The Millionaire Next Door | Thomas J. Stanley, William D. Danko

The Millionaire Next Door | Thomas J. Stanley, William D. Danko | Very worthwhile but thin read

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The Millionaire Ne...

	The Millionaire Next Door Thomas J. Stanley, William D. Danko Pocket, 1998 - 272 pages average customer review:based on 791 reviews view larger image
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highly recommended

Highly recommended reading...

This book is a detailed study about average American millionaires, how they live their lives and how they became prodigious accumulates of wealth. The authors provide enough detailed statistical data to show that anyone can because the "The Millionaire Next Door." A good read for anyone with an interest in personal finance and building wealth. I also recommend the author's second book, "The Millionaire Mind."

Very worthwhile but thin read

Drs. Stanley and Danko have taken a somewhat empirical approach to answer the question "how do people become millionaires?" I have to say "somewhat" in that many of their observations, while empirical in nature, are not strictly valid statistically, since much of their material is obtained from focus groups and case studies, which are small sample groups.

However, Drs. Stanley and Danko provide an invaluable primer on the nature of millionaires. The most important of their observations is the need to live well below one's means. John Lithgow, in the near-classic "Cliffhanger" said it best: "Do you know what real love is...? Sacrifice." To become a millionaire, you have to give up a lot of other things. Over and over, the authors harp on the need for upper-middle class people to avoid the upper-middle class trappings of big houses, expensive cars and tastes.

I also appreciated the book for what it lacked. Unlike practically every other get-rich book currently out there, the authors did not fetishize the building of net worth through purchase of highly leveraged real estate. Yes, they do mention it, but mainly in the context of promoting stability and choice of middle class real estate as opposed to high-end real estate. Their argument is that a larger home leads not only to larger mortgage payments, but higher taxes, higher fixed costs, and a greater likelihood to try to acquire symbols of status that your neighbors have. As someone who is over-leveraged with his primary residence in terms of my overall net worth, and who has only partially resisted the tendency to try to keep up with the Joneses, I understand their reasoning and agree. Besides, people who think that their homes are going to appreciate like they have in the past five years are deceiving themselves.

The book also has the courage to say the truth that dares not speak its name: too much education is harmful to wealth accumulation. Essentially, the authors make their point by noting that: (1) time spent in school is time lost to earning a living; (2) professionals often feel like they have to have the trappings of success to go along with their "M.D.," "D.D.S." and "Esq." titles, which sucks them into a high-consumption lifestyle; and (3) a plurality of millionaires are entrepreneurs, who do not have the need for a lot of education. To many people, this is akin to just saying yes to drugs, but looked at objectively, the authors make sense.

However, the book does have some drawbacks. First, I'd like to see an update of this book. The economic analysis uses 1996 numbers. (I read the 1998 edition and now I see that there's a 2003 edition so maybe they've updated the numbers.) Moreover, some of the tax law forming the basis for their comments has changed, so the book is misleading. For example, the authors state that an intergenerational transfer of $10,000 can be made tax-free (p 214). The amount as of 2007 is actually $12,000. See 26 U.S.C. §2503(b).

Also, the book is highly repetitive in some of its examples and conclusions. Perhaps the authors felt like they needed to bulk their book up to make it more saleable, but it was annoying to read example after example of under-accumulators of wealth.

The book also only briefly discusses *why* people want to become millionaires. Not everyone has high priorities for the future, and let's face it, driving the current year's Lexus SUV is a lot more fun than driving a 1984 Buick LeSaber. The authors do mention (p 170), but do not emphasize, the thing that most commends thriftiness, hard work and sacrifice: the freedom that comes with self-sufficiency, or what Bob Brinker calls "critical mass." A direct discussion on this point would have been helpful.

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A wise begining

The Millionaire Next Door provides good insight of how wealth is perceived today. It shows the seven ways of how a millionaire lives and one becomes wealthy. I think this is a wise book to read at a young age and makes me reconsider how i should manage my money. This book is full of insightful points and ideas and i hope to read the others.

reviews: 1, 2, 3, 4, 5, 6, page 7, 8, 9, 10, 11, 12, 13, 14, 15, 16

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