Posted on Jun 26, 2018

The Millionaire Next Door Summary

PDF, Chapters & Review of Thomas Stanley & William Danko’s Book

The Millionaire Next Door

Authors: Thomas Stanley & William Danko

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I am not impressed with what people own. But I’m impressed with what they achieve. I’m proud to be a physician. Always strive to be the best in your field…. Don’t chase money. If you are the best in your field, money will find you.

3.5% of America’s 100,000,000 households have a net worth of $1,000,000+. 80% of America’s millionaires are first-generation rich. The way to become rich is through discipline, sacrifice, and hard work.

There are seven common denominators among these Prodigious Accumulators of Wealth:

1. They live below their means

Most have never paid more than $400 for a suit or $27,000 for a car

Millionaires operate on an annual budget, have clearly defined goals, and plan for the future.

2. They allocate time, energy and money efficiently, in ways conducive to building wealth

PAWs allocate twice as much time per month to planning their investments—but still only spend 8.4 hours a month doing so (vs. 4.6 hours per month for UAWs). Most are buy-and-hold investors who supplement a broadly diversified portfolio with investments in areas of expertise.

3. They believe that financial independence is more important than displaying high social status

4. Their parents did not provide economic outpatient care

Children who receive gifts tend to spend them. Giving precipitates more consumption than saving and investing.

5. Their adult children are economically self-sufficient

Parents foolishly strengthen the strong child and weaken the weak with assistance. If your child was physically weak, you would not do everything for them and encourage them to eat and exercise less.

The way to raise economically self-sufficient kids is the following:

  • Never tell them that their parents are wealthy
  • Teach your children discipline and frugality
  • Don’t give them money until they have established a mature, disciplined, and adult lifestyle and profession
  • Minimize the discussion of what children and grandchildren will inherit
  • Never give cash or gifts to adult children as part of a negotiating strategy
  • Stay out of your adult children’s family matters. Let them run their own lives, and ask permission even to give advice.
  • Don’t compete with your children.
  • Always remember that your children are individuals (so don’t try to equalize inequalities of result)
  • Emphasize your children’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.

6. They are proficient in targeting market opportunities

Find the right niche

Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.

7. They chose the right occupation

You can’t predict if someone is a millionaire by the type of business he’s in.

Millionaires encourage their children to become self-employed professionals. These professions are lower risk and more profitable (if limited in scalability). They can take your business, but they can’t take your intellect.

Dull-normal businesses consistently perform well for their owners.

Are you wealthy? Multiply age by pretax household income. Divide by 10. This, less inheritance, is what your net worth should be. A PAW has more than 200% the expected net worth. A UAW has less than half the expected net worth.

If you’re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income.

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