Comments on: Review: The Millionaire Next Door

By: ChrisD

ChrisD — Mon, 06 Feb 2012 21:33:24 +0000

I’ll add that many of the criticisms miss the most important point and I think Trent underemphasises this point.

The most important part of the book is debunking status myths.

This book is good for all ages, but especially youth.

Say you are earning good money and you ask yourself ‘how much SHOULD I spend on a suit. Your colleague might say they always buy $3000 suits. Its important to know that ACTUAL millionaires would rarely spend over $300.

I’ve read books about how we figure out what a reasonable price for something is (Priceless by William Poundstone). It argues that we have a pretty good idea whether one thing is worth more than another thing, but actually we have no idea how much things should cost. Thus you get ‘anchor’ prices. If Hermes sells one bag for 50,000, you end up thinking the 2000 bag is a bargain. The millionaire would probably spend 100 (not on Hermes, my current bag cost 30 euros and the previous one $44 both were/are lovely).

This book helps you figure out that financial security is better than ‘status’ (also that they are pretty much mutually exclusive).

By: Bill in Houston

Bill in Houston — Thu, 30 Apr 2009 21:08:00 +0000

Indeed, I also disagree that this book has an anti-youth bias. It is simply targeted TOWARD people slightly older when talking about the size of your net worth or income tax as a portion of your net worth. Yes, the authors could have smoothed that over a bit.

That being said, the advice of living a “wealth-building” lifestyle are valid to everyone.

I bought this book ten years ago and promptly loaned it out. I got it back three years ago when someone mentioned the title and… CLICK… I remembered and asked for it back. I’ve been living more of this lifestyle than living to support my lifestyle.

Yes, I live in probably a nicer neighborhood than recommended by the authors, but we are here for the long haul and the schools are excellent and we bought the cheapest house in the subdivision.

By: Lisa

Lisa — Tue, 31 Mar 2009 03:23:26 +0000

I can point to reading this book (about 10 years ago) as the Single Pivotal thing that completely changed my thinking regarding spending and status symbols. I was in my 20′s at the time and thought it was speaking directly at me.

I just picked up a copy at my library’s booksale last week and look forward to reading it again.

By: Isabelle

Isabelle — Tue, 17 Mar 2009 09:06:35 +0000

My husband brought this book back from one of his US work trips – we both loved it.

What it seemed to be – for me – is a description of how people who are cautious, don’t want to get involved with property or stock market speculation, who are prepared to work hard and live simply can become millionaires.

Like Jennifer, I wish I had read this years ago. By living in the way the millionaire next door lives we have saved a massive amount of money towards our retirement. What this says to me is that although we only had mortgage debt, we wasted immense amounts of money – and we thought we did okay!

I would say that there is enough in this book to make it worth a read – though if you can get it out of the library even better.

By: Jeremy Day

Jeremy Day — Wed, 04 Mar 2009 00:45:13 +0000

Hi Trent,

I recently commented about this post on my blog. My article is basically about the bailouts and your comment about economic outpatient care really hit home. Our government is being that parent! It’s giving economic outpatient care to the worst companies rather than the best. Here is the link…

http://www.insightwriter.com/2009/03/03/government-bailing-weaker-companies/

Would love to know your thoughts. Possibly in a future post here at The Simple Dollar?

Cheers,
Jeremy

By: Millionaire Acts

Millionaire Acts — Tue, 03 Mar 2009 08:18:09 +0000

I just recently wrote an article on my own review on Millionaire Next Door. Definitely, it’s an eye opener for many.

By: Tina

Tina — Thu, 20 Nov 2008 04:48:21 +0000

The only objection I have to this book is the strong message that you shouldn’t give your children money. I agree, unless ill, an adult child shouldn’t be supported, but in today’s world, it is almost impossible to get by in the begining without some help from mom and dad….and let me just say that if you decide to follow the no giving the kids money advice, you’d better make money, a lot of it and hope like hell you don’t lose it in the market, to illness or outlive it because if your your kid has any sense, he is going to tell you the same thing you told him and not give you a cent. Remember, be nice to your children, they are the ones that will be picking out your retirement home.

