Despite the fact that it takes scores of pages to communicate a few basic points and that the author offers excruciating detail on things such as the car-buying habits of millionaires, I believe this is an important book that should be read by anyone who mistakenly believes that the long-term accumulation of wealth is determined almost entirely by income or that the majority of millionaires become wealthy through inheritance or pure luck.

We tend to think of the “rich” as people with flashy cars, newly built houses, and expensive clothes, but this does not describe the average millionaire, who manages to become a millionaire precisely because he does not engage in such conspicuous consumption. The Millionaire Next Door will cause some to rethink their definition of what it means to be rich and others to consider whether or not they really want to practice the self-discipline and relative austerity that is required to accumulate (rather than spend) wealth. While becoming a millionaire may ensure your financial independence and security, it does require living consistently below your means. While almost any American with a college education can theoretically become a millionaire by the time he is sixty, few will consistently choose to do what it takes to become one.

The author defines a millionaire as the head of any household that has a net worth of at least $1 million dollars. Of this group, upwards to 85 percent are self-made, “first generation rich” millionaires. The author’s research on the characteristics of this group did not surprise me because I saw my own parents gradually accumulate wealth by the time they retired. From them, I had already drawn my own conclusions about how one creates a millionaire household: (1) Get married and stay married. (2) Work for about 30 years, full-time, at a middle-class job. There is no need to pursue a profession (such as doctor or lawyer) that requires a graduate degree. A typical middle-class job will do. My father was an editor, and my mother was a school teacher. (3) Don’t buy a house until you have saved enough for a reasonable down payment. (4) Live consistently below your means. For example, don’t go on vacations unless you will be staying with relatives or in a free cabin a friend has let you borrow. Buy cheap clothes. Don’t buy dust-collecting trinkets or art. Limit jewelry. Drive your car into the ground before you buy a new one. (5) Don’t finance anything other than your house. If you can’t pay cash, don’t buy it. (6) Be generous with your children, especially when it comes to supporting their educations, but teach them about the importance of financial discipline by making them work to buy many of their “wants” for themselves. (7) Save and make regular long-term investments in tax deferred retirement accounts, mutual funds, municipal stocks, and bonds.

Stanley has his own seven factors to characterize millionaires, and while they differ somewhat from my anecdotal, personal observations above, in essentials they are the same. Work hard, invest wisely, spend little. The choice is yours –you can be a PAW (prodigious accumulator of wealth) or a UAW (under accumulator of wealth). If you don't have enough income, no matter how much of a PAW you are, you may never be a millionaire, but you'll be much better off than your peers in the same income group. And no matter how great your income, if you're a UAW, you will likely never become a millionaire. By Stanley’s definition, whether you are a PAW or UAW is not determined by your net worth (“wealth”), but rather by your net worth in relation to your income. Basically, you multiply your income by your age, divide by 10, and you get the average net worth for someone in your age and income group. If your own net worth (minus any inheritance, which doesn’t count since you didn’t accumulate it yourself) is a ways above that, you’re a PAW. If it’s much below that, you’re a UAW.

There is a very interesting chapter on the positive and negative (mostly negative) effects of EOC (“economic outpatient care”). EOC is when wealthy parents give gifts to their adult kids and grandkids, which they often do in their later years to decrease the value of their estates and therefore avoid inheritance tax. Stanley says that some EOC (payment of tuition, for instance) has a positive impact on the long-term wealth accumulation of the recipient while arguing that other forms of EOC (cash gifts earmarked for consumption) have a negative impact. He compares the net worth of similar occupational groups to show that those millionaire's kids who receive EOC actually have a lower net worth than those who do not receive EOC. He suggests such gifts encourage many adult children to develop habits of consumption and to incur additional costs they would not have incurred in absence of the gifts. For example, the middle-income couple who is given cash for a down payment on a house in an upscale neighborhood will then try to keep up with the Jones on that middle income, purchasing fancy cars and country club memberships, whereas if they had just stayed in a middle-class town house, they’d presumably feel the need to buy less stuff. I don’t think he takes personality and personal priorities into account enough when drawing such conclusions about the effect of EOC, though he does concede that EOC does not always have this effect, especially on two particular groups: teachers and “Type A” housewives acquire more wealth if they receive EOC than if they don’t, because these groups tend to receive the gifts without increasing consumption habits and to save some portion of the gifts.

