Ask people to picture a millionaire and most imagine a big house, a luxury car and expensive clothes. Thomas Stanley and William Danko spent two decades surveying and interviewing wealthy Americans, and found that the picture is mostly wrong. Many millionaires live quietly, and many who look rich are not.
The Millionaire Next Door turns that research into seven habits shared by people who build wealth themselves. This guide condenses the book into twelve ideas, with the numbers and case studies behind them and notes on where the data are dated. It ends with a one-page summary, two worksheets and a cheat sheet.
1 The wealthy are not who you think
Thomas Stanley and William Danko spent about twenty years studying who the wealthy in America really are. Their research included interviews with more than five hundred millionaires and surveys of more than eleven thousand high-net-worth or high-income people. What they found surprised them and, they expected, would surprise readers.
2 Seven habits of people who build wealth
From their research, the authors drew seven common factors among people who build wealth. They live well below their means. They spend their time, energy and money in ways that help build wealth. And they care more about financial independence than about showing off their social status.
3 A simple test: what should your net worth be?
The authors give a rule of thumb for expected net worth. Multiply your age by your yearly pretax household income from all sources except inheritance, then divide by ten. Subtract anything you inherited. The result is what someone of your age and income would typically be worth.
4 Big hat, no cattle
The authors borrow a Texan expression for people who look rich but are not: big hat, no cattle. They heard it from a thirty-five-year-old who owned a very successful business rebuilding large diesel engines. He drove a ten-year-old car, wore jeans and lived in a modest house among postal clerks, firemen and mechanics.
5 Frugal, frugal, frugal
The authors call frugality the cornerstone of wealth building. Their survey found that the typical millionaire had never spent more than $399 on a suit, for himself or anyone else. Only about one in ten had ever paid $1,000 or more for one. Many wore inexpensive watches and shopped at ordinary stores.
6 Budgeting and planning are the defense
The authors describe wealth building as offense and defense. Offense is earning a good income. Defense is controlling spending, and they call it the foundation stone of wealth, anchored by budgeting and planning. Many high earners, they found, play strong offense and almost no defense.
7 How you spend time matters as much as money
The authors compare two doctors with similar ages, incomes and families. Dr. South is an under accumulator. His family spends all or more of their income each year, and he worries constantly about money. Dr. North is a prodigious accumulator. He has far fewer worries despite a similar income.
8 You aren't what you drive
Cars are a major theme because they are such a visible status symbol. Many millionaires in the study did not drive new cars. Only about a quarter owned a current-year model, and more than a third had a strong preference for buying only used vehicles.
9 Economic outpatient care can backfire
The authors coin the phrase economic outpatient care for the large gifts and financial help that some wealthy parents give their adult children and grandchildren. It includes help with homes, school fees, cars and regular cash. The parents usually mean well and hope the support will help their children get started.
10 Raise children who can stand on their own
The authors collect guidelines from wealthy parents whose adult children became self-supporting. Never tell children that their parents are wealthy. Whatever your wealth, teach discipline and frugality. And try not to let them realize you are affluent until they have built a disciplined, adult life of their own.
11 Choose the right occupation, and find a niche
Self-employed people made up less than 20 percent of American workers but about two-thirds of the millionaires in the study. Many ran what the authors call dull-normal businesses: welding contractors, auctioneers, rice farmers, pest controllers, mobile-home park owners, and coin and stamp dealers.
12 Wealth is what you accumulate, not what you spend
The book's central message is that wealth comes from discipline more than from income. Many millionaires earn moderate incomes but save consistently, budget carefully and avoid status spending. Many high earners never become wealthy because their spending rises with every raise.
The Millionaire Next Door in short
The Millionaire Next Door challenges the picture most people have of wealth. Thomas Stanley and William Danko found that many millionaires live in ordinary houses, drive used or older cars and run unglamorous businesses. Many people who look rich, on the other hand, have little saved.
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