By: Tony

Tony — Wed, 04 Jun 2008 18:45:09 +0000

I also have to disagree with the fact that this book is only for middle aged people. I read it about a year ago at age 26 and it has changed my definition of a “status symbol”. Appreciating assets and no debt are the only important status symbols. Saying this book is better served towards middle aged people is like saying you shouldn’t worry about retirement until you retire.

By: George

George — Sun, 11 May 2008 05:06:35 +0000

This is one of my favorite books. I agree there may be some flaws, but overall its very sound and inspirational.

I have read the book several times and on my friends has read it as well and we have had some great discussions about the book.

I worked for a successful man (financially ) and his traits were exactly the profile by the authors Danko & Stanley.

My former boss was very frugal. He had an estimated net worth according to him in the millions. He had owned apartment buildings and office buildings, and a large house. Yet, he once offered to give me his sports jacket which I accepted. I was surprised to learn it was from Sears. It lunches never cost more than .20 cents. Usually he would eat and apple and a bag of popcorn. He advised me to spend less money than I make and invest the difference.

By: goldsmith

goldsmith — Sun, 06 Apr 2008 13:44:12 +0000

Interesting review. I am kicking myself that I didn’t even know about the “blind car auction”, but have filed that tip for my next car purchase, in six or seven years’ time…

I also went right off and did the tax/net worth computation. It came out at 11% and I am very far from being a millionaire (net worth of about 185k in US Dollars), and not very likely to become one, since I spent my 20s with the career button put on “snooze”. But I am now 42 and maxed out with my pre-tax retirement contributions. These lop off a sizeable chunk of otherwise taxable income, while increasing simultaneously my retirement fund, which of course is part of my net worth. So yes, Trent, you are right that not all in the book applies to younger people – folks under 30 wouldn’t even be legally permitted to pay that much in retirement contributions as percentage of their salary.

That said, that very formula is probably a useful wake-up call for 40somethings, to see where they should be at that stage in their lives. I am sure you’ll be far ahead of me by the time you are 42!

By: ryan

ryan — Thu, 13 Mar 2008 16:50:08 +0000

Trent, thanks for recommending this book. It’s really inspiring to know that actually, most millionaires are frugal.
The expected net worth formula is hard to achieve for youngsters though, except for the ones who have high income, frugal, & begin to invest heavily at a very young age
I just wish that I had read this long back then in the past….it’s ok though, I have passion to earn the meaning of money & money management to my son as soon as possible (he’s still 2 month old now)

By: boardmadd

boardmadd — Tue, 26 Feb 2008 16:55:08 +0000

The biggest benefit that I see to “The Millioanire Next Door” is the fact that most people who reach that position do so over an extended period of time, do so by sound investing and saving, and have a plan as to how to get there. It also shows that many millionaires do not display their money on their sleeves (or in their driveways or on the sidewalk) and that their money works for them rather than them working for their money. Can it be a disheartening read for a younger person just out of school? Sure, but it also help give an idea that making a million over time is very doable.

Some of us had a lucky break when we were younger and may have had an equity event or two that could set the stage. For those that don’t get those, it’s good to know and to realize that you can *still* make a good sized nest egg by looking at the habits of others that got there as well.

This book shows that there are a good number of people that you would never consider being “rich”, but are. It also points out that many of the people we think are “well off” probably aren’t as well off as we think they are. Both of those are good take-homes. The book isn’t perfect, and some of the criticisms, I can appreciate, but then, at 40, I found I’m the right age to appreciate it :).

By: bxcapricorn

bxcapricorn — Fri, 28 Dec 2007 00:27:39 +0000

This is a terrific book, and I also recommend “Secrets of The Millionaire Mind” and the review done by Get Rich Slowly. It’s full of great links. I went to the site to try to link it, and I’m having trouble finding it. I’ll use my post for the link.

http://bxcapricorn.wordpress.com/2007/10/04/jkb-discussion/

By: Dan D.

