A book review on The Millionaire Next Door by Thomas Stanley and William Danko. You can also read it for free here. Here are the seven characteristics that the authors found millionaires to have in common with each other:
1. They live well below their means. Millionaires spend less than they make but develop over time an identify that is synonymous with being frugal. They pay for quality but not for image. Typically millionaires don’t spend more than $399 to buy a suit. About half of the surveyed millionaires spent $140 or more in buying a pair of shoes.
If you’re not wealthy and want to be wealthy someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income.
2. They allocate their time, energy, and money efficiently in ways that are conducive to building wealth. Millionaires plan their investments and budget. They keep money on hand for a rainy day (also known as an emergency fund). They invest early in life. Millionaires spend more time or about 8.4 hours per week planning and managing their investments than non-millionaires who spend about 4.6 hours per month planning theirs.
- 3. They believe that financial independence is more important that displaying high social status.The authors point out on multiple occasions that millionaires don’t have fancy cars. Millionaires drive the same vehicle for years.
“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”
*Over 80% of millionaires purchase their vehicle while the rest lease.
*Only 23.5% of millionaires interviewed only a brand new car.
*A typical millionaire only spends on average $24,800 for his or her most recent car purchase.
*About half of the millionaires surveyed never spent more than $29,00 for a single vehicle.
*Most American millionaires like to buy American-made vehicles such as Fords, Chryslers, Chevrolets, and Cadillac’s.
4. Their parents did not provide economic outpatient care. The correlation was the more dollars an adult child received from their parents the fewer they accumulate. On the other hand, those who were given fewer dollars accumulated more. Perhaps this has to do with understanding the value of money when one earns a dollar verses when one gets a dollar. Goes back to the whole give a fish or teach a person to fish type thing. Those who received help from their parents tend to manage their money in a poor manner, invest less, and spend more. Giving a child a cash gift or financial assistance is not always the best solution to helping that child have a better financial life. Sometimes parents enable the very behavior they are trying to correct by gift giving to particularly irresponsible kids.
5. Their adult children are economically self-sufficient. The authors clearly indicated millionaires believed that giving money to adult children damages their ability to succeed. Of interest is that the sons and daughters of millionaires are more likely to become doctors and lawyers in society than those who had non-millionaire parents.
Here are some of the guidelines of those who are wealthy on how they raised their children:
a. Never tell children their parents are wealthy.
b. No matter how wealthy you are, teach your children discipline and frugality.
c. Assure that your children won’t realize you’re affluent until after they have established a mature, disciplined, and adult lifestyle and profession.
d. Minimize discussions of the items that each child and grandchild will inherit or receive as gifts.
e. Never give cash or other significant gifts to your adult children as part of a negotiation strategy.
6. They are proficient in targeting market opportunities.The authors discuss how one of the best ways to make money is to sell products needed or desired by those who already had money. Those who provide accounting, tax, and legal services fall into this category.
7. They chose the right occupation.Of interest there is not magical list of businesses from which those interviewed became wealthy. Among the lists are those who build cabinets, sell shoes, make boxes, become dentists, become plastic surgeons, become dermatologists, become psychologists, become chiropractors, etc. The book notes that self-employed individuals are four times more likely to become millionaires than those who are working for others.
“Most of the affluent in America are business owners.”
What was most helpful about reading this book review? Have you read or do you plan on reading the book? Leave a comment!