The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko
Summary: In the United States, most wealthy individuals don’t live in Beverly Hills or on Park Avenue. They live next door in middle-class neighborhoods. The tiny minority of America’s wealthy individuals usually don’t have advanced degrees and seldom receive an inheritance. They bargain-shop for their cars and clothes, and they reject the flashy lifestyles of the glamorous that most people think of as rich. In fact, they behave quite differently than the majority.
Are You an UAW or a PAW?
For those who haven’t read The Millionaire Next Door yet, you are probably unfamiliar with the acronyms, UAW and PAW. UAW refers to an Under Accumulator of Wealth, and PAW is a Prodigious Accumulator of Wealth. The books has plenty of stories from both sides of the wealth equation. They will certainly scare the crap out of you and your future self if you have a UAW lifestyle. You will pat yourself on the back if you are living the PAW life.
The best way to become the millionaire next door is to leave the ways of UAW behind and follow the path toward PAW greatness. In order to know whether you are Team UAW or Team PAW is to calculate your actual net worth. Then, you compare that number to what your net worth should be at your age and with your income. According to the authors, the following rule of thumb provides one’s expected net worth:
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
Did you just get out your handy dandy calculator and determine what your net worth is supposed be? Were you shocked at the number? Were you frightened by how many zeroes are in that number? Did you just come to the realization that you are probably an UAW? Well, if you answered yes to those question, fear not, my friend, because you are not alone. I, too, am an UAW. My net worth should be around $200,000. However, Mint constantly reminds me of my negative wealth thanks to my mountain of student loans. The good news is I am on my journey toward financial freedom. Reading The Millionaire Next Door has given me some guidance to reach that ultimate goal.
The Magnificent Seven
The best take away from the book is actually in the introduction. It provides the seven common characteristics of wealthy individuals based on the research conducted for the book:
1. The “Millionaire Next Door” lives well below their means and is not spending all of their income.
2. They spend their time, energy, and resources in ways that contribute to growing their wealth.
3. To them, financial independence is more important than looking like the stereotypical millionaire driving a fancy car and living in a McMansion.
4. They do not depend on their parents for financial support them as an adult.
5. They raise children who are also financially self-sufficient.
6. They seek the right opportunities to gain wealth.
7. They work in a field that is conducive to building and growing wealth.
The book expands on these concepts with data, tables, charts, and anecdotal stories about PAWs and UAWs. If you’re a PAW, you are probably already doing most if not all the tips and suggestions in the book. If you are a UAW, then this book will definitely be the wake up call you need! Let The Millionaire Next Door inspire and motivate changes in your financial mindset and lifestyle.
The Millionaire Next Door is a staple in the literary world of personal finance. So … it’s never a bad idea to give this book a spin if you’re looking to increase your financial literacy. However, the book does not present any groundbreaking ideas. The information is common sense, but it is benefited with supporting data, which give more heft to the authors’ arguments. While the book is full of useful information, there are parts that were unnecessarily detailed. One example is the car buying section and the list of the businesses and occupations of these self-made millionaires.
Almost every known occupation made the list. That probably proves it is mostly likely not our jobs keeping us from reaching millionaire status. Also, do not expect this book to give a step-by-step play on how to become a millionaire. The Millionaire Next Door is more of a personal finance reference book. It provides characteristics you want to adopt if your goal is to reach millionaire status. Rating: Laboratious Literature