The Millionaire Next Door: The Surprising Secrets of America's Wealthy

Authors:   Thomas Stanley, Ph.D., and William Danko, Ph.D.
Publisher/Date:   Longstreet Press / 1996
ISBN:   1563523302 (Hardback; 245 pgs. plus appendices.)
Related Website:   Thomas J. Stanley

If someone were to ask me what finance book I've seen mentioned most often on internet message boards, I would have to answer The Millionaire Next Door (hereafter referred to as "TMND.") Years pass, but somehow the buzz for this book has never seemed to diminish too much.

There's a good reason for this. Put simply, the book was an eye-opener when it was first published in 1996, and it's an eye-opener now. When read purposefully, TMND can create a pretty powerful case for either redirection of your money habits (if they are weak) or reaffirmation of them (if they are already strong). And I suspect that when authors Thomas Stanley and William Danko first put together the copy for TMND, they knew they had something good going.

If you're one of those folks who believes that the path to true wealth is paved with diligent planning and saving — and that flashy spending and high-consumption appearances, no matter the income behind them, are inevitably losers' games — then the crisp pages of TMND will tell you exactly what you want to hear. And they will be darn convincing as they do it.

Here, for starters, is the table of contents:

  1. Meet the Millionaire Next Door
  2. Frugal Frugal Frugal
  3. Time, Energy, and Money
  4. You Aren't What You Drive
  5. Economic Outpatient Care
  6. Affirmative Action, Family Style
  7. Find Your Niche
  8. Jobs: Millionaires versus Heirs

It seems that authors Stanley and Danko spent twenty years surveying and studying the wealthy in America, and this book is the hardbacked result of those studies. At its core, the book attempts to redefine the term "wealthy." Consider that for a moment ... what does wealthy really mean? Does it mean simply bringing home a stout six-figure income? Or is it something beyond that — a term more clearly defined not by income alone, or by possessions, but by the potential achievements of that income as accumulated over time?

This definition comes into play because Stanley and Danko initiate their discussion by separating all people into two categories: Prodigious Accumulators of Wealth (PAWs) and Under-Accumulators of Wealth (UAWs). It is no great feat, they feel, for a family to have a $100,000 yearly household income and a net worth of $117,000, or for a family to have a $2 million income and a $1 million net worth. The numbers sound good, but what would happen to these families if, for whatever reason, a large portion of their income went away? How long could they survive at their current lifestyles and spending levels? Not very. In both cases, the potential for great accumulation of wealth is there. Yet high-spending, high-consumption lifestyles have made such accumulation impossible.

On the other hand, the truly wealthy in America — those whose net worth far exceeds their yearly income (for more on this, see "Expected Level of Wealth") — are, by every measure, financially independent. "They could maintain their current lifestyle for years and years without earning even one month's pay," write the authors. "They are not the descendents of the Rockefellers or Vanderbilts. More than 80 percent of them are ordinary people who have accumulated their wealth in one generation. They did it slowly, steadily, without signing a multimillion-dollar contract with the Yankees, without winning the lottery, without becoming the next Mick Jagger."

So why do some people manage to accumulate such astonishing wealth, while others do not? Stanley and Danko found seven common denominators among those who have successfully become PAWs; they are covered in detail on my "7 Factors of Wealth" page. The overriding theme? It might just be that financial independence is not a factor of income or income level; rather, it is a factor of accumulated income and disciplined, comprehensive planning.

Following is a rather telling example of how two high-income families (one qualifies as PAW, and the other as UAW) can appear so similar on the outside, yet be so different on the inside. The authors present this as a case study of two actual families (names changed) with whom they conducted their surveys. Expenses listed (clothing, etc.) are amounts spent over the previous year.

 Dr. South & FamilyDr. North & Family
Yearly Income$700,000$700,000
Motor Vehicles$72,200$12,000
Mortgage Payments$107,000$14,600
Club Dues, Etc.$47,900$8,000
Net Worth$400,000$7.5 mil

In the book, many more comparisons are made regarding the situations and habits of these two families, and others like them. But the table above shows, in a doctor's bag, what hyperconsumption does to the bottom line. Staggering levels of wealth, which might otherwise be achieved, simply evaporate into thin air.

The Millionaire Next Door is an exceptional book, and I must recommend it highly. It could be particularly useful if one were just beginning a financial-improvement regimen and needs a dose of the "big picture" outlook which only large-scale surveys can provide. Overall, TMND is full of lightbulb moments and, for those of us who cannot help but shake our heads at the High-Consumption Crowd, a great many self-gratifying conclusions.

Michael • March, 2004

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