The general premise of The Millionaire Next Door is that the pop culture concept of a millionaire is quite false and that most actual millionaires live a very simple lifestyle. The authors, Stanley and Danko, did extensive profiling of people whose net worth defined them as millionaires along with those whose salaries and age defined them as likely millionaires and, using this data, created a detailed profile of who exactly a typical millionaire is. From there, extensive interviews with these“typical” millionaires created a much more detailed picture of what it actually means to be a millionaire in today’s society.
Many people who earn high incomes are not rich, the authors warn. Most people with high incomes fail to accumulate any lasting wealth. They live hyperconsumer lifestyles, spending their money as fast as they earn it. In order to accumulate wealth, in order to become rich, one must not only earn a lot (play“good offense”, according to Stanley and Danko), but also develop frugal habits (play “good defense”). Most books focus on only one side of the wealth equation: spending less or earning more. It’s refreshing to read a book that makes it clear that both are required to succeed. It’s as ifpeople can be classified based on the following table (which is my own invention based on the authors’ findings):
High Income
Low Income Frugal wealthy breaking even (spartan) Spender breaking even (lavish) broke High-income spenders live in a house of a cards. Sure they have the money now to fund their hyperconsumer lifestyle, but what happens when that money goes away? It’s also difficult for low-income frugal folks to acquire wealth. They need to learn to play financial “offense”. But those with low incomes who spend are in the biggest trouble of all. The wealthy, on the other hand, generally have a high income and a frugal mindset. They share other characteristics as well.
- 80% of America’s millionaires are first-generation rich. This is contrary to those who would have you believe that wealth is usually inherited.
- 20% of millionaires are retired
- 50% of millionaires own a business
The authors write, "In the course of our investigations, we discovered seven common denominators among those who successfully build wealth." Those characteristics are:
They live well below their means. In general, millionaires are frugal. Not only do they self-identify as frugal, they actually live the life. They take extraordinary steps to save money. They don’t live lavish lifestyles. They’re willing to pay for quality, but not for image.
They allocate their time, energy, and money efficiently, in ways conducive to building wealth. Millionaires budget. They also plan their investments. They begin earning and investing early in life. The authors note that“there is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one’s financial future”. In other words, the more time someone spends buying things that look good, the less time they spend on personal finance.
They believe that financial independence is more important than displaying high social status. The authors spend far too much time beating home this point: usually millionaires don’t have fancy cars. They drive mundane domestic models, and they keep them for years. (There’s an entire 31-page chapter devoted to how millionaires shop for cars. It’s tedious. It may be the worst chapter I’ve ever read in any personal finance book. And the authors go on ad nauseum about the average price per pound of various vehicles. There’s even an appendix showing the average price-per-pound for the most popular models.)
Their parents did not provide economic outpatient care. That is, most millionaires were not financially supported by their parents. The authors’ research indicates that “the more dollars adult children receive [from their parents], the fewer they accumulate, while those who are given fewer dollars accumulate more”.
Their adult children are economically self-sufficient. This chapter is fascinating. The authors clearly believe that giving money to adult children damages their ability to succeed.
They are proficient in targeting market opportunities.“Very often those who supply the affluent become wealthy themselves.” The authors discuss how one of the best ways to make money is to sell products or services to those who already have money. They list a number of occupations they feel have long-term potential in this area.
They chose the right occupation.“Self-employed people are four times more likely to be millionaires than those who work for others.” There is no magic list of businesses from which wealth is derived — people can be successful with any type of business. In fact, most millionaire business owners make their money in “dull-normal” industries. They build cabinets. They sell shoes. They’re dentists. They own bowling alleys. They make boxes. There’s no magic bullet. 
