The Millionaire Next Door by Thomas Stanley and William Danko should be required reading for anyone with the long term goal of wealth acquisition. In this book, Stanley and Danko strive to discover some of the traits common to the wealthy. Stanley claims in his preface that this is the most comprehensive study ever conducted on the characteristics of American Millionaires. They began by seeking out people who lived in upscale neighborhoods, drove expensive cars, and earned high incomes. Stanley and Danko quickly realized that most millionaires and prodigious accumulators of wealth (PAWs) actually live in more moderate neighborhoods, drive older pre-owned vehicles, and are better at saving than earning higher wages. They live “boring”, modest lives, and are extremely happy about it. Like most of us with the goal of early retirement, the average millionaire is extremely frugal. I think the quote from Mr. Bud, a real estate tycoon with a net worth of over $10,000,000 near the beginning sums this up best:
“I drink scotch and two types of beer: Free and Budweiser”
Stanley and Danko communicated with wealthy Americans through a variety of focus groups and surveys. The book is split into eight different sections helping readers learn who millionaires are, how they act, and how they become wealthy. The authors do a great job turning the data into stories and assisting the reader in making connections about the attributes of millionaires. I personally enjoyed all of the case studies, and the contrasts between people who earn a high income and those who are actually wealthy. The two individuals are very different, and Stanley and Danko do an excellent job showing this. So often we are taught that we need to make higher incomes in order to accumulate savings, when in reality reducing spending is the bigger key to wealth accumulation and eventually financial independence. Think of it as playing good defense instead of good offense. Millionaires typically play the best defense.
After their extensive studies, Stanley and Danko concluded that most millionaires are married once, stay married, first generation, self-made, and entrepreneurs. They also invest sensibly and rationally. They also are not likely to receive economic outpatient care (EOC). The section of the book outlying EOC was particularly interesting. The conclusion was that individuals who receive financial assistance from parents or grandparents are far less likely to accumulate substantial wealth. They will be higher spenders and reliant on this influx of supplemental cash in order to maintain their high class lifestyle.
The Millionaire Next Door is an excellent book that provides quantitative data and first-hand accounts from millionaires who have successfully attained the financial independence that many of us are striving to gain. The one fault in this book is that most of the data was compiled in 90s, so some of the numbers are outdated. I did not find this to be an issue, as the lessons and findings are still just as relevant today. The Millionaire Next Door is a tremendous piece of literature for anyone interested in achieving financial independence and early retirement.