The Millionaire Next Door

Thomas J. Stanley & William D. Danko “The Millionaire Next Door”  Pocket Books (Paperback), 1996, 246 pp.

I was reading a currently published book concerning financial literacy and came across a recommended reading list.  “The Millionaire Next Door” was on that list, a book I had not read.  I tried to find a more recent publication but, alas, no luck: so I read this old 1996 publication.   I did not find anything in it I was not already aware of.  However, if you just multiply all monetary numbers by the CPI factor of 186% they become relevant.  Nowadays, this would convert the title to:  “The Two Million Dollar net worth neighbor next door”.

A Summary:

The authors studied characteristics of people that become millionaires.  As expected, they find the qualities of this group quite different from the earn-and-consume culture that surrounds them, including living below their means, allocating funds efficiently in ways that build wealth, ignoring conspicuous consumption, being proficient in targeting marketing opportunities, and choosing the ‘right’ occupation.  

Notes:

Under Accumulator of Wealth (UAW) is a name coined by the authors to represent individuals who have a low net wealth compared to their income. A $250,000 per year doctor is an "Under Accumulator of Wealth" if his/her net worth is less than the product of their age and one tenth of his/her realized pretax income.  Take for example a 50-year-old doctor earning $250,000, according to the formula she should have (50*250,000*10%) or about $1.25 million in net worth. If her net worth is lower, she is an "Under Accumulator". The UAW style is based more on consumption of income rather than on the method of saving income.  Wealth is what you accumulate, not what you spend.

Prodigious Accumulators of Wealth (PAW) is the reciprocal of the more common UAW, accumulating usually well over the product of the individual’s age and one tenth of his/her realized pretax income and are usually considered to be millionaires; however, not all are.

Pg. 3:  Eighty percent of America’s millionaires are first-generation.

Pg. 37:  Nearly 95 percent of millionaire households are composed of married couples.  In 70 percent of these households, the male contributes at least 80 percent of the income.

Pg. 150:  Gift receivers frequently are underachievers in generating income.  For example: a gift of a down payment on a house can place a recipient on a treadmill of consumption in an effort to keep up with their neighbors.

Pg. 227:  Most of the affluent in America are business owners, including self-employed professionals.  Twenty percent of the affluent households in America are headed by retirees.  Of the remaining 80 percent, more than two-thirds are headed by self-employed owners of businesses.  In America, less than one in five households, or about 18 percent, is headed by a self-employed business owner or professional.  But these self-employed people are four times more likely to be millionaires than those who work for others.