The Millionaire Next Door: I Read It As a Teen And Made It Happen

“The Millionaire Next Door” by Thomas J. Stanley and William D. Danko provides a groundbreaking look at the true nature of wealth in America. Based on extensive research, the book reveals that many assumptions about wealth and affluent individuals are largely incorrect.

The authors present the habits, behaviors, and career choices that contribute to wealth accumulation through detailed analysis and real-life examples.

This review offers a thorough examination of each chapter, including insights into careers that lead to high net worth and an analysis of the authors’ wealth definition.

I Read The Millionaire Next Door, And Then Lived It

Reading “The Millionaire Next Door” as a teenager was a game-changer for me. It made me realize that wealth is not about showing off; it’s about financial independence and the freedom it brings.

I retired at 42, a testament to the book’s impact and the power of its practical advice.

🙋‍♂️Here is the link to buy The Millionaire Next Door from Amazon.👈

Preface

In the preface, Stanley and Danko introduce the core premise of their book: the typical millionaire is not a high-profile individual with a lavish lifestyle but someone who lives a relatively modest life.

The authors set the stage for their analysis by challenging the conventional wisdom that wealth is about high income and luxury consumption. They stress that understanding the habits of these “millionaires next door” is crucial for anyone aspiring to achieve financial independence.

Chapter 1: Meet the Millionaire Next Door

The first chapter introduces the concept of the “millionaire next door.” These individuals are often overlooked because they do not fit the stereotypical image of the wealthy. Instead of living in expensive neighborhoods and driving luxury cars, they reside in modest homes and prioritize financial independence over social status.

The chapter uses data and anecdotes to debunk the myth that wealth is synonymous with high consumption and luxury.

The key takeaway is that true wealth is often invisible and rooted in disciplined financial behavior.

I love and loved this idea. When I retired so many people were shocked. They didn’t believe me. One of my friends in Finance said I was the epitome of “Stealth Wealth”. I liked that term. The book taught me that it is expensive to try to look rich.

But if you appear to not have money, it’s easy to accumulate money. It’s simple things; for example, if you have money, people expect you to pick up a check at a restaurant. Not being expected to do those things adds up. It’s actually much bigger than that, but the small things also add up.

Definition of Wealth

Stanley and Danko define wealth using the formula: Net Worth = Age × Pre-tax Annual Household Income ÷ 10. This formula helps identify individuals who are truly wealthy versus those who simply have high incomes.

According to this definition, a 40-year-old earning $100,000 per year should have a net worth of $400,000 to be considered wealthy.

This is hard when you are young, but I focused on this formula. It was a benchmark in my excel spreadsheets that I looked at every day. I was trying to solve the problem of how I get to that benchmark at different ages. It was part of my planning.

It’s also a very hard measurement to hit if your sole source of income is a salary. That’s because of the tax hit. This is especially true as your salary increases because the tax system is progressive.

It’s a much easier to hit the wealthy milestone if you have your money make money.

Chapter 2: Frugal Frugal Frugal

Frugality is highlighted as the foundation of wealth accumulation. This chapter delves into the importance of living below one’s means, a trait common among millionaires.

The authors provide numerous examples of wealthy individuals who consistently spend less than they earn, avoid debt, and make deliberate choices to save and invest. They also discuss the psychological aspects of frugality and how it helps in resisting societal pressures to consume. Key behaviors include:

• Budgeting and financial planning.
• Prioritizing savings and investments overspending.
• Making conscious decisions to avoid lifestyle inflation.

There are different levels of frugality. I am not cheap. I do not live an ultra frugal life. I actually live in a nice neighborhood. Our house is 2500 square feet. We have two cars. One of them I even bought new. My flavor of frugality is focused on the idea of satisfice.

I only pay for what makes me satisfied. I do not pay a penny more. I sacrifice spending more on things than what it takes to satisfy me. It’s why I don’t own a Porsche. I can afford many Porsches. I love Porsches. But a Porsche will not make me $100k happier. It will make me $15,000 happier. So I do not buy one.

That is my approach to frugality. It also applies to everything I do. If bacon is $3 to put on a cheeseburger, I usually skip it. Even though I really want that bacon, I know it will make me $1-2 happier.

Chapter 3: Time, Energy, and Money

In this chapter, Stanley and Danko explore how millionaires allocate their resources, particularly time and energy. Wealthy individuals are strategic in their use of time, focusing on activities that yield long-term financial benefits, such as:

• Financial planning and investment management.
• Continuing education and skill development.
• Building and maintaining business relationships.

The chapter emphasizes the importance of discipline, work ethic, and strategic thinking in achieving financial success.

This ties together with my comments about the last chapter. To become wealthy it’s not just a matter of being frugal with your spending. It’s also being frugal with your time and energy. I focused on behaviors and activities that maximized my time.

For example, I was going to grad school because that’s the kind of bad advice I was given by managers. I wasn’t learning anything. So I decided to drop out of graduate school and start buying houses. I decided my time was better spent doing and learning while doing, than reading about things that were wasting my time.

