Nine lessons in wealth-building from The Millionaire Next Door

Nine lessons in wealth-building from The Millionaire Next Door

Want to become a millionaire? Then perhaps you should start by studying the behaviors of people who have done it. Check out the lists of the best financial books of all time, and you're bound to find several that include The Millionaire Next Door: Surprising Secrets of America's Wealthy.

The Millionaire Next DoorWritten in 1996 by marketing professors William Danko and Thomas Stanley, its main premise is that people who look rich may not actually be rich; they overspend — often on symbols of wealth — but actually have modest portfolios and, sometimes, big debts. On the other hand, actual millionaires tend to live in middle-income neighborhoods, drive economical cars, wear simple watches, and buy suits off the rack.

You've likely heard of the book. You may be familiar with the premise. Perhaps you even read it way back when. But if you read it again — as I recently have — you'll be reminded of some of true gems of wisdom Danko and Stanley gleaned from their thousands of surveys of millionaires.

Related >>The Millionaire Next Door: Surprising Secrets of America's Wealthy

To give you a taste, this post will highlight some of the timeless — along with the lesser-known — lessons of The Millionaire Next Door as well as Stanley's 2009 book, Stop Acting Rich…and Start Living Like a Real Millionaire. (A future post will feature my interview with Dr. Stanley.)

Related >> Ultimate round-up of personal finance books

Lesson #1: Income Does Not Equal Wealth

Yes, higher-income households tend to have more wealth than lower- and middle-income households. But the size of a paycheck explains only approximately 30% of the variation of wealth among households. What really matters is how much of the income is invested. On average, millionaires invest nearly 20% of their income.

Danko and Stanley offer a formula for determining whether you have a net worth that is commensurate with your income:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.

The authors rightly call it a “simple rule of thumb”; a more thorough analysis would look at lifetime income, not just the most recent year. Plus, it strikes me that it's more accurate for people who are at least a couple of decades into their careers. It's not realistic, for example, to think a 25-year-old who makes $30,000 would have accumulated $75,000 (25 x 30,000 ÷ 10). However, for those in their mid-40s and later to meet this metric, they would have needed to save 10% to 15% of their incomes throughout their careers, or started later but saved 20% to 25% of their incomes. That's not common, but also not impossible.

The formula also helps in sorting out the millionaires-to-be and the millionaire-wannabes. Those in the top quartile of wealth accumulation are prodigious accumulators of wealth (PAWs), according to Danko and Stanley. Those in the bottom quartile are under accumulators of wealth (UAWs).

Related >> Finding financial benchmarks and milestone

Lesson #2: Work That Budget

The majority of millionaires have a budget. Of those who don't, they have what the authors called “an artificial economic environment of scarcity,” more commonly known as “pay yourself first.” In other words, they invest a good chunk of their income before they can spend any of it.

As for those who do budget and plan out their expenses for the coming year, no, they don't enjoy it any more than the rest of us. But they appreciate the “payoff,” as well as fear the consequences of not doing it. As the authors wrote, “It's much easier to budget if you visualize the long-term benefits of this task.”

Related >> How to save: Putting “pay yourself first” into practice

Lesson #3: Know Where Your Dough Doth Go

Similar to the previous point, almost two-thirds of millionaires can answer “yes” to this question: “Do you know how much your family spends each year for food, clothing, and shelter?” In contrast, only 35% of high-income non-millionaires answered yes to this question. Millionaires are more likely to track their spending.

Lesson #4: Know Where You Want Your Dough to Go

Another two-thirds of millionaires answered in the affirmative to this question: “Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?” One example: a woman who wants to have $5 million by the age of 65, at which point she'll retire. At the time of the book's publication, she had already reached millionaire status — on an annual income of $90,000. As for those who answered “no” to the question, many of them are retired and have already reached their goal of financial independence.

