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The millionaire next door summary

Welcome to this The millionaire next door summary. The surprising secrets of America’s wealthy by Thomas J. Stanley, Ph.D. William D. Danko, Ph.D.

In this book, you’ll discover all the secrets of the rich. You will see that a financially prosperous life is not the prerogative of the elite, meaning that it’s not a right they have because of their social position. You will see that most millionaires are ordinary people; just like us!

Based on studies conducted among American millionaires, it analyzes their buying behavior and their ways of spending, saving and investing. With statistics to back it up, it offers an intimate glimpse into their lives: what car they drive, how much they spent on a pair of shoes, a watch, and so on. You’ll find out what professions have helped them become and stay rich. Far from prejudice and sensationalism, this book is probably the most comprehensive study ever made on the subject.


the millionaire next door summary


The millionaire next door summary Chapter 1: Meet the millionaire next door

Portrait of a millionaire

Millionaires do not usually become rich through inheritance or graduation from a famous university and do not live in posh neighborhoods.

On the contrary, they reject a hedonistic lifestyle and excessive spending. After conducting detailed research, the authors of the millionaire next door state with conviction: we are used to associating wealth with people from the “glamorous” world, but in reality they are only a small part of it.

In other words, the real millionaire can live right next to you! Thomas J. Stanley reveals the rules, habits and daily behavior of millionaires.

From the book

From the book for example, the authors ask who the prototypical American millionaire is and what they would tell you about themselves.

The typical millionaire is a fifty-seven-year-old male, married with three children. About 70 percent of us earn 80 percent or more of our household’s income.

In addition, about one in five of us is retired. About two-thirds of us who are working are self-employed. Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires. Also, three out of four of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants.

Many of the types of businesses we are in could be classified as dull normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.

Other characteristics

We have an average household net worth of $3.7 million. Of course, some of our cohorts have accumulated much more. Nearly 6 percent have a net worth of over $10 million. Again, these people skew our average upward. The typical (median, or 50th percentile) millionaire household has a net worth of $1.6 million.

Most of us have never felt at a disadvantage because we did not receive any inheritance. About 80 percent of us are first-generation affluent

We live well below our means. We wear inexpensive suits and drive American-made cars. Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles.

As a group, we believe that education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the education of our offspring.

We are fastidious investors. On average, we invest nearly 20 percent of our household realized income each year. Most of us invest at least 15 percent. Seventy-nine percent of us have at least one account with a brokerage company. But we make our own investment decisions.

Wealthy defined

While most people refer to wealthy as people who have an abundance of material possessions; the authors don’t.

They define wealthy differently, not in terms of material possessions. According to the authors, many people who display a high consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights, or timber land. Conversely, those people whom we define as being wealthy get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.

The Millionaire Next Door first gives two essential definitions of wealth.

The nominal definition of wealthy

The authors consider $1 million (the difference between a person’s assets and liabilities) as the wealth threshold.

Based on this definition, only 3.5 million of the 100 million households in America are considered wealthy. Approximately 95% of millionaires in America have between $1 million and $10 million in wealth.

It is because this level of wealth can be achieved in one generation and by many Americans that the co-authors decided to retain it.

Another definition

It’s not so much the accumulated wealth threshold that matters, but your ability to accumulate wealth based on your annual pre-tax income.

Thomas J. Stanley and William D. Danko distinguish 3 categories of individuals :

PAWs (Prodigious Accumulator of Wealth) who accumulate a lot of wealth;

UAW (Under Accumulator of Wealth) who accumulate little wealth (and therefore spend it all);

AAW (Average Accumulator of Wealth) who accumulate an average level of wealth.

To find out which category you fall into, use the following formula (not including your inheritances):

Wealth Threshold = [total annual realized income (before taxes) x your age] / 10

The result is what your net worth should be. For example, a 41-year-old individual with an income of $560,000 and a personal fortune of $1,100,000 is not considered wealthy. According to the formula, he should be at 560,000 * 41 = $3,416,000 of personal wealth. He belongs to the UAW category. Everything depends on the standard of living to be maintained.

You or your ancestors?

Most of America’s millionaires are first-generation rich. How is it possible for people from modest backgrounds to become millionaires in one generation? Why is it that so many people with similar socioeconomic backgrounds never accumulate even modest amounts of wealth?

Most people who become millionaires have confidence in their own abilities. They do not spend time worrying about whether or not their parents were wealthy. They do not believe that one must be born wealthy.


In this manner, if you believe that all millionaires are born with a spoon in their mouth, the following statistics should be of interest to you:

More than half of them did not inherit more than one dollar;

91% of them did not receive more than one dollar as a gift from the possession of a family business;

More than half received no scholarships from their families to pay for their education.

In terms of origins, the population group of English descent does not have the highest concentration of millionaire households in the United States. The group of Russian descent is the first to come in first place (transmission of the entrepreneurial spirit from generation to generation), followed by the Scots (transmission of the values of economy and discipline from generation to generation), and in third place by the Hungarians.

This is probably due to the fact that many immigrants from the East who became rich did not imitate the lifestyle of American consumers.

