The Millionaire Next Door

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The book The Millionaire Next Door: The Surprising Secrets of America's Wealthy (1996, ISBN 0-671-01520-6) is by Thomas J. Stanley and William D. Danko.

This book is a compilation of research done by the two authors in the profiles of 'millionaires'. In this case they used the term 'millionaire' to denote U.S. households with net-worths exceeding one million dollars (USD). The results that they gathered were quite surprising.

1 UAWs Versus PAWs
2 Main Points
3 Related Publications
4 Links

[edit] UAWs Versus PAWs

The authors make a distinction between Under Accumluators of Wealth (UAWs) and Prodigious Accumulators of Wealth (PAWs). Most of the millionaire households that they profiled did not have the extravagant lifestyles that most people would assume. This finding is backed up by surveys indicating how little these millionaire households have spent on such things as cars, watches, suits, and other luxury products/services. Most importantly, the book gives a list of reasons for why these people managed to accumulate so much wealth (the top one being that "They live below their means"). The authors make a distinction between the 'Balance Sheet Affluent' (those with actual wealth, or high net-worth) and the 'Income Affluent' (those with a high income, but little actual wealth, or low net-worth).

[edit] Main Points

[edit] Spend Less Than You Earn

If you are always spending up to or above what you earn, you will never increase your net worth no matter much you make. The author discusses being prugal: prudent and frugal.

[edit] Avoid Buying Status Ojects or Leading a Status Lifestyle

Buying imported vehicles is poor value and you will constantly need to buy the newest model. Buying status objects such as branded consumer goods is a never-ending cycle of depreciating assets. Living in a status neighbourhood is not only poor value, but you will feel the need to keep buying status objects to keep up with your neighbours, who are mostly UAWs.

[edit] PAWs Are Willing to Take Financial Risk if it is Worth the Reward

PAWs are not misers who put every penny under their mattress. They invest their money for good returns, and will consider riskier investments if they're worth the reward. Many put money not in the stock market, but invest in private businesses and venture capital. They do not gamble or speculate on long-odds stocks.

[edit] Economic Outpatient Care

The authors also make an interesting observation in that UAWs tend to have children who require an influx of money from their parents in order to afford the lifestyle that their children expect for themselves, and that they are less likely to have been taught about money, budgeting and investing by their parents.