Related >> Financial independence: The final stage of money mangement

Lesson #5: Time Is Money

All this budgeting and goaling takes time, but millionaires are willing to spend it. Prodigious accumulators of wealth spend nearly twice as many hours per month planning their investments as under accumulators of wealth. The majority of PAWs agreed with the following statements, while the majority of UAWs did not:

  • “I spend a lot of time planning my financial future.”
  • “Usually, I have sufficient time to handle my investments properly.”
  • “When it comes to the allocation of my time, I place the management of my assets before my other activities.”

You don't have to earn a big six-figure salary for planning to pay off. In a survey of 854 middle-income workers, Danko and Stanley found “a strong positive correlation” between investment planning and wealth accumulation. This extra planning doesn't just happen. According to the authors, “Most PAWs have a regimented planning schedule. Each week, each month, each year, they plan their investments.”

Lesson #6: Love the Home You're With

Your choice of home — and how often you choose a new one — will determine your ability to accumulate wealth. According to The Millionaire Next Door, that wealthy family has been next door for quite a while. Half of millionaires have lived in the same house for more than 20 years.

In Stop Acting Rich, Thomas Stanley digs deeper into how your address affects your spending, writing:

Nothing has a greater impact on your wealth and your consumption than your choices of house and neighborhood. If you live in a high-price home in an exclusive community, you will spend more than you should and your ability to save and build wealth will be compromised…. [P]eople who live in million-dollar homes are not millionaires. They may be high-income producers but, by trying to emulate glittering rich millionaires, they are living a treadmill existence.

He cites several statistics to back this up, including:

  • Ninety percent of millionaires live in homes valued below $1 million; 28.3% live in homes valued at $300,000 or less.
  • On average, millionaires have a mortgage that is less than one-third of the value of their homes.
  • If you really want to reduce your housing bill, join the 67,000 millionaires who live in mobile homes.

If you're looking to buy a home, Stanley provides this advice: “The market value of the home you purchase should be less than three times your household's total annual realized income.

Lesson #7: Love the Spouse You're With

The majority of wealthy people are married and stay married to the same person. Of course, marriage shouldn't be just about money. We're sure that 24-year-old Crystal Harris has other reasons for being engaged to 84-year-old Hugh Hefner; perhaps she loves his pipe. But several studies have shown that people who are married accumulate more wealth than those who are single or divorced.

However, it's important to marry someone with the right financial habits. In the majority of millionaire households studied by Danko and Stanley, the husband is the main breadwinner and tends to be frugal, but the wife is even more frugal. As they wrote, “A couple cannot accumulate wealth if one of its members is a hyperconsumer.”

Lesson #8: Don't Drive Away Your Wealth

The majority of millionaires own their cars, rather than lease. Approximately a quarter have a current-year model, but another quarter drive a car that is four years old or older. More than a third tend to buy used vehicles. What is the most popular car maker among millionaires, according to Stop Acting Rich? Toyota.

So who's driving all those BMWs and Mercedes-es? Not millionaires. Eighty-six percent of “prestige/luxury” cars are bought by non-millionaires. In fact, Stanley writes that “one in three people who traded in their old car for a new one were upside down and owed more on the trade-in than its market value.” It's tough to get wealthy doing stuff like that.

Lesson #9: The Rich Are Different — They're Happier

At this point, you might be wondering whether all this living below your means is worth it. Sure, millionaires having bigger portfolios — but are they happier? Danko and Stanley's research indicates that they are. According to their research, “Financially independent people are happier than those in their same income/age cohort who are not financially secure.”

First of all, PAWs worry less than UAWs. There's a peace of mind that comes from living below your means and having money in the bank. But they also don't expect “status” purchases to improve their happiness, because evidence shows it doesn't happen. Among the people surveyed, those who drive a BMW and wear a Rolex are not happier than those who drive a Honda and wear a Timex.

The Double-sided Benefits of Living Below Your Means

After reading these books, it occurred to me that there are actually two benefits of learning to live on much less than your paycheck.

  • The first, of course, is that you can save more.
  • But secondly, it also means that you ultimately need to save less.

Permit me to demonstrate.