Dan D. — Thu, 15 Nov 2007 21:06:04 +0000

The review states: “(M)any younger people have had to take on substantial amounts of debt in order to finish school…” For those who have taken on student loans already, not much you can do. But for parents, its another reason NOT to take on student loan debt of any kind. Don’t believe you can’t get a college degree without it. As for Jay in FL who thinks the book is a waste of time and money because of its position on purchasing real estate, I think he misses the point. Don’t buy what you can’t afford, Jay. If you are in real estate, you probably subscribed to the notion of leveraging and of using equity in one property to buy another. That’s a house of cards waiting to collapse. I participated on behalf of one of my firm’s clients in the execution of a judgment where the entire contents of their near half million dollar home was emptied into trucks and sold at a sheriff’s auction, all because the guy leveraged one property investment against another looking for the big payday instead of slowly, steadily winning the race by living frugally and saving. For those who are not currently on pace to retire at age 65 with at least one million dollars in a Roth IRA or other mutual fund, read the book.

By: Roy C

Roy C — Wed, 24 Oct 2007 17:27:22 +0000

The wealth formula is only a rough guide. It is not intended to be a hard and fast rule. Individual circumstances will have an impact. Lack of health care insurance could wipe out one’s nest egg, for example. This rough guide won’t be as accurate for folks on either extreme of the age continuum. Also, I would think someone supporting a family would be less able to match the wealth accumulation goal than a single person. A dual income family should probably include income and assets of both but I don’t see that specifically addressed in the book. It will be most accurate for folks who fall into the meat of the bell curve; the mid and late-career people.
With that said, it seems that those who have come up short of the mark for their age/income cohort are the main ones complaining. When I was in my late 20s I had only about half of the desired level of financial net worth. Since then, I haven’t gained that much salary-wise but I have gained considerably, investment-wise. My advice to you young-uns identified as “underachievers” is to not take offense at the formula. It has its limitations. Most definitely, don’t use it as justification to crawl into a hole and give up. Instead, concentrate on your game plan. You can’t spend your way to wealth. You simply must live on less than you’re making or you’ll never see any progress. Eliminate all debt as quickly as possible. I don’t care what any financial “experts” say. Most of them are long on theory and short on results. You can’t get rich by paying someone else. Well, I couldn’t possibly mean a mortgage, too? Doesn’t everyone have a mortgage? Nope. I paid ours off on my clerk’s salary and I am the sole wage earner for my family. If I can do it, you can, too. My advice is to not take on consumer debt. With the exception of a home, if you can’t pay for it in cash, don’t buy it. Things can’t make you happy anyway. You’re either happy or you’re not. So separate wants from needs. You need less than you think. You must do the saving/sacrificing in the present tense, not tomorrow or some other day. Otherwise, your dreams of financial independence will fade quickly and permanently.
I’m in my mid-40s and make a little less than the national average, salary-wise. I’m just an average guy with a stay-at-home wife and one child. I’ve lived a modest lifestyle for years while my contemporaries lived it up. Even today, I drive an old beater. It’s not pretty, but it is reliable. While morons in Escalades sneer at my rust-mobile, I laugh at their debt. I’m in the PAW category. They are slaves in denial. Do what’s right for you and don’t bother trying to impress other people. Be honest, always.

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By: GlennH

GlennH — Fri, 14 Sep 2007 03:22:30 +0000

The “Urban Legend” behind the book, as it was told to me, was that the researchers–a group of sociologists–came across a news item that the U.S. was headed towards having a “million millionaires.” This piqued the researchers’ curiosity and they set out to find just what this cultural phenomenon and demographic segment was like. A central theme of the book was their shock that the “average” millionaire was nothing like what they thought, or what the conventional wisdom and cultural stereotype was. The old adage you can’t tell a book by its cover rings true.

What I liked was the inspirational, sound description of people with modest means that made good. Living a modest, quiet, and conservative lifestyle over decades works wonders.

One aspect not covered was that inflation, over many decades, has made millionaires “just because.” Years ago, back when the dollar was worth twenty-five cents, there were far fewer millionaires than today. When I entered the job market thirty years ago a decent engineer’s salary was 15K, now it’s 90K. And millionaires then were few and far between. In the 1980′s Forbes magazine had a centerpiece article on the world’s first billionaire, a Taiwanese shipping executive–he wasn’t even an American! Today even billionaires number in the hundreds, worldwide.