The millionaire next door summary Chapter 2: Frugal, frugal, frugal: they live below their means

Two important definitions to consider

Frugal/Economic: behavior that views economics as a use of resources;

Spender: lifestyle marked by hyperconsumption and reckless spending.

Frugality is the basis of enrichment. Millionaires are not big spenders and ignore conspicuous consumption.

A few figures to illustrate the purchasing behavior of millionaires:

50% of them have never spent more than $399 on a suit and 75% more than $599;

And 50% of them have never spent more than $140 for a pair of shoes and 75% more than $199;

50% of them have never spent more than $235 on a watch and 75% more than $1125.

Many Americans with six-figure incomes will never be millionaires. The standard of living they choose to display requires a level of spending that prevents them from accumulating enough wealth.

A recipe

One of the most important recipes for millionaires to achieve their status is the following:

They become millionaires by budgeting (they know how much they spend each year on food, clothing, etc.) and controlling their spending. Once they become millionaires, they maintain their lifestyle in the same way.

Daily expenses

The American millionaire budgets and keeps accounts for all of his expenses, starting with daily expenses such as clothing and food. He is convinced that the management of his business applies in the same way to his personal finances.

Credit Cards

Like most American households, American millionaires have a MasterCard and a Visa card. And that’s all!

Life goals

People who achieve financial independence have an above-average ability to visualize the future benefits of setting their goals. Does this make them happy? No one knows, but what is certain is that :

Financially independent people are happier than the average person in the same income and age category who is not financially secure.

66% of the millionaires surveyed in the study spend a lot of their free time planning their financial future and invest a lot of time in their financial education (investments, protection, etc.).

In contrast, the financial plan of UAWs boils down to spending everything they touch. They often buy on credit or at best save to finance their expenses. They do not hold securities and their parents have never invested anything. The typical UAW is usually a compulsive consumer. The accumulation of wealth is not a source of motivation for him or her.

Guiding unconscious message

The main unconscious message that guides him in his choice of money is the following:

You earn money to spend. If you need to spend more, then you need to earn more.

Another adage is characteristic of millionaires as opposed to UAWs who earn high incomes:

To build wealth, you have to minimize your taxable realized income and maximize your unrealized income (wealth/capital appreciation without cash flow generation).

This is simply because income tax is often the most important household expense of the year.

The environment also counts enormously in terms of your future wealth. One of the rules to follow when buying your principal residence is as follows:

If you are not wealthy, but plan to become wealthy one day, never buy a home that requires borrowing more than twice the total annual household income.

It is therefore easier to become rich if you do not live in a high social environment.

The millionaire next door summary Chapter 3: Time, energy and money

They allocate their time, energy and money efficiently; in ways conducive to building wealth

Efficiency and regular monitoring are the key words in wealth accumulation.

PAWs spend twice as much time per month planning their investments as UAWs do. (PAWs allocate nearly twice the number of hours per month to planning their financial investments as UAWs do.) They know exactly where every penny of their income goes.

For them, money is a resource that should never be wasted. They voluntarily live below their means. One wealth manager confided to researchers that “only clients with considerable wealth want to know exactly how much their family spends in each category.

One of the best advice one can give to anyone is to start investing early in their adult life.

Similarly, only the considerably wealthy clients want to know exactly how much their family spends in each spending category.

PAWs, on the other hand, are much less inquisitive when it comes to paying for quality financial services. On average, they allocate about 15% of their annual pre-tax income to investment.

Time management also differs between UAWs and PAWs. There is an inverse relationship between the time spent buying luxury goods such as cars or clothing and the time spent planning and defining future financial goals.

95% of millionaires own shares. They are medium and long term investors. Only 9% of them keep their shares for less than a month, 20% for a year or two on average, 25% for 2 to 4 years and 13% for 4 to 6 years.

Criteria for millionaires

In addition, it is essential to develop your recruitment skills when choosing your financial advisor. The criteria for millionaires are as follows:

– multiple references,

– an official diploma,

– a credit check,

– several interviews,

– have completed a detailed application for the job,

– documents attesting to the applicant’s ability to perform the requested tasks.

Your propensity to accumulate wealth is directly correlated to your ability to recruit top-notch financial advisors!

The millionaire next door summary Chapter 4: You aren’t what you drive

They believe that financial independence is more important than displaying high social status

Just as one shouldn’t judge by appearances, the car does not make the millionaire.

The prodigious accumulators of wealth have understood one thing well: what you are does not depend on what you buy.

After housing, the car is often the most important expense of a household.

Only 25% of millionaires have bought a new car. By doing so, they save on average 20% on the purchase price of their vehicle.

If the purchase price of a vehicle in America was $21,000 at the time of the study, the average purchase price of a vehicle for a millionaire was $24,000; a price that is only slightly higher.

More than 50% of the vehicles purchased by millionaires were at least 2 years old at the time of purchase.

While the authors were organizing a meeting as part of their study, they looked around the parking lot expecting to see some nice cars. They saw a majority of Ford, General Motors and few sports cars. “These people aren’t looking for status, they buy their cars by the kilo! “they said.