Someone who makes $50,000 but lives on just $40,000 can contribute $10,000 a year to her nest egg, and can retire when that nest egg is big enough to generate — along with Social Security and other benefits — $40,000 a year. However, someone who makes $50,000 but spends, say, $48,000 is contributing just $2,000 to a portfolio that must eventually help provide $48,000 a year in retirement. In other words, she's saving less yet needs to accumulate more.

Thus, when it comes to retirement planning, adopting the lifestyle of the “millionaire next door” means you can save more toward a lower-priced goal. That's a formula that can help even non-millionaires achieve their retirement goals.

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Derek
Derek
9 years ago

Lesson #6 – Love the home you’re with. I think this is one of the most important lessons that nobody thinks about! If we live right next to someone that has a Mercedes and a large boat, after a little while, we’re going to want the same thing! But, if we live next to someone that is impressed with their new push-lawnmower, chances are that we’re not going to be inclined to make a crazy purchase on a big boat. Along the same lines, it you live in the country rather than the city, you won’t want those lavish things… Read more »

Paul Harvie
Paul Harvie
7 years ago
Reply to  Derek

I completely agree! If you are living close to the Jones’ and trying to be like them you are in a terrible position. If you work your finances in a better way you can build a wealthy retirement, whether through proper investing or MLM ideas. If you play your cards right when the time is right you can have those nicer things, but without the added stress of debt or long term financial commitments! Great article my friend!

Pamela
Pamela
9 years ago

I agree with Derek that #6 is underestimated by many. I frequently counsel clients who plan to sell their homes in as little as 3 years–like when they finish graduate school. We live in an area where home prices are steady but the prospective buyers underestimate both the costs of buying and the costs of selling, not to mention the interest they’ve paid on their mortgages. I don’t think homeownership is, or should be, all about the money. But I get a little shiver down my spine when I talk to someone who thinks they can make a big profit… Read more »

Steve Two
Steve Two
9 years ago

“We’re sure…Crystal Harris has other reasons for being engaged…Hugh Hefner; perhaps she loves his pipe.”

I see what you did there…

Ahem, back on topic. This is a great book, and well-summarized here. The thing I struggle with is Lesson #5, specifically how to use that time wisely.

Diane
Diane
9 years ago

Great review of the book and the lessons it outlines. And very timely, since I was planning on re-reading it.

I have been saying for years just because someone owns an expensive car or house does not mean they are wealthy. It may mean they are in a lot of debt.

Avenger2354
Avenger2354
9 years ago

My favorite quote from the book is “big hat, no cattle” which translated for non Texans means lots of crap, no networth.

brokeprofessionals.com
brokeprofessionals.com
9 years ago

Thanks for reminding me of these points from one of my favorite personal finance books. Another concept I really believe in from the book is the idea of “Affirmative Action- Family Style.” Essentially, to oversimplify the term, it means that if your parents keep giving you money, you will never learn to walk on your own two feet, and that parents tend to give more and more to the child who is not self-reliant and neglect the other children who are, which in turn makes the child being given the money/etc., ever more reliant on his parents and makes the… Read more »

Nicole
Nicole
9 years ago

It’s a good book! My favorite section was the one on money and kids and how not to raise kids who are permanently dependent.

Sam
Sam
9 years ago

This is one of my fave books and a good reminder that those we see with flashy things and fancy cars might be rich but in fact many of them might be poor (i.e. in debt, overleveraged, underwater).

jennypenny
jennypenny
9 years ago

“pay yourself first”
I agree with this idea, but how does that apply to debt repayment? It seems to contradict Ramsey’s debt snowball method which is the dominant debt repayment plan on this and other sites. Do you pay yourself first, then deal with debts? That would change the order of baby steps– 1) save 10% for short-term savings/emergency fund, 2) save 10% in a retirement fund, then 3) start the debt snowball.

