The Millionaire Next Door
by Thomas Stanley and William Danko

Highest Recommendation

The Millionaire Next Door
by Thomas Stanley and William Danko

Highest Recommendation

From amazon.com reviews:
How can you join the ranks of America's wealthy (defined as people whose net worth is over one million dollars)? It's easy, say Stanley and Danko, who have spent the last 20 years interviewing members of this elite club: you just have to follow seven simple rules. The most important rule is, always live well below your means. The authors' conclusions are common sensibly. But, as they point out, their prescription often flies in the face of what we think wealthy people should do. There are no pop stars or athletes in this book, but plenty of wall-board manufacturers. Stanley and Danko mercilessly show how wealth takes sacrifice, discipline, and hard work, qualities that are positively discouraged by our high-consumption society. "You aren't what you drive," admonish the authors. Somewhere, Benjamin Franklin is smiling"

I recommend this book for everyone. It's a modest 250 pages and should not tax the limits of any ones abilities. (Tho you should hear the com plates I get that people just can't find the time to read "The whole thing". O my, such an endeavor). More reasonable of the comments I have received is that the book tells you all you really need to know in the first 70 pages. The next 70 tell you again, and the next 70 again, again. Not a particularly damning comment, so if you absolutely must read the minimum go ahead. The authors have also written a follow up called "The Millionaire Mind". I was not impressed with this book and would not recommend it. It was longer and slower, and did not add any significant information in my opinion.

The main point of his book is that the people you think are millionaires, are probably not. This book is like a vaccination against over spenders. So often you'll hear someone say "Those people are rich, they go on expensive vacations, drive bmw's and only shop at the best of stores." How further form the truth could it possibly be. His has a different definition of wealthy. Wealthy is being able to live at your current lifestyle for at least 10 years without working. Most people like those above would self implode in under 1 year.

Over and over the authors tell you want millionaires really do. How much they really spend on their suits (under $400), on their shoes (under $140), on their watches (under $50). These are the average for people having net worth between 1 and 10 million dollars. Spending a lot of money does not make you rich.

Of course this brings in the eternal question "How much do I sacrifice now, in order to enjoy the future?". This question has no good answer but to be fair, it's probably outside the scope of this book. I normally say this as "Time and Money". It's as useless to have all the Time you want, with no Money to spend in it, as it is to have all the Money you want with no Time to spend it.

I realize that me commenting on this book is like the choir talking about the sermon, but I wouldn't let that stop me. If you have read up to this point you have covered the main thirsts of the book, but read it anyway! I'm on a roll now so I'll digress to some of the secondary points he considers. Take for example his first two questions for would be millionaires.

1. Does your household operate on an annual budget? 2. Do you know how much your family spends each year for food, clothing and shelter?

These go quite nicely with my personal rules
1. Figure out What you spend and where you spend it.
2. Make a budget, any budget but get a starting point.
3. Do the easy stuff first.

While He doesn't hit Number 3, I would say that 1 and 2 are in the same vein. (I'll let you catch that one in the Anthony Robbins book). This would be a good time to talk about the phrase "Pay Yourself First". We've all heard it, but it's far simpler to implement than it seems. If you want to accumulate wealth, you must have a budget. If your want to "Pay Yourself First", you must have a line item for "Savings" on your budget. Does this mean your put your money into stocks instead of paying your house bill or stuff money under your mattress instead of paying off your credit card? No. This simple act does force to consider your savings as something that HAS to be done, just like the mortgage. As a side note I personally recommend calculating the savings as a Percent. Don't think of it as X number of Dollars. Think of it as a percentage of your gross. As you get raises and promotions you must be sure to keep pace with your savings.

The authors continuously repeat the fact that millionaires are not made by get rich quick plans, by investing in real estate, or by playing the stock market. Is it possible to do this, yes. Is it the likely outcome, no. Beyond any other consideration, a millionaire is made by planning and saving. No more, No less.

So you want to be a millionaire? no problem.

1. Make a budget.
2. Add a line item entry for savings.
3. EVERY time you get a raise or bonus, Spend half, Save half.
4. Repeat for 20 years.

As Ripely's would be put "Believe it of Not". (But unlike Ripley, if you don't believe me I have the spreadsheets, experience, and similar stories to back it up).

Some Notes on the above:

Your savings should be a MINIMUM of 10%, period. If you can't save this much, you ARE living above your means. There are no if, and's, or but's. It doesn't matter how much or how little you make. EVERY SINGLE TIME I do an informal survey about what people make and what they save, there is never a relation. (To be honest the very last time I surveyed the people at work I did find a relation. The more a person made, the less percentage of their income they saved. Point made.) See my review on "Smart Couple Finish Rich" for more on this. Above all realize that 10% of your income will never be a lower number than it is RIGHT NOW. No matter what you make, 1 dollar out of every 10, will always be 1 dollar out of every 10. To think that it will be "easier when I make more" is a lie. Sorry, but it holds true every time I talk to someone.

So, for what it's worth, there you have the formula. What you do with it is up to you.