Personal finance book: The Millionaire Next Door

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One of my biggest regrets remains not being too interested in reading personal finance books earlier, so I stumbled on The Millionaire Next Door just few years ago. Oh, what a difference it would have made if I read it back in 2002 for instance …

Anyway .. after getting my own small business up and running and not having the luxury of a monthly salary my ex-employer paid me, my interest in how to make and save money increased accordingly. So I started looking for some books to help guide me better into my new life and this one stood out from the many that were recommended.

The book written by Thomas J. Stanley and William D. Danko caught my attention in seconds and, even if I expected to be bored to death (I always HATED anything dealing with money / Economics), I read it in a heartbeat.

the millionaire next door

The Millionaire Next Door initial shock – they don’t act like millionaires

Just as any other regular Joe (so that I don’t say poor person), I always thought that people who have at least one million are living the good life. The media doesn’t do anything to contradict this image, everywhere you look there are people who are high-earners and dress to the part.

Celebrities, rich people, they all flaunt their insanely expensive cars, mansions that could easily provide accommodation to at least 200 people and jewelry costing more than all the apartments in our block, give or take 4-5 perfectly healthy kidneys for the black market.

Yes, I was that person who thought you should SHOW you have money. This is why falling into the so-called lifestyle inflation is not something new or foreign to my past: the moment I started earning more money, I wanted to let others know about it: got myself a new car, started purchasing only new clothing, started getting myself expensive gadgets etc.

Most people I know make the same mistakes: they judge people by the car they drive, clothes they wear and money they spend. If I had a buck for every time my folks told me “start dressing better, people think you’re poor”, just because I love my sport-casual style, I’d be one of the guys interviewed for a similar book and probably wouldn’t waste your time with my articles.

For me the first pages already made a huge change in my mindset. For the first time in my life I felt relived that it’s normal to care for one’s money more than about what others have to say. And it was just the beginning.

The millionaire next door has some very clear life principles

it doesn’t matter how much you earn, what matters is how you handle your money. This is why many millionaires are not high-earners and many high-earners will probably never be millionaires.

try to spend less than you earn – this is easily done if you keep a budget and are careful with your spending. It does take time to plan everything carefully, but it’s worth it on the long run.

you don’t have to come from a rich family – there are many people whose net worth exceeds one million and they were either poor or coming from ‘regular’ households.

avoid status objects – oh, this should be set in stone. Many people buy expensive items, move to expensive houses or just squander money to show their ‘status’. Many millionaires don’t bother with this, they buy good decent items and try to never buy ‘too much house’.

school is important, even if many were college dropouts (or even worse) – in business, what matters most is to work and earn the money. Not all business men have high education, but most of them consider this is still important for their offspring, so they are considering this to be a priority.

they make a clear distinction between an asset and a liability, something most of us don’t. We ‘invest’ in liabilities and usually don’t bother with assets, which turns out to be disastrous for many.

many of their businesses are not ‘cool’ – we expect the millionaires to run all kinds of fashionable business. Many don’t. Their businesses make money though, which is more important than being able to brag with the ‘coolness’.

they live well below their means – while we see crazy spending on the TV shows from various celebrities, the real millionaires (those who won’t succumb to bankruptcy 5 years later) don’t flaunt their richness. This allows their net worth to increase each year, while they’re debt free and living comfortable with their families.

they save and invest – even if a disaster would strike them today, most millionaires have enough money to last them a lifetime, while many of us struggle with a job loss even if it’s just for 3-4 months.

The entire book is a real wake-up call for many of us, who never bothered save, who lived paycheck to paycheck, who carried debt and got ourselves into financial troubles just to show we’re doing well. In my case at least it clearly changed how I view my money and our lives. Sure, the book is not perfect and many of the financial details there don’t apply today, but the main ideas still remain and carry a lot of value.

I’m sure most of you read it, but, if you haven’t yet, The Millionaire Next Door should prove to be a pretty nice read.

Have you read the book? Do you agree with the main ideas? Has it changed the way you view your finances?

30 COMMENTS

  1. I love this book, too, Ramona. While it was written years ago, the messages still hold up today. Don’t kick yourself for not getting interested in reading PF books earlier, what matters most is that you get it now and are focused.

    I didn’t start paying attention until my early 30’s and by that time had dug myself into a mess. Reading books like this and changing one habit and then another over time can make a huge impact on your wealth. Starting is the hardest part but once you do, that part is behind you!

    Besides, it’s a journey, not a destination or reaching the “millionaire” milestone. There’s always something new to learn and skills to fine tune.

    • I don’t even think we’ll be millionaires or anything similar, but it does help us become more financially stable, that’s for sure. I was also in my early 30s, when I became more responsible, I think there’s something with this age, making us realize we’re grown ups and we need to act the part

  2. Yes, I read this book and agree that most millionaires do so through “boring” methods and don’t flaunt or inflate their lifestyles. It’s absolutely key to spend less than you earn (doing anything else means you’re living in debt!).

    However I do know some millionaires who like to live rich. I’d like to think that they are still spending within their means even though they have a huge house though, e.g. I don’t think they’re living off of credit just because they have expensive things.

    • Well, it’s not bad for someone to indulge in things they consider important, but squandering money left and right will clearly not help with the wealth gain 🙂

  3. Nice review. The book is getting a little dated (1996), but much of what they say about millionaire life styles hasn’t changed. Inflation in the US has made it so that a million dollars certainly won’t buy what it did when the book was written. According to the Bureau of Labor Statistics $1 million in 1996 is equal to $1,488,502.23 in 2013.

  4. I really enjoyed this post. When I achieve that level of wealth I wouldn’t flaunt it. In fact, I wouldn’t even tell my future kids because I want them to work and be successful in their own right – not feel entitled.

    I’m buying this book 🙂

    • Oh, can’t wait for the article, please write it. It’s surely gonna be an eye opener for many people. 75K/year in income and making it in the millionaire ‘club’ .. they really did something right 😉

  5. Just from the summary I can tell that this will be a very good book! I think I may purchase it and read the whole thing and see how it can help me. I think it will be a very good purchase for many people interested in personal finance. Thank you for the share.

  6. I haven’t read the book but I sure would love to. I think it is trying to impart why it is not always a must to follow the “if you have it, flaunt it” rule. Thanks for bringing this learning matter up on this post, Ramona.

  7. What I learned from the Millionaire Next Door
    Millionaires drive pick-up trucks. Wannabes drive leased BMWs
    Millionaires wear Timex watches. Wannabes wear Rolexes
    Millionaires live in modest homes. Wannabes live in mortgaged mansions
    Millionaires are married to their first spouse. Wannabes are frequently on their 2nd, 3rd, or more marriage
    Millionaires are in boring business activities. Wannabes are in the newest, trendiest vocation.

    Gee, I think I fit the millionaire profile pretty well. Look out, here I come!

  8. I also read this book several years ago and I really enjoyed it. It makes a lasting impression because I truly know that it isn’t about how much money you make but how you handle your money that matters.

    • Many of us are ‘programmed’ to think that earning more money is the key, but it’s not always the case. Sure, you can save more from a bigger income, but the truth is that, with the lifestyle inflation, many high-earners are not doing too well with their money

    • It’s really worth reading. Some of the money data is not relevant anymore (it’s been years since then), but the overall ideas are very good for today, too 😉

  9. I’ve seen this book referenced in other PF blogs, so I’ll have to check it out. It certainly sounds like it has great principles to learn from and adapt to. Thanks for the recommendation!

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