Chapter 4: You Aren’t What You Drive

Contrary to popular belief, most millionaires do not drive luxury vehicles. This chapter presents data showing that the majority of wealthy individuals drive older, reliable cars.

The authors argue that spending large sums on depreciating assets like cars is counterproductive to wealth building. They discuss the psychological aspects of car ownership and how millionaires resist the temptation to buy expensive vehicles, choosing instead to maintain a low profile and minimize expenses.

Yep. You know all the running jokes about Camry’s. I had one. I held onto cars for many years and many miles. It’s expensive to keep buying new(er) cars. I just calculate the price per use of my stuff, especially cars. Then I decide when it’s time to move on.

This one is also hard. It’s hard when friends are buying nice and expensive cars, and I’m driving a Altima with 200,000 miles on it. But doing this helped control my costs. A more expensive car would not have made me happier. It also helped with my image of Stealth Wealth.

Here’s a fun (or is it sad?) story. I was in a meeting once with a dozen plus very senior people. It was for something called “Product Committee”. The committee voted on what investment products could be sold by the Financial Services company I was at.

These people were the level below C-Suite. I was in the room because I was the proxy for the proxy of the Cheief Risk Officer. I am a Chartered Financial Analyst, so I made sense there.

The people in the room were making 10x as much as me. Before the meeting started several of them were talking about their Porsches (which they got licensed in Montana to save on taxes). These were the guys that pre-order Porsches, Lambos, etc. I just sat quietly. I did not fit in.

But I kept thinking I should jump in and say, “guys, let me tell you about my sweet Nissan Maxima. It crossed 200,000 miles on the way to work today! I bet I can sell it for $5,000!.

Here’s what’s interesting about that. Those guys are still working. For the next few years that I was in meetings with them, it was always a running joke with a few of them about when each other would retire. But they couldn’t. They were senior at one of the largest Financial Services firms in the US, but they couldn’t retire.

But I did.

Chapter 5: Economic Outpatient Care

“Economic outpatient care” refers to the financial support that parents provide to their adult children. Stanley and Danko argue that such support often hampers the recipients’ ability to become financially independent.

The chapter provides examples of how this assistance can create dependency, reduce motivation, and lead to poor financial habits. The authors advocate for teaching financial responsibility and self-sufficiency instead.

They emphasize that providing too much financial support can hinder the development of essential skills and values necessary for wealth accumulation.

If you’ve read my site, you know this has never been an issue with me. I paid of my own college. I bought houses without ever receiving a penny from friends or family.

Chapter 6: Affirmative Action, Family Style

Family dynamics play a significant role in wealth accumulation. This chapter explores how upbringing, values, and parental guidance shape financial behaviors. The authors highlight the role of parenting in fostering independence, frugality, and a strong work ethic in children.

They discuss the importance of teaching financial literacy from an early age and providing opportunities for children to learn and practice financial skills. The chapter also offers insights into how families can support each other without undermining financial independence.

Related:

• How I Teach My Kids About Money Using a Lemonade Stand
• Using Dr. Seuss’s “The Sneetches” to Teach Kids About Money
• How I Teach Kids About Money By Getting Rid Of Their Stuff

Chapter 7: Find Your Niche

Finding a profitable niche is crucial for wealth building. This chapter provides examples of millionaires who have succeeded by identifying and capitalizing on unique market opportunities.

The authors discuss the value of specialization, perseverance, and entrepreneurial thinking. They also emphasize the importance of aligning one’s career with personal strengths and market demand. The chapter provides insights into how successful individuals find and exploit niches that offer high potential for financial success.

If you look around this site, and I hope you do, then you know my niche was real estate and finance.

Related: What Is The Best Real Estate Niche? Consider My Goldilocks Principle

High Net Worth vs. High Income Careers

Stanley and Danko highlight that not all high-income careers lead to high net worth. High-income earners often fall into the trap of high consumption and lifestyle inflation, preventing them from accumulating significant wealth.

In contrast, many millionaires work in professions that may not be associated with high incomes but offer stability, low overhead, and opportunities for investment. Examples of high net worth careers include:

• Self-employed professionals (e.g., dentists, accountants).
• Entrepreneurs and small business owners.
• Skilled trades (e.g., plumbers, electricians).

On the other hand, high-income careers that do not always translate to high net worth include:

• Corporate executives with high spending habits.
• Medical professionals with substantial student loan debt and high living expenses.
• Lawyers working in large firms with demanding lifestyles and high costs.

Chapter 8: Jobs: Millionaires versus Heirs

The final chapter compares self-made millionaires with heirs who inherit their wealth. Stanley and Danko argue that self-made millionaires tend to be more disciplined, frugal, and proactive in managing their finances.

In contrast, heirs often lack the same financial acumen and may struggle to maintain their inherited wealth. The authors stress the importance of cultivating financial literacy and responsibility, regardless of one’s financial background.

The chapter provides examples of both groups and highlights the differences in their attitudes and behaviors towards money.

