The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko is a brilliant analysis of how the affluent came to be. The average millionaire is an elusive creature. He doesn't look like a millionaire, he doesn’t spend like a millionaire, he lives a modest, middle class life but make no mistake- he is a millionaire. His net worth is between one and ten million dollars. He has this in stocks, accumulations, and various investments. His annual income is below a million dollars, and he achieved millionaire status while making far below six figures a year. The average millionaire once sat where you sat and made what you made. In fact, anyone with a steady income can become affluent and financially independent- which is the whole point of acquiring net worth.
I admire T. Stanley and W. Danko for not being preachy. They never tells the reader what to do, they lead with examples.
The Millionaire Next Door is a true story; it’s a plethora of testimonials- if it were a how-to guide it would be summed up as this:
live way beneath your means. The book takes no moral stance, it makes no judgments, it doesn’t guarantee millionaire success in a “get rich quick” scam- it just reports the facts. This is my preferred method of learning- through story.
An example of their method- when asked if one should lease or buy a car, they answered, “More than 80 percent of millionaires purchase their vehicles. If and when more than 50 percent begin leasing, we will change our recommendation” (115).
I love how they argue. As a general rule, I am not fond of phrases that include the word “society” because the word is abstract and usually used with an unclear, negative connotation. For example, “society tells us what beauty is,” “society says that money buys happiness,” “society wants us to buy a lot of things.” What is society but a collection of people? I believe that the battle is not me verse society but me verse myself. What I like about
The Millionaire Next Door, with its emphasis on personal responsibility, is that it side-steps the
society phraseology and argues with specific examples.
For instance: “The popular media enjoy touting abnormalities in buying behavior. As a consequence, our youth are told that buying expensive items is normal behavior for affluent people. They are led to believe that the wealthy have a high-consumption lifestyle. They learn that hyper-spending is the main reward for becoming affluent in America” (35).
These claims are not outrageous or offensive and speak of an accurate, Western generality. The “popular media” of TV news, magazines, and websites report the spending sprees and large purchases of various public figures. To sell a product or entertainment news, it’s more effective to flaunt a 50 K Rolex around the wrist of Brad Pitt or see Jay Leno cruise by in a Jaguar XJ then to publicize the average buys of most millionaires. “Youth” refers to a specific audience; the implication is that they are (somewhat) impressionable. The youth observe a simple cause and effect - the rich spend - and the youth draw reasonable conclusions. Indeed, some of the wealthy have a high-consumption lifestyle and can afford it. The authors encourage the youth, and the readers, to look past the “hyper-spending” to a lifestyle of hyper-saving. While there is a time and place for spending in the short game, saving to achieve financial independence is the end game.
Admittedly, the downside to being frugal is frugality itself. But as Mrs. Rule suggests “there are worse things than budgeting, such as never being able to retire and never being financially independent; it is much easier to budget if you visualize the long-term benefits” (41). So how does one become wealthy? The Bible says “render onto Cesar’s that which is Cesar’s” (Matt. 22:21), but it doesn’t say “render onto Cesar that which is more than Cesar’s.” In short, the wealthy aim to “minimize [their] realized (taxable) income and maximize [their] unrealized income (or wealth/capital appreciation without a cash flow)” (55). This is the secret of the wealthy. Initiatives to “tax the rich” only work on hyper-consumers, and they are not typically millionaires. “Taxing the millionaire” falls flat because the tax is based on income and “in terms of income tax, most millionaires can transform themselves into non-millionaires” (61). In fact, some retired millionaires have doubled their net worth in (let’s say) a ten year period from age 65 to 75 without working a single hour. How much money does the tax man get? Zero.
T. Stanley offers a great summation: “Most millionaires measure their success by their net worth, not by their realized income. For the purposes of wealth building, income doesn’t matter that much…it matters less how much you make and more with what you do with what you already have” (60).
It’s true that the average millionaire owns his own business or private practice. He likes the freedom of being his own boss and answering to no one. The self-employed can make their own rules and have as many clients as they want. A lot of these businesses are in mundane industries- coal, produce, real estate, machine parts- not in luxury items. The path of being the self-made, entrepreneurial, business owner might not be the desire for you and that’s more than okay. Dr. Bill, for example, “was never cut out to be anything but a professor [and] he is not alone. Most people in this country are not the entrepreneurial type. But this does not mean that they can’t become millionaires” (137).
This is even true in affluent households. Most adult children with wealthy, business-owning parents don’t become business owners themselves. Money is second or third on their list of goals and achievements (207).
Financial security will reduce worry- a key component to happiness. But that labor of love, that fulfilling toil, that passion project, is a unique happiness that lies at the end of one's personal quest. As the authors suggest, don’t search for wealth- do what you love, and do it well, and money will find you- then save, invest, and multiple. The journey of amounting a small fortune begins with a single paycheck.
The Millionaire Next Door was an eye-opening read; it changed the way I look at life. It impacted my thoughts and values and gave new definition to what I consider ideal- independence in every facet of life: mental, emotional, physical, and financial. Of course, becoming independent doesn’t happen overnight, it's a journey of self-discovery and goal achievement. It's the tale of a boy who leaves to find his strength and returns to offer it. The path is lone, deliberately so, and forces to the individual to make it on his own. The boy is dependent, the man is not- the man fishes, the boy is given fish.
To my understanding, it is (somewhat) common in Eastern cultures for families to live with each other through adulthood. In the West, in immigrant-heavy America, and in this book, this is not the ideal. The ideal is detachment; the ideal is the romantic sail for sons and daughters. When women get married at a young age they often go from one form of dependency to another. This is not ideal. Through cautionary tales, the book speaks against the affluent father who encourages his daughter to be a housewife and not have her own career- or the father who continues supporting the daughter financially after she is married so that she “has money of her own.” She's allowed money of her own but not a career of her own, hypocrisy ensues.
There is a common effect on people who receive money they did not earn. Receivers of “economic outpatient care” can lose ambition, motivation, initiative, self-confidence, and independence. I’ve been there and I’m there now. I carry a cautionary tale- to not let financial support become all consuming, to not spend tomorrow’s cash today. While reading, I had a revelation in the form of Cheap verse Frugal. Cheap is buying low-quality items and mooching off people for higher quality items. Frugal is buying a quality item and not wasting it. A cheap person puts himself in situations he cannot afford, a frugal person does not. Being broke does not lead to cheapness but cheapness often leads to being broke. Frugal people are rarely, if ever, broke.
The Millionaire Next Door is a hopeful tale. It’s a collection of wisdom and principles that guide the reader to his life goals. And like any hopeful tale, especially an American tale (because after all, what's more American than financial freedom?), it doesn't matter where you’ve been, just where you're going. Like wealth, the journey to independence is blind and anyone can take it.
Caleb S Garcia
February 15, 2011
HS Football Player
"AWAKE" (NBC, DEC. 2011)