Things I wish the author had discussed more:

INFLATION. Given that the average age of millionaires is 57, and most are acquiring this fortune over a thirty to fifty year period, I don’t think Stanley has enough to say about the affect of inflation or how that might alter the future number of millionaires. In fact, I don’t recall him mentioning inflation at all. The woman who buys a house at the age of 21 could be a millionaire by 70 based almost exclusively on the increase in the value of her house. Millionaires are only 3.5% of the total population, but what percentage of the population over 50 are they?

CHARITY. How much do millionaires give to charity, on average, compared to others as a percentage of income? How does giving to charity affect the ability to accumulate wealth? He only briefly mentions charity, admitting that children of PAWs who receive EOC do tend to give more to charity than those who do not receive EOC.

THE EFFECTS OF SHIFTING GENERATIONAL VALUES ON WEALTH ACCUMULATION. For Stanley, under accumulation of wealth largely accounts for the fact that few of the children and grandchildren of millionaires become millionaires themselves. Stanley says, basically, that the hard-working and frugal ethos of self-made millionaire parents is lost as their children and grandchildren become increasingly “Americanized” and thus become status-conscious, materialistic, undisciplined consumers. I’m not ruling out that possibility. I’m sure it’s true for some, perhaps many. But I think there’s another possibility. Maybe some of the children and grandchildren of millionaires simply have competing values that, while different, are quite possibly also good values.

The reality is that life is full of competing goods. Unfortunately, we can’t fully realize all goods simultaneously. Being at home for your kids is a good; but being able to one day pay for their college tuition so they can have a debt-free start in life is also a good. Few mothers can realize both goods. Supporting your child’s love for music by getting him an expensive instrument and private lessons so he can grow as musicians and explore his talent is a good; but having financial independence in old age so your kids don’t have to support you financially is also a good. Having more money than you need in the bank, in case you one day do need it, is a good. But paying a babysitter so you can experience regular, marriage-building date nights with your husband is also a good. We sometimes have to choose between two good things. And which goods we choose may depend more on our personalities and preferences, on our individual fears and hopes, than on our moral fortitude. Stanley’s assumptions about why millionaire kids do not become millionaires are a bit harsh. Some of these “kids” no doubt are irresponsible spendthrifts, but perhaps others are saving *enough* to meet their own personal, long-term life goals and are realizing other positive values instead of wealth accumulation. I may be wrong about this, but it’s not even a possibility Stanley explores.

One final note - this book should be read in conjunction with The Cheapskate Next Door.

This book could be compressed in about 1/4 the size. Essentially the message is save a lot and put the money saved in investments.

The "secret" to building wealth is remarkably simple, but the devil is in the details. Accumulating wealth is as simple as living below your means for a long period of time and investing the left over money in the never ending bull marke known as the U.S. financial markets. There are a few problems with this. The main problem is that the temptation to live above your means to display your "wealth" to other leads to you never accumulating as much wealth as you should. Your parents have a lot to do with how you view money and ultimately how you act with it.

My only real gripe with the book is that the numbers in it feel very outdated. The book did come out the year I was born after all, 1998. The book says you should only buy a home 1.5 times your salary. That is just bananas in the current housing market we live in. Many of the numbers for incomes, budgets, cars, and goods feel very off. If you adjust $1,000,000 to 2024 dollars using C.P.I. data from the U.S. Federal Reserve it becomes approximately $2,000,000. The cost of like in those 25 or so years has probably more than doubled.

The core concepts of the book stand the test of time. Live below your means and do not display your wealth to others with material items. Don't let your parents subsidize your lifestyle. Raise kids who are self sufficient adults. Don't let cars keep you poor. Know the worth of your time.

I read this book because Hubby asked me to. It apparently made a big impression on him when it first came out 20 years ago or so.

First, there were no earth-shattering revelations here for me. Of *course* intelligent people who had to work for their money don't spend $50k on a watch. Of *course* those same people don't spend $33k/year on clothing. Duh.