An interesting anecdote

The authors relay the following anecdote that a millionaire told them:

Something interesting happened recently. I found out that someone was going to give me a surprise gift. This gift, a Rolls-Royce! It was ordered especially for me with special colors, a special interior… They had ordered it about 4 months before I discovered it and we still had 5 months before delivery.

How do you tell someone who offers you a Rolls-Royce that you don’t want it?

You have read correctly, this gentleman to whom his relatives wish to offer one of the most luxurious cars in the world is about to refuse this gift.

The Rolls-Royce represents nothing important in my life. Nor do I want to have to change my lifestyle to accommodate the ownership of this car. I can’t throw fish in the back seat like I usually do when I go fishing. Also I take everyone to the lake. I fish there every weekend. We are one of the best freshwater fishing spots in the country.

As you can see, the millionaire doesn’t care about the potential social status that comes with owning a luxury car.

The millionaire next door summary Chapter 5: Economic outpatient care

Their parents did not provide economic outpatient care

Economic outpatient car (EOC) is a payment that parents make to their children on a regular basis to help them get started in working life.

The idea is as follows: having had to go through difficult financial times themselves in their youth, parents want to avoid this situation for their children by giving them a financial boost until their situation stabilizes.

In practice, children who have received EOCs are often less successful accumulators of wealth than those who have never received EOCs. They earn 98% of the income of those who do not receive EOC. On the other hand, their wealth averages only 47% of that of those who do not receive EOCs.

Two explanations

There are two explanations for this phenomenon:

This financial assistance gives a false impression of financial security, which leads to overconsumption.

Having had to overcome these financial difficulties in their youth, parents had no choice but to learn how to manage their money. Passing this test was certainly a determining factor in their financial success. Had they themselves received EOCs, they may never have reached their current financial situation.

The millionaire next door summary Chapter 6: Affirmative action, family style

Their parents did not provide economic outpatient care

The children of millionaires are mostly financially independent. Independence is a deeply rooted value in this kind of family.

In order to make their children financially independent, the authors have put together a list of 10 tips:

1- Never tell children that their parents are wealthy

2- No matter how wealthy you are, teach your children discipline and frugality

3- Never tell a child how rich his parents are. The goal is to prevent children from getting used to the high status/high income lifestyle.

4 – No matter how rich you are, teach your children discipline and frugality.

5- Make sure your children don’t realize how rich you are until they have established a mature, disciplined adult life and a good profession.

More tips

6- Minimize discussions of the items that each child and grandchild will inherit or receive as gifts. Promises made lightly are a source of discord and conflict.

7- Never give money or important gifts to your children as part of a negotiating strategy. Do so only out of love, obligation or kindness.

8- Stay out of your children’s family problems.

9- Do not try to compete with your children. Never start a conversation with “you know when I was your age, I already had…”. Often children cannot or do not want to compete with their parents. The life goals of parents and children can be diametrically opposed.

10- Always remember that your children are individuals. What works for one may not work for the other.

Emphasize your children’s accomplishments, regardless of their size. Teach them to achieve goals, not just to consume. Earning more to spend more shouldn’t be a source of motivation for them.

Tell your children that many things are more important than money. Health, longevity, happiness, a happy family, good friends, respect, honesty, etc. are values to be valued. Money is the icing on the cake.

The millionaire next door summary Chapter 7: Find your niche

They are proficient in targeting market opportunities

If the rich excel at one thing, it’s looking for opportunities.

A phrase often seen on the internet indicates that to earn 1 million dollars, you can either sell 100,000 products at $10 or 10 products at $100,000. The rich generally prefer the second category.

According to the authors of the millionaire next door, there are significant business opportunities for those who target the affluent, the children of the affluent, and the widows and widowers of the affluent. Very often those who supply the affluent become wealthy themselves.

Conversely, many people, including business owners, self-employed professionals, sales professionals, and even some salaried workers, never produce high incomes. Perhaps it’s because their clients and customers have little or no money!

Millionaires account for more than half of private wealth in America. They know that their population is an interesting population for business. One of the 2 authors of this book has moreover released another book especially dedicated to selling to this population.

Professions with this category of clientele are therefore privileged: specialized accountant, wealth manager, promoter, doctor/dentist, etc.

The millionaire next door summary Chapter 8: jobs: millionaires versus heirs

They chose the right occupation

You can’t predict if someone is a millionaire by the type of business he’s in.

There is no predetermined list of businesses to get in if you want to become a millionaire overnight. If you believe so, you’ll be disappointed. The authors found that you can’t predict whether someone is a millionaire just by looking at their profession.

Where millionaires stand out is not so much in the profession as in the way they practice it.

This quote from a multimillionaire who participated in this study sums up the chapter well:

There are a lot of people who don’t like their jobs. I’ll tell you honestly; a guy who works, who loves his job, who can’t wait to get up in the morning and go to work, that’s my [success] criteria. That’s the way I’ve always been. I can’t wait to get up, go to the office and start working.

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