The Balanced Spreadsheet-Financial News, Budget Advice, Debt help, Financial Tips, and other advice

June 26, 2009

Book Review: The Millionaire Next Door

Filed under: Book Review — Tags: — thebalancedspreadsheet @ 2:59 pm

From time to time I would like to do a book review of what I have been reading.  I try to read a lot during my spare time and I enjoy reading a lot of non-fiction books either on sports, religion, or finances.  Since this is a financial blog, I will review finance books that I found interesting and would recommend.  Today’s book is The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas Stanley and William Danko. 

This book was written in 1996 and despite being over a decade old; the studies and surveys done in this book are still applicable today.  For the book Stanley and Danko surveyed over 1,100.  They found that there are seven main factors that cause people to accumulate wealth:

-They live 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

Although the book consists of eight chapters, the book is broken up into two halves.  The first half starts out by putting people into two categories, prodigious accumulators of wealth (PAW’s) and under accumulators of wealth (UAW’s).  PAW’s are those who are best at building their net worth compared to others in their age/income bracket.  UAW’s are the opposite.   The next few chapters focus on the lifestyle choices of many PAW’s.  What kind of clothes do they buy, how much of their income do they spend/save in a year, what kind of automobile do they drive, and how much time do they spend on their finances a year.  The book concludes that many millionaires don’t look like the “typical” millionaire.  PAW’s tend to not buy expensive clothes such as fine suites and fancy watches.  They also tend to not drive as nice of a car as you think they would.  They found that only 23.5% of millionaires have a current year model car and that half on the millionaires had never paid more then $30,000 for a car.  I know that was in 1996 dollars but that stat to me was pretty surprising.  Not so surprising was that PAW’s spend a lot of their time researching investments and keeping an up to date budget.  While UAW’s do not spend nearly as much time on their finances.  The authors made a good point when comparing PAW’s to UAW’s.  A lot of people know how to play good offense (have a high income), but few know how the play defense (safe and invest the income, do not go into debt).  They make the point that it is better to have a good defense then a good offense.

The second half of the book deals with the affluent and how they handle money with their offspring.  To me this part of the book was the most fascinating and eye-opening.  Stanley and Danko found that most of the estates that will have to pay the death-tax tend to give yearly gifts to their children.  They called these gifts, normally $10,000 a year, economic outpatient care (EOC).  Those who receive EOC have a tendency to earn less then their peers in their profession as well as underachieve relative to their peers in net worth.  They also tend to be hyper-consumers instead of being savers like their parents.  The case studies they had in the book really hit this home to me.  It seemed to me that EOC was doing more harm then good.  The book then finishes up by predicting what professions were growing and where the next generation of millionaires would come from.

All in all this book is a classic that I think should be on the short list of must read personal finance books.  It has great insight into the behaviors of millionaires.  It also shows that there is no special secret behind becoming a millionaire.  Basically spend less then you make and invest the rest.  Stanley wrote a follow-up book called The Millionaire Mind that I have heard is also good.

For those of you who have read the book do you have any comments?  Agree or disagree with any of the findings?  Leave a comment.

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3 Comments »

  1. […] In fact, I was surprised to find out that I have not done a book review since my review of “The Millionaire Next Door” back in June.  But after finishing “Thou Shall Prosper” by Rabbi Daniel Lapin I knew it was time to do […]

    Pingback by Book Review: “Thou Shall Prosper” by Rabbi Daniel Lapin « The Balanced Spreadsheet-Financial News, Advice, tips, and more — November 12, 2009 @ 12:43 pm

  2. […] Door” series in which I already reviewed the first book “The Millionaire Next Door” back in June.  Stop Acting Rich is a great follow-up with new and updated […]

    Pingback by Tom Stanley “Stop Acting Rich” Book Review « The Balanced Spreadsheet-Financial News, Advice, tips, and more — March 18, 2010 @ 11:26 am

  3. […] you can not become wealthy by making payments to a bank or to a credit card company.  As noted in The Millionaire Next Door and Stop Acting Rich and Start Acting Like a Real Millionaire, wealth is created by not spending […]

    Pingback by Most Important Money Advice a Young Person Can Receive? « The Balanced Spreadsheet-Financial News, Advice, tips, and more — March 20, 2010 @ 8:21 am


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