient in targeting market opportunities
  7. The chose the right occupation

The biggest takeaway I got from the book was the importance of being frugal. The book classifies it in football terms. If someone makes a lot of money at their job, they play good “offense”. But if they spend it all, they are playing lousy “defense.” As it is often said in sports, defense wins championships – or frugality makes you a Millionaire Next Door.

I would rate it 5 out of 5, because I just love this book.

 

Kevin

3 thoughts on “Book Review – The Millionaire Next Door by Tom Stanley and William Danko”

  1. This was definitely the game changer book for me that really got me interested in personal finance. Up until that point I was obsessed with the stock market. But this really opened my eyes to a whole new world. Definitely a huge fan like you!!!

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