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The Millionaire Next Door: The Surprising Secrets of America's Wealthy Paperback – November 16, 2010
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The implication of The Millionaire Next Door...is that nearly anybody with a steady job can amass a tidy fortune. (Forbes)
The kind of information that could lift the economic prospects of individuals more than any government policy...The Millionaire Next Door has a theme that I think rings very true..."Hey, I can do it. You can do it too!" (Rush Limbaugh)
[A] Remarkable book. (The Washington Post)
A nerve has been hit....[For] people who want to become wealthy. (USA Today)
A primer for amassing wealth through frugality. (The Boston Globe)
An interesting sociological work. (Business Week)
A fascinating examination of the affluent in American society. (The Dispatch (Lexington, NC), (Nc) Dispatch)
These, for the wise, are tips for all of us....A very readable book. (Cox News Service)
Debunks the image of the rich as high-living spendthrifts. (U.S. News and World Report)
I love the book, The Millionaire Next Door. It talks about how it is a myth that most millionaires in America have inherited their money. The fact is, we have created such a great country over 250 years. We have actually found the way for poor people to go from nothing to huge wealth and to create a life-changing opportunity for their children and grandchildren. We celebrate it, write movies about it, and our libraries are full of books about it. There is nothing wrong with that. (Bernie Sanders)
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The book is divided into eight chapters:
1. Meet the Millionaire Next Door
2. Frugal Frugal Frugal
3. Time, Energy, and Money
4. You Aren't What You Drive
5. Economic Outpatient Care
6. Affirmative Action, Family Style
7. Find Your Niche
8. Jobs: Millionaire vs. Heirs
The author essentially splits everyone into two categories: Underaccumulators of Wealth (UAWs) and Prodigious Accumulators of Wealth (PAWs). UAWs have a low net worth relative to income, and the opposite for PAWs and uses these terms throughout the book.
His primary argument is that PAWs get to be wealthy by living well below their means - these are people who do not look like millionaires, they live in modest neighborhoods, drive domestic sedans, wear a Timex, and usually have a blue-collar job that does not come with an expensive lifestyle associated and as a result can accumulate a sizeable nest egg. On the other hand, UAWs are typically well-educated professionals with high paying and high profile jobs (doctors, attorneys), but due to societal pressures associated with their social standing are forced to squander all their money living in luxury neighborhoods, driving German cars, and sending their kids to private schools. Their expensive lifestyle means that they spend most of their income and as a result have a low net worth, despite outward appearances.
I agree that this is good advice for just about anyone: live below your means and prioritize financial security over social standing. Growing up in a single-income family living in a modest middle class neighborhood, I'm quite used to the live-below-your-means philosophy and I think it gave me at least some sense of good financial discipline. If my parents are any indication, it works great.
Where the authors really lost my interest is that the rest of the book is chock full of anecdotes and some rather uninformative statistics to drive a few other points home. While some of these are good points and undoubtedly useful, they always seem to come with caveats or don't draw any real conclusion, which I found frustrating. Most of the points could have been made succinctly in about 1/10 the amount of page space the authors dedicate to them. These include:
- Most millionaires in America are self employed business owners, because they run their personal finances like their business finances. However, going into business for yourself is very risky so we don't really recommend that as a viable way to get rich.
- Very few millionaires have ever spent much money on a nice suit, pair of shoes, or luxury watch. They usually live in modest neighborhoods or rural areas where the cost of living and social pressures of consumerism are lower.
- First generation millionaires (often immigrants) tend to be succeeded by children with financial struggles, since the parent's desire to "give them a better life" pushes them into careers where they become UAWs, and their upbringing in our consumerist culture impedes their ability to live frugally. But even if it turns them into UAWs, encourage them to go to college and aspire to a while-collar professional job.
