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Book Review: The Millionaire Next Door
Authors: Thomas Stanley, PhD & William Danko, PhD
My very first book review
Since early 2007, I have read a number of personal finance books during my search to ensure that I was on the right financial path. As I search for other books to read, I also found it tremendously helpful to see what other people with similar interests were reading. My goal is to pass on this information to you as well. I hope to give you a brief overview of the book and the authors, touch on the good and bad in the book, and finally give you my personal recommendation for whether you should borrow the book, buy the book, or act like the book doesn’t exist.
The Millionaire Next Door is the second book I read during this process and it still is what I consider one of the most important to righting my financial ship (shoot, I just gave away the ending!).
What is this book about?
The Millionaire Next Door is a glimpse into what an actual “millionaire” looks like in America . A lot of us have preconceived notions of what wealthy people look like, how they act, where they live, what they drive, and so on and so forth. Interestingly, so did the authors when they first started out in their attempts to market to wealthy people…and that’s why they didn’t find many where they first started looking. Intrigued by this, the authors set out to study and determine what it takes to become wealthy in America . They accomplished this and I think the results will surprise many of us (well, it won’t surprise me…since I already read the book).
Who are the authors?
Both Thomas Stanley and William Danko have PhDs and have been studying wealthy people for decades. Though Stanley’s PhD is in Business Administration, their research experience is in marketing – that is how they got interested in this topic (apparently marketing type people like to market to wealthy type people). Thomas Stanley has also written numerous several other best-selling books on marketing and affluent people and marketing to affluent people.
What is good about the book?
I found a mountain of excellent information in this book. To me, the book really changed the way I look at wealth and what it takes to become wealthy. Much like this post , the authors view wealth not as how many things you have but how large a persons net worth is.
For me, the biggest take-away from this book is that most wealthy people got that way by not acting
“wealthy.” Instead of spending their money on things that would cause other people to think they were wealthy, they just saved and invested their money and actually became wealthy. This was so inspiring to me! I feel like I make a good salary, but I am in no way raking in the big bucks of a CEO or a surgeon or anything like that. This book showed me that someone like me really has no excuse not to become wealthy with judicious planning and discipline. After reading this book, I feel like it is certainly possible to give some money away, live a comfortable but not extravagant life, save money, and eventually free myself to be able to
devote my time and money to whatever I feel is most beneficial at that time. Reading this book has shown me that it is actually possible to achieve this!
Ok, I’m calming down now…back to the book. Here are some really interesting points that I pulled out of the book. The authors list seven factors that the typical millionaires have in common:
- 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
I especially like numbers one and three.
Another interesting part of the book is the equations the authors lay out that can be used to
determine how your net worth compares to others in your age and income brackets. The following equations determine whether you are an under-accumulator (UAW), average accumulator (AAW), or prodigious accumulator (PAW) or wealth:
AAW = (Age) * (Realized Pretax household income) / 10
PAW = 2 * AAW
UAW = AAW / 2
So, using those formulas, you can plug in your age and household income and get a general feel for how well you are doing in saving and accumulating wealth according to Thomas and Danko . Let’s do an example. Say you are 30 and you make $50,000 per year. The AAW value would be a net worth of 30 * $50000 / 10 = $150,000. So, if you have a net worth of $150,000, then you are average for your age and income bracket. If you have a net worth of twice that, $300,000, then you congratulations you are considered a PAW by the authors. If, on the other hand, you have a net worth of half of that, $75,000, then they would consider you a UAW. (I wonder what I am…now that I think about it, I haven’t calculated mine for awhile).
There is a wealth (hah, a pun!) of other good information in this book. I have pulled out but just a bit of the good stuff.
What is not-so-good about the book?
I really liked this book overall, but that is not to say that there weren’t some issues. The biggest issue is that this book is written by statisticians or, at least, two men pretending to be statisticians. It is very easy to get bogged down in some of the details of the book and lose momentum. If you are not inclined to numbers or reading about numbers (even this electrical engineer got stymied in some of the chapters), then this might be a difficult read to survive. I still would recommend reading it, but I would recommend being judicious about the chapters you read and skipping through some parts instead of abandoning it altogether.
So what is my recommendation?
I definitely recommend that you read this book. In fact, it is one of the books I’ve deemed worthy of a spot on my virtual bookshelf . I recommend that you read it and take some notes to be inspired. My hope is that it opens your eyes to how some actual millionaires got and keep their money and possibly dispels some of the fallacies you might currently hold about what millionaires look like. Personally, I borrowed this book from the library, read it, and took some notes (and returned it). It does have some anecdotes that I would consider quite inspiring – so if you are a person who likes to re-read personal stories for inspiration, it might be worth purchasing the book to have it on your bookshelf.
Check out the other books I’ve chosen for my virtual bookshelf .
Want to borrow this book? Search your local library
Want your own copy? Buy this book now at amazon.com
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3 Responses to “Book Review: The Millionaire Next Door”
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Hey John,
Great post, and I pretty-much agree with your take on this book. The purchasing, spending and saving habits of TRUE millionaires (not just the folks who want to look like they are one) was interesting to see, and they did a nice job of laying out their argument. I also agree that it was too ’statistical’ – not sure if it is a word, but you get the point.
One other area that bothered me a little about the book…they never addressed WHAT all those millionaire wanted to do with all that money or WHY they tried to accumulate so much wealth (or maybe they did and I missed that chapter). I mean, I think most of us want to be millionaires…right? But WHY? We’re not of the Egyptian mind-set anymore so we know we don’t get to take it with us – no matter how nice our sarcophagus is. Of course, you could be a millionaire to buy more stuff, but is that really what motivates us? I just wish they had asked each millionaire they interviewed one more question…WHY they wanted to be wealthy?
I’m curious to hear what you think are some of the reasons we (Americans) seek to accumulate wealth and become millionaires? And, do those reasons contradict how the bible tells us to manage our money?
Thanks,
Tom E
Tom,
Thanks for the very insightful comments. You’ve touched on a number of great topics – I’d be remiss to try to address them in a comment – so thanks for the great ideas for future posts!
I agree that they don’t really address the topic of why we would want to grow wealth like Dave Ramsey does in The Total Money Makeover, for instance.
I think that the answer would be drastically different depending on your world view. I’ll make sure to write a post on this in the near future.
Thanks for reading and commenting – please visit and comment often!
Sounds good. I look forward to reading the upcoming posts.