But maybe I already know these things because I came of age in the dot-com era, when millionaires were the kids in the garage next door who wore dirty jeans and never cut their hair?

Second, the world has moved on in so many ways. Many of the case studies presented were about people who had reached their 50's and 60's before Google was founded. A lot of the particulars no longer apply even though the principles are sound. For example, it is put forth that most millionaires would never dream of buying a foreign vehicle; most of them drive Ford or GM vehicles and many drive SUVs or trucks. The message is good - buy a used vehicle that will reliably last many years and is inexpensive to service - but the particulars are no longer correct. If you want such a vehicle today you would probably consider a Honda, Toyota, or Hyundai rather than a Ford or GM, and you wouldn't dream of buying a truck or SUV if you cared at all about fuel economy (which I bet most of their 'model' millionaires today would).

Third, holy crap their data on and advice about and for women is profoundly archaic and hopelessly out of touch. This makes sense, I suppose, when you consider that they were writing about and for Baby Boomers, but wooooooooooooooow did I get pissed off.

Fourth, this book perpetuates the boostraps myth. When the information presented here is taken alongside such books as Nickel and Dimed, it becomes apparent that for the vast majority, only those people who make professional-level wages (and by that I mean substantially above subsistence) from a young age have any real hope of attaining wealth.

In other words, there are no answers here. Chastisement, perhaps, for those of us who have and do mismanage good fortune, but no answers for anyone else.

Finally, the two good things I took away from this book were the age/wealth equation (which suggests I'm very far behind), and the idea that it is better to spend an hour a day managing finances and investments rather than one full day or two half-days per month. Ongoing awareness of finances is key to spending with mindfulness.

Next millionaire

کتاب مفیدی بود در مجموع، اگر چه یه سری جاها زیاد عدد و رقم و جدول ارائه می کرد که برای من زیاد جالب نیست. یه بدی که این کتاب ها دارن اینه که چند تا راه حل کلیدی ارائه میدن و تو دویست سیصد صفحه هی تکرارشون می کنن در حالی که به نظرم خلاصه تر هم میشه بیانشون کرد.

Really changed my thinking on saving money and accumulating wealth. The data in the book is dated so I'd really like to read an updated version. But the concepts are timeless and meaningful.

There is a difference between those who grow wealthy and those with high incomes. That's not to say that wealthy people can't have high incomes. But many people with high incomes end up consuming much of their money by trying to keep up with the Joneses. Meanwhile, frugal behavior and entrepreneurship have been found to contribute to wealth accumulation.

The case studies were interesting but I found the charts and tables distracting. If you are interested in those, then avoid the Kindle version of this book.

Also, some of the information seemed repetitive. I think there was too much detail about car buying behavior.

A quick read with loads of statistics on the wealthy in this country. I find it funny that after getting older I realize that my dad was always right. Frugality is the key - live below your means and don’t fall into lifestyle traps. Pay yourself first - invest a third. A high income doesn’t mean wealth, my dad was a farmer for 40 years in the Dominican Republic who came to this country with nothing and died with a quarter million and had opportunities to be a millionaire given his investing philosophy and frugality.

Short and sweet. The main premise is that conspicuous consumption does not a millionaire make. Hard work (especially in the form of small business owner) and frugality are more predictive of wealth accumulation.

Only read up to Page 53.
Here are some great pointers:
- Why are so many people interested in what we have to say? Because we have discovered who the wealthy really are and who they are not. And, most important, we have determined how ordinary people can become wealthy.
- Eighty percent of America's millionaires are first-generation rich.
- This is why America needs a constant flow of immigrants with the courage and tenacity of Victor. These immigrants and their immediate offspring are constantly needed to replace the Victors of America.
- As a consequence, our youth are told that buying expensive items is normal behavior for affluent people. They are led to believe that the wealthy have a high-consumption lifestyle. They learn that hyperspending is the main reward for becoming affluent in America.

Among one of the worst books on finance ever written. Pure selection bias, only reviewed people who became millionaires and developed generalized strategies. Read it nearly 20 years ago and I’m still mad about it.

Why not interview lottery winners and ask for their secrets?