- Parents giving money to their children develops and reinforces poor financial habits. This money is almost always immediately spent, and these children generally have no savings since they are looking to their parents as their safety net and counting on an inheritance. Doing things like buying children a house in an upscale neighborhood or sending grandkids to a private school actually makes the children worse off, since they have to spend more to maintain the associated lifestyle.
- The authors spend an inordinate amount of time and space comparing different careers, which I found next to useless since I'm very happy with my chosen career (Engineer) and have no intention of changing. They continually deride pretty much every professional job you can think of, and simultaneously praises how great working for yourself or owning a business is while going on about how difficult and risky it is to actually own a successful business. The author does not recommend changing careers, but again, this is more of a discussion of what their research has shown than any sort of "how to" advice.
- Car buyers fall into four categories: whether you buy new or used, and whether you buy from the same place or shop around. The authors devote an entire chapter to this while only coming to the following conclusions: no method of buying a car is the clear winner, but if you own a business you may benefit from your connections with the owners of car dealerships; and most millionaires drive unassuming domestic (and to a lesser extent, Japanese) cars purchased new or lightly used.
A final note - curiously, I found no mention of anything real-estate related, which to me is highly unusual in any sort of book about building wealth. The only investment advice found here is in the final chapter and could be summarized as "invest in what you know." That is, if you work in a certain sector, your knowledge of the industry will help you make good investment decisions. Not sure how I feel about this one. For example: not working in technology doesn't mean blue-chip tech stocks are a bad investment. Take it with a grain of salt.
One last complaint: most of the financial figures are presented in mid-1990s dollars. I found it frustrating to have to mentally convert to today's dollars to get a relative sense. The authors took the time to update the preface in 2010, it would have been nice to see a revision to the figures quoted throughout the book. (For reference, one 1996 dollar is worth about 1.6 dollars in 2017).
In summary, I was surprised about the amount of praise heaped on this book. I would hardly categorize it as a self-help book, it's more a retrospective on the authors' research and a collection of anecdotes and interesting conclusions about the countless Americans leading unglamorous lives while accumulating appreciable amounts of wealth. It's a quick read and I made it through the whole book on a 5-hour flight with time to spare. I would only recommend this book as an interesting overview of some good financial habits, or as an eye-opener for those with luxurious financial tendencies who struggle to save money despite their income level. However, for those who have already developed some discipline and are looking for detailed strategies and advice on personal finance and building wealth via investments and generating passive income, look elsewhere.
I grew up in a super-affluent suburb. My friends' lived in big houses and mansions with luxury cars and country club memberships. We lived in one of the smallest houses in the suburb. My mom was so frugal. I thought it was such a drag!! But when she died (too young), she'd saved enough so that my dad, who lived another 30-some years, was comfortable in retirement. I wonder now if any of my high school friends' parents were actually living on the edge in trying to keep up with the Joneses.
Years ago, I used to charge like crazy. Now I save like crazy, just like my mom.
Some of the insights are strange. For instance they note on several occasions that self-made millionaires typically own domestically made vehicles, rather than durable vehicles or cars that retain resale value. They stress the durability of a JC Penney suit, priced at $399 (in 1996 dollars), but don't discuss cost of ownership of vehicles at all. Despite even cheap cars costing significantly more than a suit.
Additionally, there are frequent allusions to frugal people having stronger morals than people who don't save. In one scenario they go so far as to list the rewards of frugality as "being an excellent family provider, a fine husband, and a father of well-disciplined children," (p.35). I'm not sure if the authors intended to imply people who don't save money are worse partners and have unruly kids, but that theme of frugality equaling morality appears in different strengths off and on throughout the book. In this same scenario they say the fictional millionaire would be seen as low social status and not given "points for being married and never divorced." Apparently divorce is somehow relevant to saving money? They have an entire chapter devoted to how to raise your kids to be frugal, which seems... very much in need of liberal use of the phrase "correlation does not imply causation."
So, while the book offers some helpful advice, it's bogged down by these tangential points. It lacks much real advice about what to do with the money you save, which was a significant down side for me.
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