Oldfarmboy
Oldfarmboy
8 years ago
Reply to  jennypenny

There is an iPhone app for the debt snowball. I’ve used the snowball for both my house and business debt. Both Dave Ramsey and John Cummita have excellent programs for debt reduction and wealth building. I followed Cummuta’s advice to the “T”. I can tell you that you will become wealthy following their programs. You just need to learn to say no to pretty much any purchases or fast food until you are completely out of debt. It is SO worth it though! The peace of mind that comes from being debt free and having money saved is priceless! My… Read more »

getagrip
getagrip
9 years ago

Denying or properly regulating the “economic outpatient care” as they call it is harder to accomplish in practice than when I read about it some years ago. Having one in college and one getting ready to go, I can certainly feel how hard it can be, especially if you as the parent have the means to over provide or the experience to see them heading for the edge of the dock. Best I can say is sometimes it’s better to let them risk falling in and getting wet, and being ready to offer a little help directing them to a… Read more »

Beth
Beth
9 years ago

Just curious, is the Millionaire Women Next Door by Thomas Stanley a recommended read by Mr. Brokamp? I looked up the Millionaire Next Door at the library and noticed there is a book dedicated to women millionaire’s.

Adam
Adam
9 years ago

I’m not a big fan of the book as I found some great ideas but way too much time spent on buying cars and giving money to your children, neither of which apply to my situation (child free and driving a 12 year old Oldsmobile by choice). That, and the incredibly flawed “rule of thumb” formula. I read the book in my late 20s and as a accounting major I could not understand how any author would justify a 20 something having 3 times their current income in net worth when they graduate with student loan debt and have only… Read more »

Raghu Bilhana
Raghu Bilhana
9 years ago

JD

If someone were to ask me to point out one article and only one article from getrichslowly.org, reading which they could get the whole essence of the idea of getting rich slowly, I would be pointing them to this article.

Good Job, Robert. Keep it up.

Casey
Casey
9 years ago

After nearly two years of saving and paying down debt, I’ve just now realized “The Double-sided Benefits of Living Below Your Means”.

If (well, when) I pay my car off, not only is that hundreds less out of my pocket in bills every month, but it means the balance on my emergency fund can be thousands lower since I don’t have to save ~6 months of car payments to cover a job loss.

Wayne Mates
Wayne Mates
9 years ago

Where you live does matter a whole lot, but maybe not in the way that one commenter noted. I live in the country and not in the city, but have found it necessary to buy things that a typical city dweller may not have. For example, 8 years ago, I bought a plow truck to clear my driveway every snowstorm. A large expense at the time, but it saved me $80 (and probably much more now)every time it snowed AND allowed me to clear the drive the way I wanted it clear. We also made a decision 5 years ago… Read more »

Laura in Cancun
Laura in Cancun
9 years ago

Thanks for this! I get a little sad about our lifestyle sometimes because our friends all have nice cars and Blackberries and some are even buying houses at 24…

Nice to know it will all be worth it someday! Time to start investing 🙂

Jenny
Jenny
9 years ago

I just got around to reading this book last summer. Along with Your Money or Your Life, The Millionaire Next Door was the spring that catapulted me towards the goals I’m working on today.

It’s easy to have misconceptions about those that own lots of flashy “stuff.” Sometimes the true measure of wealth is not how much you have, but by how little you need.

MutantSuperModel
MutantSuperModel
9 years ago

Typo Alert: Lessong #2 No “g” necessary 😉

I love this book. This book is what really got me determined to do something about my finances and a lot of the lessons learned in it whiz through my head constantly. Great review/summary. I didn’t know Dr. Stanley had a new book!

Pat S.
Pat S.
9 years ago

This book also was the catalyst for my own financial journey. The simple truths and lessons of this book, presented and backed up with robust academic research made me decide to get my financial life under control, pay off debt and invest.
Pat
http://compoundingreturns.blogspot.com

Jenny
Jenny
9 years ago

I just got around to reading this book last summer. Along with Your Money or Your Life, The Millionaire Next Door was the spring that catapulted me towards the goals I’m working on today.

It’s easy to have misconceptions about the wealth of those with lots of flashy “stuff.” Sometimes the true measure of wealth can be realized by understanding that it’s not how much you have, it’s how little you need!

