Millionaires Next Door

The Millionaire Next Door: The Surprising Secrets of America's Wealthy
by: Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.

In this book, the two authors set out to look for and  find out the profiles of the truly wealthy in America.  They have discovered who the wealthy really are and who they are not.  For one, they figured out that many people living in expensive houses and who drive luxury cars do not actually have that much wealth.  They defined wealth as the amount of assets that you accumulate.  This is different from your income which is the amount of money that you receive.  In essence, those that have high incomes does not necessarily translate to wealthiness.  So who therefore are the truly wealthy? Who are the millionaires of the world? Read on to find out and receive interesting tips for would-be entrepreneurs at the end of this post.

According to doctors Thomas Stanley and William Danko, it is "seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes.  Wealth is more often the result of a LIFESTYLE of hard work, perseverance, planning, and, most of all, self-discipline."

Furthermore, they found out that affluent people share seven common denominators in their lifestyles that made them accumulate more wealth.    


These wealthy people know how to live below their means.  They are frugal and not wasteful.  Being frugal is the cornerstone of wealth generation.  People are led to believe that affluent people have high consumption lifestyles.  This is false.  Affluent people are actually very frugal.  They only spend what they can afford.

In the study, the authors also pointed out the both parents or spouses must posses this quality in order to make it easier to amass wealth for the household.  Even if only one spouse is a high consumer, it would a lot tougher to accumulate wealth.   


Millionaires know how to plan, budget, and control expenses.  They set out daily, weekly, monthly, and yearly goals.  They stick to the plan and push through with it.  They became millionaires and maintain their affluent status through this.

In order to build wealth, we must learn to minimize our realized or taxable income and maximize our unrealized income.  We can do this by investing in instruments that appreciate in value over time without a cash flow.  Examples of these are availing of pension plan, buying commercial real estates, or buying shares of stocks. 

On a side note, most millionaires actually don't trade in the stock market.  Most actually have a "Buy and Hold" strategy.  They buy shares of promising companies and hold them for the long-term.


Millionaires are willing to sacrifice a social status and a high consumption lifestyle with financial independence.  These people don't actually look and dress like millionaires.  They live in not so affluent neighborhoods, they don't drive luxury cars, and they don't wear a suit and tie to go to work.  

These millionaires don't accumulate wealth so they can change their lifestyles.  They don't want to change the way they live, they just wan to be financially independent.


Economic outpatient care refers to "substantial economic gifts and acts of kindness some parents give their adult children and grandchildren."  Most self-made millionaires didn't receive economic outpatient care from their parents.  

According to the book, the more outpatient care the adult  children receive, the less likely are they to accumulate wealth.  This is because they think of the money they receive as part of their income to spend.  As a result, they become high consumption individuals and they tend to spend beyond their means.  They also become dependent to their parents and become unproductive individuals.

As enumerated in the book, here are the consequences of providing economic outpatient care to your children:
- Giving precipitates more consumption than saving and investing.
- Gift receivers in general never fully distinguish between their wealth and the wealth of their gift-giving parents.
- Gift receivers are significantly more dependent on credit than are nonreceivers.
- Receivers of gifts invest much less money than do nonreceivers.


Most self-made millionaires have adult children that are economically self-sufficient.  They have children that don't need economic outpatient care.  As a result, the entire household can accumulate more wealth. 

The book provided suggestions for parents in order to help raise kids into productive and self-sufficient adults:
- Never tell children that their parents are wealthy.
- No matter how wealthy you are, teach your children discipline and frugality.
- Assure that your children won't realize you're affluent until after they have established a mature, disciplined, and adult lifestyle and profession.
- Minimize discussions of the items that each child and grandchild will inherit or receive as gifts.
- Never give cash or other significant gifts to your adult children as part of a negotiation strategy.
- Stay our of your adult children's family matters. (Ex: Grandchildren's education, allowance, etc.)
- Don't try to compete with your children.
- Always remember that your children are individuals.  They differ from each other in motivation and achievement.
- Emphasize your chlidren's achievements, no matter how small, not their or your symbols of success.
- Tell your children that there are a lot of things more valuable than money.


Millionaires are proficient in pursuing opportunities that exist in the marketplace.  The book suggests that people who target the affluent often times become affluent themselves.  Furthermore, the book elaborates that while these self-made millionaires are generally frugal, they are not nearly as price-sensitive when it comes to purchasing investment advice and services, accounting services, tax advice, legal services, medical and dental care for themselves and family members, educational products, and homes.


So who are the affluent?

"Most of the affluent in America are business owners, including self-employed professionals.  Twenty percent of the affluent households in America are headed by retirees.  Of the remaining 80 percent, more than two-thirds are headed by self-employed owners of businesses.  In America, fewer than one in five households, or about 18 percent, is headed by a self-employed business owner or professional.  But these self-employed people are four times more likely to be millionaires than those who work for others." 

Asked on which type of business to pursue, the authors had this to say:
"You can't predict if someone is a millionaire by the type of business he's in.  The character of the business owner is more important in predicting his level of wealth than the classification of his business."

The book also showed negative bias for professions that require professionals to look affluent in order to look respectable and gain more clients.  Examples of these professions are bankers, physicians, and lawyers.  Although people with these profession earn a lot of income, they tend to spend a lot as well just to look affluent.  They live in expensive homes, drive luxury cars, and buy expensive clothes.  In effect, they tend to accumulate less wealth in the process.  The book does not go overboard and say however, that one shouldn't be in this profession if one wants to be a millionaire.  In fact, one can be a multi millionaire engaging in such profession.  What the book stresses however, is the simple fact that in order to accumulate more wealth and become a millionaire, an individual's lifestyle choice is more important than the amount of income one generates.

For people who want to start their own businesses, the book has these to say:

"Dull companies with steady earnings growth may not make for stimulating cocktail party chatter, but over the long term they make the best investments (Fleming Meeks and David S. Fomdiller, "Dare to Be Dull," Forebes).

"What is risk? Having one source of income.  Employees are at risk ... They have a single source of income."  Most successful business owners will tell you that they have tremendous freedom and that self-employment is less risky than working for others.

"The most successful business owners we have interviewed have one characteristic in common: They all enjoy what they do.  They all take pride in "going it alone.""


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