What comes to mind when you hear the word, “millionaire?” Do you think of working-class people vying to win $1 million on a game show? Or, of rich people in mansions breaking open Faberge eggs for breakfast? Well, achieving wealth isn’t about money, its about your mindset regarding money. That is the point of the 1997 book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.
This book was written almost a quarter of a century ago by Thomas J. Stanley and William D. Danko. Even though The Millionaire Next Door was written in the 1990s, its working premise is still as relevant today as it was then: your popular culture inspired perceptions of how millionaires make their money, spend their money, and how they live their lives are wrong and misguided.
In this book, Stanley and Danko used data compiled by surveys and the studies of millionaires in the 1980s and 1990s to argue that most people project their own misguided idea of what it is to be a millionaire. Most millionaires are worth between $1 million and $5 million, although the modern average is worth just under $3 million.
Not Your Average Millionaire
The average millionaire strategically lives under their means, hence the title of the book. They live frugal lives in average homes in middle-class and even working-class neighborhoods. Warren Buffet Still lives in the home he bought in Omaha, Nebraska in 1958 for $31,500. They probably dress just like you. Most millionaires drive average cars like Ford, Cadillac, and Lincoln, in that order.
Most importantly, Stanley and Danko’s book illustrates that it is the average person’s misconceptions about millionaires, and how they make money, that keeps them from becoming wealthy themselves. About 20% of millionaires inherit wealth. Most millionaires are not lucky or avoid paying taxes. They were not all the smart ones in school. All millionaires do not just win the lottery.
Too many of us think this way to compensate for not striving to improve our own personal finances. The Millionaire Next Door is not a social media influencer, movie star, sports star, or celebrity. Most millionaires achieved their money through strategic financial planning, saving, understanding the markets they transact in, and prudent investing. The Millionaire Next Door explains how millionaires become millionaires in seven basic guidelines throughout the book.
Additionally, they explain why those who crave wealth but never commit to realistically attaining it, Under Accumulators of Wealth, or, UAWs, never achieve their goals. And, they explore how Prodigious Accumulators of Wealth, or PAWs, build their fortunes and maintain them.
The Seven Factors Millionaires Have in Common
One of the most important sentences in the book is in the introduction where the authors state that they spent over two decades studying how people become rich. They wrote that the data they compiled showed them that they, “…discovered who the wealthy really are and who they are not. And, most important, we have determined how ordinary can become wealthy.”
There are seven factors that almost all millionaires follow to build and maintain their fortunes. These include:
• 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.
• Their parents did not provide economic outpatient care.
• Their adult children are economically self-sufficient.
• They are proficient in targeting market opportunities.
• They chose the right occupation.
It’s Not About Money, It’s About Mindset
As referenced in the title of this book, you might walk past a millionaire every day and not know it. As the first of the seven factors explains, millionaires know how to strategically live below their financial means. They live in average homes, not mansions. Millionaires don’t have high debt-to income ratios. They make meticulous budgets for all of their living needs and track their spending habits.
Secondly, they plan for their financial future. Millionaires devote a lot of time strategizing how to build more wealth efficiently. As the authors point out, “Wealth is what you accumulate, not what you spend.” Too many people mistake income with wealth. If you’re spending your money as fast as you make it then you’re not wealthy. You’re, “living high.”
Third, millionaires prize financial independence over projecting social status. They may not have large incomes, but they save and invest wisely and don’t have debt. Millionaires don’t drive the fanciest cars. They don’t wear $1,000 suits with top hats. It is this misperception of the millionaire, coupled with the mindset to rent, incur high debt, and live above one’s means, that keeps people from being wealthy.
Fourthly, over 66% of millionaires did not receive inheritances or economic support from their parents. Fifth, millionaires have children who financially self-sufficient. Wealthy families develop a generational mindset that parents only take care of adult children who can’t take care of themselves. This is an untenable mindset that cannot perpetuate familial wealth.
You Have to be a Business, Man
The sixth and seventh factors that creates millionaires is that they know how to take advantage of business markets that suit them, and they work in occupations that serves their skill sets. All millionaires don’t have glamourous occupations.
The richest people in your humble neighborhood might be the dentist, the tire store or auto shop owner, the laundromat owner, and so on. Your landlord might be worth two or three million because they own numerous multi-unit properties where people like you pay them rent.
Are You a UAW or PAW?
Even though this book was written in 1996, its lessons on wealth generation are still viable today. In 1997, there about 3 million millionaires in the United States. Today, there are over 9 million people in the United States who have a financial worth between $1 million and $5 million. Many of these people live in your neighborhood and probably walk past you every day.
There are many lessons and tips, all based on the largest study of wealth acquisition in its time, to help ordinary people become wealthy over time. I highly recommend that you read The Millionaire Next Door and take time to study the ideas presented within. There are many great reviews of this book online. Here is a great YouTube video that summarizes the book.
It isn’t income that makes you wealthy, its what you do with it and how you use it to accumulate wealth that matters. Are you an under accumulator of wealth? Do you generate debt and buy fancy material goods instead of investing? Are you renting instead of owning? Do you budget and plan for your financial future instead of spending without a care for the future? Once you learn these lessons, you’ll become a prodigious accumulator of wealth.