Kim
Kim
9 years ago

I just calculated the “rule of thumb” and it was spot-on with a difference of $1,099.

schmei
schmei
9 years ago

What a nice article – and a timely one, for me. Maybe I’ll finally pick up that book.

As Mr. Brokamp and others have mentioned, the rule of thumb for net worth doesn’t work for people who aren’t in their 40s or 50s. I’m 28 and am thisclose to being debt-free. When I did the math, I laughed out loud at the supposed net worth I should be rocking. Even if I hadn’t been paying off student loans, that just doesn’t seem possible.

And @Wayne (#12): Those Pandora things are hideous. Glad you’re avoiding one. Chocolate is cheaper. 🙂

Quest
Quest
9 years ago

This is an excellent article. Every single thing in it that the millionaires say NOT to do, I’ve done. Especially the luxury home. I should never have bought it because it drained my finances for the 6 years I owned it. I live a completely different financial life today ~ I live in an older established neighborhood which I really like, I drive a 2002 car that still looks and runs great, I invest and save. I am much happier as a result.

A
A
9 years ago

I’m actually going to be the odd one out here and say I really didn’t like the book. It may sound silly, but the identity politics of it really bothered me — I actually found myself feeling, “Oh, no, I’m not a straight white married tough-minded southern man … guess I’ll never be rich.” I just think some people who aren’t much like the people profiled in the book will just find it depressing.

Jake
Jake
6 years ago
Reply to  A

As a gay man myself who is in his 20’s I found it to be a good book. You just have to keep in mind who wrote it and who it is written for.

mysticaltyger
mysticaltyger
5 years ago
Reply to  Jake

I’m also a gay (non-Southern) man who read the book and I also thought it was good. Do people have such limited imaginations that they can’t adapt the principles in the book to their own circumstances????

Patti
Patti
9 years ago

I loved this book when I read it in my 20s. It had a huge influence on me and a slight influence on my husband, who is a bit spendy. (Drives a used BMW) It’s a bit depressing that we are missing the mark on the “rule of thumb.” According to my calculations, we should have $800K in net worth and we have about half of that at ages 40 and 41. I attribute this to our wages early in our careers being low. My husband has just in the past three years seen his income grow. Add to that… Read more »

Adam
Adam
9 years ago

@Patti – that is what I dislike about the book. It takes a *very* flawed formula and makes people feel depressed because they don’t reach it. Why would the formula assume you’ve made the same money your whole life? It fails huge if you’ve had a big pay increase recently by assuming you’ve made that and saved 10% of it since birth. Ugh. FAIL.

You’re having fun, saving, and living within your means. Who is this book to tell you you’re a failure at accumulating wealth or anything else? Ugh.

Stephen
Stephen
9 years ago

I agree with Adam. While the book makes a lot of very good and valid points, the authors point out “wastes” of money by families who go on ski trips or European vacations. Granted, if you can’t afford to do that, you shouldn’t do it, but if you have the money, go enjoy life! After my brother read it he suggested changing the title to “How to save a lot of money and never hav fun.”

wink
wink
9 years ago

I noticed there is another Stanley book titled Millionaire Mind, is it worth a read?

Squirrelers
Squirrelers
9 years ago

I have enjoyed the book, and find it tough to argue with these points. All reflect wisdom that has clearly worked with a sample of people. #1 above is really a good one to examine further. Yes, income does not equal wealth. It’s what you do with your income that can be most impactful for the most of us. Having said that, income itself IS an important driver in achieving wealth. You need to make money in order to save it. If two people have comparable expenses, but one has a higher income, who will be more likely to accumulate… Read more »

April Dykman
9 years ago

@18–Thanks for the catch! I’ve made the edit.

retirebyforty
retirebyforty
9 years ago

The MND is a must read for anyone who is searching for financial independence. Yes, you will have to make some sacrifices like luxurious European vacations. Is it worth the sacrifice? You’ll have to answer that question.

