The Millionaire Next Door is a book about US millionaires, including a discussion on how they got to be millionaires. The key finding that surprised the authors is that the majority of millionaires do not stand out. They live in modest homes in average neighborhoods, run blue-collar businesses, and do not spend money on flashy cars, watches, or jewelry. In fact, most of their neighbors have no idea they are millionaires.
Authors Thomas J. Stanley and William D. Danko make a distinction between high net worth millionaires and those households that earn an annual income of $150,000 or less but have a smaller net worth than they should. The authors call the high net worth folks PAWs, for prodigious accumulators of wealth. The lagging net worth folks are UAWs, for under accumulators of wealth. The authors note that high net worth millionaires are in the better position. Their futures are secure, whereas those with less net worth than they ought to have must continue to work hard every year or jeopardize their lifestyles and their futures.
The authors take a close look at how high net worth millionaires got to where they are. They point out that most own their own businesses, became self-reliant early because they received no money from their parents, live below their means, have budgets and engage in financial planning, invest a lot of their income, and enjoy relatively low-income tax rates by not quickly turning over investments.
The Millionaire Next Door offers a roadmap that anyone with a decent income can follow to become a millionaire.
the key takeaways for this book are:
- There are two types of millionaires: Those with high net worth relative to their income are prodigious accumulators of wealth (PAWs), and those with a net worth well below what their income suggests it should be are under accumulators of wealth (UAW’s).
- Most PAWs live below their means. They could afford fancy homes, cars, clothes, and luxuries, but prefer to save and invest the money instead of spending it lavishly.
- Most PAWs have budgets and stick to them. Most UAWs do not have budgets.
- The majority of PAWs own their own businesses. Most of these companies are not exciting, such as plumbing contractors, used-car dealerships, and farm operators.
- Most PAWs believe financial independence trumps displays of high social status.
- Most PAWs did not get money from their parents to help them start their businesses. If they have degrees, most did not receive money from their parents to attend university.
- Most PAWs are big investors, putting 20 percent of their income each year into savings accounts, stocks, real estate, and other investments.
- The income tax rates of most PAWs are low because their incomes are good, although not in the stratosphere, and they do not often sell investments because that would trigger income tax.
- Most PAWs devote considerable time to financial planning and hire experts, such as certified public accountants, tax attorneys, and estate attorneys, to help them.
- Most PAWs buy a used car and keep it for many years before buying their next car.
- Most PAWs do not give substantial and ongoing cash gifts to their children or grandchildren in an attempt to make them self-sufficient. However, many pay for their children and grandchildren’s educations.