Themes of Millionaires

One of the key revelations from Stanley and Danko’s research is the concept of stealth wealth. This is the idea that real wealth doesn’t show itself off. It doesn’t need to.

Real wealth is quiet, unassuming, and often invisible to the casual observer. It’s the millionaire next door driving a second-hand car, shopping at discount stores, and living in a middle-class neighborhood.

These millionaires have a few things in common. They are self-made, which means they didn’t inherit their wealth. They built it themselves. They are frugal, not because they have to be, but because they choose to be. They understand the value of money and the power of compound interest.

They are also long-term thinkers. They don’t fall for get-rich-quick schemes or chase after the latest investment fads. They invest wisely and patiently, understanding that wealth is built over time, not overnight.

But what about those who aren’t millionaires? What do they have in common? Well, for starters, they often fall into the trap of lifestyle inflation. As their income increases, so does their spending. They buy bigger houses, fancier cars, and more expensive clothes. They may look rich, but their net worth tells a different story.

Non-millionaires also tend to lack financial discipline. They struggle to save and invest regularly. They are often in debt and live paycheck to paycheck. Despite earning a good income, they find it difficult to accumulate wealth.

Careers Of Millionaires

The book reveals that most millionaires don’t have glamorous jobs. They are engineers, accountants, teachers, managers, and attorneys. These individuals didn’t strike it rich overnight with a hot tech startup or a blockbuster movie deal.

They built their wealth the old-fashioned way, through discipline, frugality, and smart investing. They’re the embodiment of the tortoise in the race against the hare, steadily accumulating wealth while others chase after quick riches.

On the other hand, you’ll find high-income earners in professions like investment banking, day trading, and real estate. They earn hefty paychecks, no doubt. But they’re often caught in the trap of lifestyle inflation.

As their income increases, so does their spending. They live in expensive neighborhoods, drive luxury cars, and dine at upscale restaurants. They may look rich, but their bank accounts tell a different story.

Why aren’t they millionaires? The answer lies in their approach to money. Unlike the millionaires next door, these high-income earners focus more on displaying their wealth rather than accumulating it. They often lack the financial discipline to save and invest consistently. And they frequently fall prey to the societal pressure to keep up with the Joneses.

This is not just my personal observation, mind you. It’s backed by the research of Thomas J. Stanley and William D. Danko, authors of the best-selling book “The Millionaire Next Door”¹. Their meticulous study of America’s wealthy sheds light on the surprising secrets of accumulating wealth.

In conclusion, becoming a millionaire is less about what you earn and more about what you do with what you earn. It’s about living below your means, saving diligently, and investing wisely.

It’s about adopting a millionaire mindset, regardless of your profession. So whether you’re an engineer, a teacher, or an investment banker, remember this: Wealth isn’t about the size of your paycheck; it’s about the size of your savings and investments.

Multiple Income Streams

One of the key revelations from this book of financial wisdom is the concept of multiple income streams. The millionaires next door don’t rely on a single source of income. They have their fingers in many pies. They understand the power of diversification not only in their investment portfolios but also in their income sources.

Sixty-five percent of these millionaires pursue numerous income streams. They don’t just earn money from their jobs; they make money while they sleep. They have rental income, dividends, interest, royalties, side businesses, and more.

They’ve set up systems that allow money to flow into their bank accounts 24/7, even when they’re sipping margaritas on a beach or catching some z’s.

Now contrast this with non-millionaires. Most of them rely on a single source of income: their salary. They trade their time for money. They get paid for the 40 hours they put in each week, and not a minute more. If they stop working, the money stops flowing. It’s a precarious position to be in, don’t you think?

This revelation was a game-changer for me. It made me realize that relying solely on my salary was like putting all my eggs in one basket. It was risky and limiting. So I decided to follow in the footsteps of the millionaires next door. I bought rental properties. I became a landlord. Each house was an income stream. So was my salary.

Not only did it provide me with an additional source of income, but it also gave me a taste of financial independence. I was no longer solely dependent on my job for my livelihood. I had created another income stream that worked for me round the clock.

If you want to join the ranks of the millionaires next door, start diversifying your income streams. Don’t just trade your time for money; make your money work for you. And remember, wealth isn’t about the size of your paycheck; it’s about the size of your income streams.

Here’s the thing. Becoming a millionaire isn’t about luck or inheritance. It’s about mindset and habits. It’s about making smart decisions with your money.

It’s about understanding the difference between looking rich and becoming rich.

I Became The Millionaire Next Door

“The Millionaire Next Door” is a compelling book that challenges conventional wisdom about wealth. Through detailed research and real-life examples, Stanley and Danko reveal the habits and behaviors that distinguish millionaires from the general population.

The book offers valuable lessons for anyone seeking financial independence, emphasizing frugality, discipline, and strategic planning. By adopting the principles outlined in this book, readers can take significant steps toward achieving their financial goals.

The authors’ insights into the differences between high net worth and high-income careers, as well as their definition of wealth, provide a comprehensive framework for understanding and building wealth in a sustainable way.

🙋‍♂️Here is the link to buy The Millionaire Next Door from Amazon.👈

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