I came across The Millionaire Next Door as a used paperback at a yard sale or library book sale, I don’t even remember! I was intrigued by the title and it’s subtitle “The Surprising Secrets of America’s Wealthy.” I owned the book for several years before I even read it, but a year or so ago I finally picked it up off the bookshelf and gave it a go. Below are my synopsis, review, and recommendation on whether you should read it.
The Premise
I feel like I could sum the book up pretty simply by saying that the real wealthy folks are those that don’t project the outward appearance of extravagance. They’re frugal, they save, and that’s why they’re wealthy. The people that YOU think are wealthy because they live in a mansion, drive a fancy car, and wear expensive clothes are often times broke and in debt.
Synopsis
Income vs Wealth. “Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.” Around the time I read this book, I was coaching colleagues to improve their finances. A lot of us were making great incomes, but we all had different financial situations. Some folks were drowning in debt, some were swimming in savings. Most were in the middle. I stopped harboring the occasional jealousy for those making more money than me. It doesn’t matter how much you make, it’s all about what you do with your money. “It’s much easier in America to earn a lot than it is to accumulate wealth.” Wow, isn’t that sad?
Millionaires live well below their means. They are frugal. They coupon. They build and live within a budget. They minimize spending and maximize savings. They live in modest houses, not mansions. They drive practical used cars, not new luxury vehicles. They live in lower-income communities so they don’t feel pressure to “keep up with the Jones’.” It’s not sexy, but it’s the truth, and it works!
Economic outpatient care. A lot of the book seemed to tell me what I knew, but it was very interesting to learn about what the author’s called “economic outpatient care.” It’s about the interaction between wealthy parents and their children. Most millionaires are self-made. They combine hard work with good savings habits to accumulate wealth. Because they had to work for their wealth, they appreciate it and don’t squander it. However, if they give money to their children, since the children didn’t work for it and don’t know what it’s like to NOT have money, they spend it easily and it slips right through their fingers. They constantly need more money from their parents to keep up their lifestyle. Suze Orman says sometimes “helping is hurting and hurting is helping” and this is exactly what she means. Constantly bailing out a child or other family member with money is keeping him from learning how to save himself. Sometimes cutting that person off is the best way to help.
I thought it was also fascinating how the authors studied wealthy families with multiple children. “Most affluent people have at least two children. Typically, the most economically productive ones receive the smaller share of his or her parents’ wealth, while the least productive receives the lion’s share of both economic outpatient care and inheritance.” This was a huge WOW (as well as a punch in the gut) for me. It made me so glad to be an only child and also realize it would probably be best for us to have only one child. I am all about FAIR and I hated this data because it was NOT fair at all! But I’ve seen it unfold in my own extended family just as they say. I know it’s the unfortunate truth.
Some forms of economic outpatient care can be beneficial though, like an investment. “Paying for an education is the equivalent to teaching your children how to fish…[Other forms include] earmarking gifts so they can start or enhance a business.” I reflected on how my parents paid for my college education (what wasn’t covered by scholarships) and I was able to graduate debt free, and start my savings – also thanks to my parents who taught me about living below my means and the importance of savings and investing. I’m more thankful for these basic financial lessons than I am for any cash gift! I don’t want my child to grow up feeling like he can get anything he wants because I give it to him. I want him to learn the value of money, hard work, and saving.
Target the wealthy in your own business. The book has a whole chapter on which businesses and occupations are needed by the wealthy, so that you can consider these professions in your own quest to achieve wealth. On a personal note, I was excited to see that one of the professions listed was a travel agent, because millionaires want to spend time with their multigenerational families and take them on vacations. I would love to plan Disney vacations!
Risk and the entrepreneur. I dogeared a page near the end of the book telling an interesting story. A professor asked a group of MBA students who were also executives of public corporations “what is risk?” and they answered “being an entrepreneur.” I would have to agree! But the professor responded with a quote from an entrepreneur: “What is risk? Having one source of income. Employees are at risk…They have a single source of income. What about the entrepreneur who sells janitorial services to your employers? He has hundreds and hundreds of customers…hundreds and hundreds of sources of income.” I liked this new take on risk and working a 9-5 job. Being an entrepreneur has always interested me, but it’s also scared me. It also reminds me of what I heard from a seminar speaker recently, “sometimes staying put and doing nothing is more risky than taking action to achieve your dream.” Yikes! The book also reminded me that success criteria in an occupation should be loving what you do. Waking up in the morning and being excited to get to work. When work isn’t really “work.” Something we’ve probably all heard, but maybe some of you needed the reminder as I did.
Conquering fear. America thrives on fear. All you have to do is watch the news. The interesting thing is that statistics say that the least fearful group of people are entrepreneurs. They face risk, test their courage, and conquer their fears every day. What a great point!
Review
The book made a ton of great points and it really made sense. It contributed to creating my relatively new healthy mindset of the last years. Now when I see people living in huge mansions, driving luxury cars, going on extravagant vacations and overall just spending a lot on STUFF, I think “these people aren’t rich, they’re probably in debt, I have no clue what’s going on in their bank account so I’m not going to be jealous or wish for their life.” I’m satisfied with MY situation because I know I’m steadily accumulating wealth!
Should you read this book? If you are really into data, numbers and statistics you will enjoy this book. The authors certainly did their homework. I like data, but it was still a little much for me. I would’ve liked to just read the conclusions after being assured it came from solid data. But this book is a classic in the financial community, so if you can get past the numbers, you will not regret it and I’m sure you will glean some great tidbits that will help you in your own journey to becoming wealthy!
