The Millionaire Next Door: Overview

The Millionaire Next DoorThis week, The Simple Dollar is conducting a detailed review of the often-lauded personal finance book The Millionaire Next Door. First published in 1996, the book has held a consistently high level of popularity for more than a decade. What valuable insights does this book contain? By the end of the week, perhaps we’ll discover its secrets.

The general premise of the book is that the pop culture concept of a millionaire is quite false and that most actual millionaires live a very simple lifestyle. The authors, Stanley and Danko, did extensive profiling of people whose net worth defined them as millionaires along with those whose salaries and age defined them as likely millionaires and, using this data, created a detailed profile of who exactly a typical millionaire is. From there, extensive interviews with these “typical” millionaires created a much more detailed picture of what it actually means to be a millionaire in today’s society.

What does this have to do with personal finance? Rather than the image that most of us have of millionaires as people who inherited their money or got famous, most of the people that are actually millionaires got there through strong individual financial planning. They’re frugal people with a head on their shoulders and are often indistinguishable on the street from anyone else.

In the introduction to the book, Stanley and Danko break these traits of millionaires down into seven basic factors (quoted from pages 3 and 4):
1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

Most of the rest of the book goes on to outline Stanley and Danko’s findings on each of these factors. A chapter is devoted to each factor, bookended by an opening and a closing chapter.

For me personally, evaluating my life as a snapshot through these factors made it clear how different the old, crazy spending me was different from the newer, financially sound me. The biggest hurdles for me were living well within my means and not worrying about displaying social status; I bought into the psychology that the appearance of affluence was of vital importance, when what really matters is the money in the bank.

In the next part of this five part series reviewing The Millionaire Next Door, we’ll tackle the first three chapters of the book in detail, which provide a profile of the proverbial millionaire next door and carefully looks at the millionaire’s spending habits.

You can jump quickly to the other parts of this review of The Millionaire Next Door using these links:
Overview
On Spending
On Learning
On Living
Buy or Don’t Buy?

The Millionaire Next Door is the first of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

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4 thoughts on “The Millionaire Next Door: Overview

  1. Rich Slick says:

    I haven’t read the book and I probably never will but someone did give me a copy of a workbook that is part of the book. I think some of the advice is questionable. One example is the “Latte Factor” where Bach says that over a 10 year period, drinking a latte a day will cost you $12,000. Of course, he advocates skipping the latte.

    I offer different advice. BUY THE LATTE and BUY Starbucks stock. You’ll be “paying” yourself along the way to enjoying a great drink.

    Keep in mind that if everyone stops buying Starbucks then the 115,000 people that work there will become unemployed. Who wants to see that happen?
    http://finance.yahoo.com/q/pr?s=SBUX

  2. Buying the stock may not be a bad idea, but how much of each latte goes back in your pocket? It’s a very minor fraction of a penny each time. Of the $12,000 you’ll save (if the math is right), perhaps you’d make back a cent (if that) from your own latte purchase. From an investment point of view, that’s quite a loss.

    If everyone stops buying Starbucks coffee then they’ll have money to spend elsewhere and those 115,000 people will find other jobs in those areas. After all, the world did exist before Starbucks. However, it’s worth noting that not everyone will stop buying Starbucks coffee, so there’s not a danger here.

  3. Phillip says:

    “I haven’t read the book and I probably never will but someone did give me a copy of a workbook that is part of the book. I think some of the advice is questionable. One example is the “Latte Factor” where Bach says that over a 10 year period, drinking a latte a day will cost you $12,000. Of course, he advocates skipping the latte.”

    You are thinking of a completely different book – “The Automatic Millionaire” by David Bach. This is “The Millionaire Next Door.” They do not talk about the latte factor in this book.

  4. ward ripley says:

    trying to search other books, besides The Millionaire Next Door. Master your money, The Total Money Makeover, Die Broke, How Come That Idiot’s Rich and I’m Not

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