Book – The Millionaire Next Door (Summary)
Author – Thomas J. Stanley & William D. Danko
Genre – Non-Fiction
Published in – 1996
Robert Kiyosaki states in the Book Rich Dad, Poor Dad – “There is no freedom without Financial Freedom.” Even though earning determines the speed at which one becomes rich, how one spends, saves, and invests determines wealth and true financial independence.
The Millionaire Next Door will change the way you perceive millionaires and how to become one. The number one rule is “You can’t become wealthier by trying to look one.”
Don’t confuse looking for riches. Looks can be deceiving. Many people who look rich are far from wealthy or becoming one. All their shiny objects are on EMI. This is against everything The Millionaire Next Door proposes.
About The Book –
The Millionaire Next Door is not written for the benefit of wealthy people. It is designed to enlighten those confused and misinformed about what it means to be rich. Most people have no idea about the actual inner workings of a wealthy household.
According to the Authors, wealthy people get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.
Another misunderstood concept is better off. Most people from humble backgrounds consider getting better off having an expensive house, cars, shiny clothes, and fine dining but not financial security. They keep compensating for their poor childhood.
The Millionaire Next Door divides people into two categories: PAW (Prodigious Accumulator of Wealth) and UAW (Under Accumulator of Wealth). The book describes the lifestyle of these people and the choices they make that keep them in their respective categories.
A few Key Points From the Book
I) Frugal LifeStyle –
- Being frugal is the cornerstone of wealth-building. Yet far too often, the popular press promotes and sensationalizes the big spenders.
- Unfortunately, some judge others by their choice of foods, beverages, suits, watches, motor vehicles, etc.
- Many people, especially those in the under-accumulation of wealth (UAW) category, know how to deal with increases in their realized income. They spend them! Their need for immediate gratification is excellent.
- In research conducted by authors, millionaires spend way less on suits, automobiles, and accessories than one can imagine for millionaires.
- Offense – Defense Strategy – The author states income generation as playing offense and spending as defense and claims that natural wealth accumulation combines both. Your income may depend on your offense, whereas your reason will determine your wealth.
II) Time, Money, Energy –
- Unfortunately, society has tagged specific professions with so much glamour, and people in these industries have to maintain their status, whether they can afford or not to sustain and grow in business, or so they think.
- Millionaires spend more time on budgeting. Keep their daily, monthly, and yearly expenses tab and have a well-defined budget segment-wise.
- As they say, unless you know where your money is going, you won’t know where to cut, how to save and invest.
- Less than 25% of Millionaires drive the same year model; the rest go to little old models. PAW spends way too much time narrowing down the car compared to UAW.
III) Affirmative Actions, Family Style –
- Leaving a will is also significant and determines how the money will either empower or deteriorate the recipient’s life by making them dependent on this money.
- How will different people approach it? What is an ideal way to gradually set up a will and transfer assets to be sure of better use?
- Few Rules of affluent parents and productive children –
- Never tell children that their parents are wealthy.
- No matter how wealthy you are, teach your children discipline and frugality.
- Ensure your children won’t realize you’re affluent until you have established a mature, disciplined, adult lifestyle and profession.
- Minimize discussions of the items each child and grandchild will inherit or receive as gifts.
- Stay out of your adult children’s family matters.
- Tell your children that there are many things more valuable than money.
IV) Seven Common Denominators of Millionaire –
There are seven common denominators authors found amongst 1st generation millionaires who made their earnings, which are discussed in detail in the book.
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 a suitable occupation.
I have also created a video of a few quotes from the book – I hope you like it. Please subscribe to my YouTube channel – Myread4change.
The Millionaire Next Door empowers you because how you spend what you earn determines your Financial well-being. And we may not always have control over our earnings, but we can always control how we spend our wages.
If you like this book, you may also like The Psychology of Money.
I hope this summary encourages you to take control of your financial well-being.
Thank you for Reading. Please share your thoughts in the comments. I would love to hear from you.