What I did not like about the book was their formulaic treatment and categorizing people into groups like “Prodigious Accumulators of Wealth” (PAW). The formula does not account for differences in circumstances. The U.S. has large mobility across income demographics. Also, there are large differences across geographic regions. A million in Southern California is not the same as a million in Wyoming or a million in NYC.

By: Phil

Phil — Fri, 24 Aug 2007 07:34:03 +0000

Age bias? I’ve only been in the work force for 6.5 yrs. I’m bang on that calculation that they have.

If you’re lucky to be able to live at home during studies and first few years of work, it is a HUGE advantage. Take it…

Car expenses? I bought cheap 4 yr old jap car at auction. The prices are so low for ex fleet cars that used car dealers buy from there. The car is over 10 yrs old now and hasn’t skipped a beat.

As for investing, I put right to the possible limit on my 401k last financial yr (which I keep a close eye on). I’m not in the top 10% of income earners, buy hey the government subsidises your savings! It reduces income tax payable and earnings compound tax free! I not a big spender and I don’t even notice the difference that goes into the 401k.

By: Raul De La Torre

Raul De La Torre — Mon, 13 Aug 2007 05:09:17 +0000

I read your comment on the book, The Millionaire Next Door.”
I was interested to know based on this book, what would you believe in your opinion are the elements of American society, ie, social characteristics, economy, government, etc,that account for the phenomenon?
Sincerely,
Jim

By: Jeff

Jeff — Sun, 05 Aug 2007 16:31:06 +0000

I found this book to be totally eye-opening, and I think the best person to read it is a high school kid who has not gotten his first student loan. Then maybe he would dedicate his college years to not accumulating a lot of debt. Such high student loan amounts are a factor of choices such as which school and what degree of lifestyle chosen for the school years. Can you imagine the power of knowing and believing at age 18 that the key to financial success lies in the balance sheet not the income statement! This is a great book. I do agree it does not shine favorably on people who start their professional life after years of school, such as physicians. It does however, give such people the enlightenment to know they better spend those early years beefing up their net worth rather than their lifestyle…

By: dbeagar

dbeagar — Wed, 18 Jul 2007 16:39:40 +0000

Some of the above commenters and the reviewer missed the mark. The book is neither a primer on how to “live well”, nor a review of the expected spending habits of generation X.

A youth bias? The book was written based on information from interviews and focus group discussions with current “millionaires”. The “average” individual in this group was in the mid 50s, had been married for over a quarter of a century, and was worth about $3-million. These people are not young now, but they began their quest for wealth in their youth. The book does address the current situation of many entering the work force with student debt at a later point in life. This, the authors point out, is neither good nor bad, as long as the basics of good financial discipline and planning are followed. It is a fact that these individuals may begin the saving game a little late, but their additional tools and thus earning power will make up the difference if they leverage these to save and prepare for the future and not just over consume. The authors point +out that the key to financial freedom is not instant wealth but preparation and discipline so you can build wealth. This is aimed at the younger part of the potential audience, as they have the most to gain by beginning NOW.

Don’t invest in real estate? Again the reader missed the point. The authors point out that the individuals they interviewed made their money in segments of the economy they understood. If you are in real estate make your money there. If, like me, you are in industry, make your money there. Make sure you have a plan and work it.

The basic premise of the book is that there is the real possibility that the careful individual can develop a million dollar net worth while sustaining a reasonably comfortable lifestyle and afford the same during retirement. This will not be a life that will be ever featured in “Lifestyles of the Rich and Famous”. The way these millionaires built their net worth is a combination of disciplined spending and careful planning. These are not the kinds of habits that our get it now and pay for it later, consumption oriented, economy normally applauds.

The book points out the basic economic choices all consumers make. Will you choose to have others make you money, or will you only make money for others? The freedom to choose depends on your freedom to direct personal financial resources. This freedom is a function of preparation to participate in economic activity, and your consumption habits.