Book Review: The Millionaire Next Door

The Millionaire Next Door, is the result of many years of a thorough analysis of the characteristics of American dollar millionaires. The book conveys an extremely interesting insight that we can all use to achieve similar wealth.

What do you think of when you hear the word millionaire?

A hedonistic lifestyle of expensive hotels, wild shopping, 60-foot superyachts and long courses of cocaine?

If the movie world is to be believed, the typical millionaire lives a life of luxury. Maybe because it is the case among many of the film world’s millionaires, or maybe just because it is more exciting than reality.

The truth is, however, that most millionaires live far more modest lives than we see in movies and in gossip magazines. And that this is exactly why they have become millionaires.

Authors Thomas J. Stanley and William D. Danko have interviewed thousands of millionaires and authored an in-depth and fascinating book about the real dollar millionaires. Those whose wealth cannot be seen and who make up the vast majority of millionaires.

In The Millionaire Next Door, Stanley and Danko describe what these people have done to achieve such great wealth. 

They describe some fundamental and simple principles that all of us who are lucky enough to be born into a wealthy society can also use to achieve significant wealth.

The Millionaire Next Door is the first book in the series of the best personal finance books that I would recommend to anyone interested in personal finance and financial independence to read.

Since the books have been selected because I find them valuable, this is not a critical review as such, but a description of what the books contain and what you can get out of reading them.

The typical millionaire does not look like a millionaire

As with so many other good things, the preparation for the book started with ordinary curiosity. Stanley and Danko were curious to know how rich people got rich. And what is the best way to answer that question?

By asking the millionaires themselves.

And it was probably a natural assumption that those with the most money also lived in the most expensive houses. So when the authors began their research, they started by looking for millionaires in expensive neighbourhoods. Where the houses are bigger than most people’s gardens, and where the cars cost more than most people’s houses.

However, they quickly found that luxury rarely correlates with wealth. That many residents of the expensive mansions are often not millionaires.

The mansion owners certainly have high salaries and the potential to build up a considerable fortune. But they instead spend the money on these expensive villas, cars, holidays and all kinds of status symbols. And regardless of how much money you make, the prerequisite for millionaire status is that you don’t spend it all.

Many of these flashy non-millionaires with high incomes owned numerous boats, cars and houses. But typically ownership was dependent on the ability to pay the monthly instalments to the bank each month.

And for a significant proportion, there was widespread concern about how they would manage if the income one day failed and how they would finance old age.

The typical millionaire does not live in luxury

Stanley and Danko, therefore, tried to find the real millionaires.

They discovered, to their own surprise, that the vast majority of dollar millionaires live ordinary lives in ordinary neighbourhoods. They have a lot more money in the bank book than the typical American, but it’s not something you can tell on them.

Most millionaires live next door to “ordinary” people like you and me. Your own neighbour may be among the richest 1% without you knowing it because they don’t flaunt the money.

A typical dollar millionaire is a man in his fifties. He works a lot and lives a conservative life with a wife, children and his own business. He is very interested in investing his income rather than spending it, and status symbols mean nothing to him.

The millionaire drives a large middle-class car, which is often bought used and with cash. He lives in a simple house that he has owned for many years.

The millionaire is married to the same woman throughout his life. She is often a homemaker and at least as frugal as her husband.

The typical millionaire is, in short, completely ordinary, and yet not. His considerable wealth reveals that he possesses some qualities that make him able to accumulate money and let it multiply.

The typical millionaire is ‘self made’

Stanley and Danko also found that the vast majority of US dollar millionaires are not heiresses, lottery winners or sports stars. Preserved, of course, they also exist but make up a very small proportion of the group.

The millionaire does not come from a wealthy family, and he has not inherited money or values ​​from his parents. Many millionaires have never received so much as a dollar in inheritance or received financial support from home.

Most millionaires grew up in the lower or middle class. They often run their own company, which they started themselves. 

The income is typically higher than average, but rarely unaffordably high. Over many years, they have worked purposefully, spent less than they earned and invested the surplus sensibly. They are thus boring but effective money grabbers.

The typical millionaire’s budgets

Most dollar millionaires budget for their personal finances. He keeps track of what comes in and what comes out of the bank account. If you asked him how much his car costs to run, he’d probably have a ready answer.

The millionaire knows the value of money. He is therefore happy to spend the necessary time and effort to find the best and cheapest solution.

What can we learn from The Millionaire Next Door?

The Millionaire Next Door teaches us that most millionaires are rich because they made smart choices. This is good news because it confirms that almost all of us can imitate them. We don’t have to be extremely talented or lucky. We really just have to live by some basic rules based on common sense.

Another important point from  The Millionaire Next Door is the benefits of self-care. That “free” money makes us lie on the lazy side.

The authors found, among other things, that children of parents who have generously distributed money and other financial support have, on average, considerably less wealth and lower wage income than children of parents who have never or only to a lesser extent received financial injections. Also when controlling for education and age.

In the book, Stanley and Danko dig a little deeper and uncover some very interesting observations regarding the negative correlation between accumulated wealth and how much you have received from mom and dad’s money box. The conclusion is unequivocal the more you receive subsidies from your mother and father, the less effort you make to earn and invest money.

Another factor related to the accumulation of wealth is that many millionaires are self-employed with their own businesses. 

The authors assessed that it was not the income from entrepreneurship itself that made the difference. But that one learns some important lessons from entrepreneurship that benefit the incentive to build wealth. Among other things. entrepreneurs have greater experience with unstable income. They learn to live on very little money because they don’t know what tomorrow will bring.

Why should you read The Millionaire Next Door?

Although the book was written by Americans about Americans and for Americans, I find it equally relevant for us Danes. The content is interesting regardless of nationality, and the rules of wealth are equally relevant on our side of the duck pond.

The Millionaire Next Door is packed with the results of many years of study in “millionaireology”. 

Stanley and Danko are clearly trained researchers, which is reflected in the book. It is full of figures and tables. But the language is easy to understand, and you don’t need to study the presented data with a magnifying glass to enjoy the book’s content and messages.

The Millionaire Next Door can be purchased from Amazon. It is also available as an audiobook, but I would recommend that you listen actively to get the most out of Stanley and Danko’s excellent work.

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