Kristen
Kristen
9 years ago

I thought the Millionaire Next Door was a book well worth reading. Recently, I picked up is newer “Stop Acting Rich and Start Living Like a Real Millionaire” (from the library) and about that book, I say: skip it. It was patronizing and had little, if anything, new to offer. Just fyi for others…

El Nerdo
El Nerdo
9 years ago

Wonderful summary of books I haven’t yet read, I’m checking them out of the library ASAP for details. Thanks!

ps- @ #32 Kristen– I’ll heed your advice and start with the Millionaire Next Door. Thanks.

brooklyn money
brooklyn money
9 years ago

#24 — Thank you for saying exactly what I felt when I read this. Excluded. So since I’m a single, urban woman who doesn’t own a home, I have no hope of being rich? Ugh. I guess I should move to the middle of nowhere, find some 60 year old man to marry and quit my high-paying job to stay at home and be frugal.

Suba
Suba
9 years ago

MND is a fascinating read. I agree with Robert about all the good points. Everyone should read it at least once. With that said, I wanted to tell what I don’t like about it, just to give the other side of the coin. May be its just me being defensive 🙂 as I am not a perfect MND, so take it with a grain of salt… The book seem to encourage saving for the sake of saving, almost hoarding cash. Someone living in trailer park, drinks only free beer, shops at JCPenny, buying car by pounds(!) and never spends any… Read more »

Melissa
Melissa
9 years ago

I read this book two years ago and I loved it. Like many of you, I was a bit frustrated by the net worth formula. Clearly this formula is for people who are more established and have been earning more than a year or two. I’m 26 now, have been in the same job for 3 and a half years. This formula tells me I should have about 88% of my total post college earnings in my net worth. Two years ago, I think net worth the formula gave me was more than my entire lifetime earnings to that point.… Read more »

Luke Myers
Luke Myers
9 years ago

Great article and two good reasons to live below your means, yet the most satisfying ability attending a surplus of any resource is the ability to give it where needed. Jesus said, “it is more blessed to give than to receive”. Trying it proves it true.

zenaxe
zenaxe
9 years ago

I’ve read this book and while it is really a great eye opener to the power of budgeting and saving and it can be a source of ideas for budgeting, I think many people who read it take the wrong message away due to the hidden bad assumption in the title: Having a million dollar net worth DOES NOT make you *rich* by modern American standards. “Millionaire” was used as a synonym for “rich” in the 60s and 70s because that was an INCREDIBLE amount of money at the time. But, to be honest, it just isn’t anymore. I’m sure… Read more »

Vanessa
Vanessa
9 years ago

@ #24 I’m single, child-free and I rent and you also echoed my sentiments after reading this book. The profiles of what the millionaires in this country look like are interesting, but not practically useful. I couldn’t really apply anything from this book into my own life. I almost stopped reading after finding out I was a UAW. I think I stopped reading after the chapter about “economic outpatient care” or something like that. TMND is not a how-to book–a point that gets ignored amidst all the glowing reviews it receives.

Megan
Megan
9 years ago

@29: I took issue with your comment about having to sacrifice “luxurious vacations” for “financial independence”. In my mind – I want the independence in order to TAKE the vacations. I can see your comment being a little more balanced by adding “worth the sacrifice early in life” but really what’s the point of sitting on a ton of money? Use the money to have good experiences that you enjoy within reason (ie, no debt). “Retirement” can come at any age – that is, when you no longer need a job to sustain you. But this does not mean giving… Read more »

beachbound
beachbound
9 years ago

Stop Acting Rich got too much into what kinds of wines and liquor the rich own; that got old and annoying quickly. Other than that, it was just okay.

I guess it did save me time from asking every millionaire how they achieved their wealth. Time is money, ya know?

