THE MILLIONAIRE NEXT DOOR: SURPRISING SECRETS OF AMERICA’S WEALTHY

THOMAS J STANLEY & WILLIAM D DANKO 

The financial independence and frugality movements have gained quite a bit of mainstream traction in the last five years or so, as evidenced by the growing number of articles, interviews, editorials, and blogs dedicated to the subject.

However, the idea that living below your means and investing your surplus money is the surest path to wealth isn’t a new one.  Rather, it’s a concept that has been around for a long time that has recently been rediscovered by a new generation.

One of the foundational texts of this movement is Thomas Stanley and William Danko’s 1996 classic The Millionaire Next Door.

When conducting research on the lifestyles of high net worth individuals in order to more effectively market to them, the authors discovered some unexpected things.  Many wealthy individuals and families did not live in exclusive, high-end neighborhoods in expensive houses.  Further, they did not drive luxury cars, wear designer clothing or jewelry, nor engage in other lifestyle behaviors that flaunted their wealth.

Conversely, they found that most folks living in upscale neighborhoods with all of the outward appearances of wealth were, in reality, not very wealthy at all.  Many of these people earned high incomes, but due to a high-consumption lifestyle, were unable to save any significant portion of the money they earned.  In fact, many outspent their income each year and relied on debt or subsidies from parents to maintain their lifestyle.

If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”

The Millionaire Next Door

The difference in attitude between frugal-yet-wealthy types and the high-earner/high spenders was especially fascinating.

The wealthy say things like “it’s better to have money than to look like you have money,” and are mostly concerned with what they can achieve in both their personal and business life.  They plan ahead for rough economic times, and place a high value on being prepared.

High-income but low net worth people are overly concerned with how others perceive them.  Often these are highly paid professionals who feel that their home, cars, and clothing must meet a certain standard expected of someone in their field.  They feel continual pressure to “keep up” with other high earners in their offices and neighborhoods.  This frequently results in little to no savings.  They don’t plan for the future because they assume they will always be able to earn a high income.

Another interesting idea that seems to be mostly missing from the modern financial independence movement is the importance of relationships.  Millionaires often have numerous close business and personal relationships with lawyers, tax advisors, contractors, and owners of other businesses.  

These reciprocal contacts help boost the wealth of all involved.  A tax advisor provides excellent service to a wealthy individual, who then recommends the advisor to all his wealthy friends.  A millionaire owner of a paving company paves the lots of a local car dealership at a discount, and thus gets his cars at cost.

Since this book was published in 1996 and based on data mostly from the 1980’s and ‘90’s, some of the information is dated.  This was also before the widespread use of the internet, which has increased opportunity for entrepreneurs and made it easier than ever to invest.

However, the concepts in the book remain solid, and very worthwhile for anyone struggling with money, or even those who are doing ok, but want to take their wealth to the next level.