A book / audio CD that overthrows common misconceptions about millionaires,
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This review is from: The Millionaire Next Door (Paperback)
Ask anyone about the lifestyle of millionaires not just in America but in any country in the world, he / she will most likely tell you about yachts, luxury travels, expensive cars, dream homes, heavy consumption, expensive jewelry etc. Very few people are likely to talk about frugality and a modest lifestyle as the characteristic lifestyle of millionaires. After all who spends all the money on luxuries if not millionaires ? Do you think the answer is millionaires ? Wrong : it is high income generating and / or high debt hyperconsumers. But aren't high income generators also millionaires ? Answer : not most of the time. In this book the authors Thomas J. Stanley and William D. Danko explain with examples that most millionaires are self made ; they are not necessarily inheritors of wealth. In fact inheritors of wealth are usually hyperconsumers who spend it all away and do not end up becoming millionaires like their parents. The number one characteristic of the millionaire lifestyle is frugality ; living below their means and investing the surplus wisely. Many people do not know the difference between income and wealth. High income is good in building wealth if it is not all spent away but some of it is invested. The problem is that this requires delayed gratification which requires self discipline that most high income people don't have. So following years of upper middle class standard of life characterized by hyperspending they end up retiring with no wealth.
The wealthy on the other hand delay luxurious consumption and invest a certain percentage of their incomes into income generating assets. When their accumulated wealth reaches a certain level they purchase luxuries without endangering their wealth. So most of the people you see on yachts, wearing expensive watches and jewelry are high income generators who will most probably end up with no wealth in their older years. The people in the process of becoming millionaires which could take 30 years or even more live in modest neighborhoods, drive ordinary sometimes even second hand cars, dress and in short live modestly in everyway. Some of them may have high incomes but a vast majority of them have learned to get by on a modest income and generate wealth from that average income by saving and investing about 10 % of their income every month for about 30 years or so. It doesn't matter where they invest ; stocks, Treasury Bills etc. Compounding small income streams over 30 years buids enormous wealths.
One very striking thing that the authors mention is how adults receiving financial support from their affluent parents develop weak characters in terms of wealth building ability. They are in fact adult children, because they haven't developed the self discipline to be frugal and build wealth. Their well meaning parents unknowingly make them weaker by supporting them financially. Their children are often adults in their 30's, 40's and sometimes even 50's and surprisingly many of them have careers ; some are professors, doctors, lawyers etc. Their common trait is that they enjoy an upper middle class lifestyle through hyperconsumption financed in part by their own incomes but to a great extent by financial support provided by their wealthy parents who may be in their 80's by now. They think their parents' wealth is their income. In reality their parents are wealthy but they are not. What is even worse is that their children also get accustomed to the upper middle class living standard. But once the financial support and / or inheritance from the grandparents is all consumed away the grand children risk falling into a poor lifestyle. Because nobody other than the grandparents knew how to build wealth. In fact, many of these adult children are aware that they can not generate wealth and therefore worry and are very anxious about their future. In summary, when the affluent provide for " financial outpatient care" by financially supporting their adult children they prevent the development of the character qualities such as frugality in them. So their children and or their grandchildren are often doomed to a poor lifestyle following an irresponsible hyperconsumptive life funded by parental financial help. Although the authors have written these for the USA I would like to add that this is the situation in many countries including the USA. I just didn't know that it was as prevalent as the authors explain.
We can learn a lot from this book / CD but the sad thing is that it is probably difficult to change our lifestyles and habits if it turns out that our present consumption / saving habits are not making us millionaires ; if for example your family's lifestyle is hyperconsumptive and there is no frugality, you may have a hard time after reading this book in changing the habits of all the family members so that everybody will become frugal and thereby increase the chances of you and your family becoming millionaries.