Nate
Nate
9 years ago

Ok I have to comment on something. It kind of makes me laugh a little when people say — “this rule of thumb is bogus because my numbers don’t match it”… LOL… Guys, not to be rude but that means you might NOT BE A PAW (possibly — you can always catch up my increasing income and investing while decreasing expense). I also hear people say things like, “my numbers don’t match the rule of thumb because we made less money when we were younger”… Nooooooooo — you just weren’t living below you means (however meager) and saving/investing 20-30% of… Read more »

Adam
Adam
9 years ago

#24 hit the nail on the head! Missed that post earlier. A ton of the profiled in the anecdotes of TMND were older white males who didn’t have a college education, owned their own businesses, and had a stay at home wife for their now adult kids. Sort of exclusionary for a reader like me single in my 20s to associate with but I took that with a grain of salt since those people were a “typical millionaire” in the mid 90s. Those people are so removed from my life that it’s hard to listen to the “tips” given by… Read more »

Sara
Sara
9 years ago

I was incredibly inspired when I first read this book – the idea that millionaires were actually “normal” people really took hold in me, that I, too, could be a millionaire one day. What I did find, what that the book was very heavy on statistics, and there was less interpretation than implication – which I think is what the commenters about are saying about not being a married white male with a SAHM being frugal. Another positive point I liked about this book, was that it emphasized frugality by pointing out what NOT to do rather than what to… Read more »

Adam
Adam
9 years ago

@ Nate We went through this last time. The formula is flawed and makes no sense for people in their 20s nor for people in their mid 60s about to retire. I believe the authors of the book even came out and said so when pressed. Why would you defend something the creators of the formula have even said is a flaw in it? Go back to that thread and look at the comments. EG 65 year, retiring, made $75,000 a year before he retired. To be a PAW he would only need a net worth higher than $478,500. If… Read more »

Wes
Wes
9 years ago

I agree with Adam (#12). I think too often people forget that money is a mean to an end, not the end itself. Furthermore, no one is guaranteed tomorrow – I can’t think of anything I’d regret more than dying with a bank account filled with millions and unfulfilled dreams. So if you can chase the things you want to do in a financially responsible manner – whether it’s travel, entrepreneurship, or something else – do it! What else are you going to spend the money on?

Jaime
Jaime
9 years ago

I get what you’re saying but I don’t believe that everyone that drives a BMW is poor or in debt, some people are rich and live rich and they’re happy. What’s wrong with that? The rich help keep the economy going. What’s wrong with that? Absolutely nothing. No I’m not rich. I don’t believe in sacrifice. I believe in spending consciously and not living like a miser. I don’t have debt, my credit scores are in the 700s. I don’t think there’s anything wrong with going on a nice vacation if you can afford to. If you read history, humans… Read more »

Ann
Ann
9 years ago

I have to totally agree with Nate (#40). I don’t think the formula is as flawed as so many people WANT it to be. When I graduated school at 22 and got my first “real” job that paid $48k/a, I was a PAW because I had these funny things called part-time and co-op jobs since I was 13 and started saving even then.

Adam
Adam
9 years ago

Wow Ann. Great you had part time jobs that let you save over $200,000 at 22. You know a PAW is someone who has twice what an AAW does ($48k x 22 / 10 x 2 = $211,200 net worth). Were those co-op jobs as a drug dealer or high priced call girl?

And forgive me if I don’t believe you that you had $200k in the bank of your own money that you made working at McDonald’s when you were 22. Do you guys even know what you’re saying is ridiculous?

leslie
leslie
9 years ago

Wow! What is with all the hostility toward this post? The Millionaire Next Door is not meant to be a blueprint of steps to follow in your life. It is a snapshot of people that have achieved Millionaire status and some of the decisions that they made to get there. That does not mean that you need to do every one of their steps or any of them for that matter. It simply points out a few statistical facts…do with them what you will. Is the formula flawed? Absolutely! But all formulas that attempt to give simple answers to what… Read more »

Terry Pratt
Terry Pratt
4 years ago
Reply to  leslie

The formula needs only two simple tweaks to be solid and useful.

First, the formula should probably ignore the early years before an individual is capable of earning full-time income. So a starting age of, say, 20 is more appropriate than starting at birth.

Second, since the basic cost of living is greater than zero, the formula should probably establish a floor below income is not counted. A minimum wage income is insufficient to build wealth commensurate with a PAW unless you are exempt from the cost of living – say, by living with parents for free.

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