The Millionaire Next Door – 3 Key Takeaways and Book Review

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The Millionaire Next Door Quick Synopsis

The Millionaire Next Door is a research study conducted by two Ph.d. researchers, Thomas J. Stanley and William D. Danko, and it reads just like that: a research project. This book is written as a set of findings and conclusions that the authors draw based on their research.The overall theme can be summed up in a single statement: “live frugally.” Here are the main points that I’ve drawn from my many readings of this book: 

  1. Most millionaires lead very ordinary lives, and you’d likely never guess that they were millionaires – The authors were surprised when they couldn’t find many millionaires in the “fancy” or “rich” houses/neighborhoods. Instead, most of the millionaires they found were in middle class neighborhoods, in modest houses, driving non-fancy American cars that they owned debt-free. They wore inexpensive suits/watches, and didn’t have many (if any) status symbols of their wealth.
  2. Almost anyone in the U.S. can become a millionaire by following predictable, “boring” habits –  About 80% of the millionaires in America that were surveyed are “first-generation” wealthy. They didn’t inherit their wealth; they built it, usually gradually, over time. Many of these millionaires have very similar habits and lifestyles.
  3. Prodigious Accumulators of Wealth (PAWs) vs. Under Accumulators of Wealth (UAWs) – Average Accumulators of Wealth (AAWs) are defined as those people who have a net worth that follows the formula:

Net Worth = 1/10*Current Age*Current Income 

An AAW is presented as a person who has an average or expected net worth. If someone has a net worth equal to double an AAW, then they are a PAW. If they have a net worth equal to half of an AAW, they’re an UAW. It’s a quick way to gauge your progress toward wealth: how you rank on the scale of UAW to PAW.

Editor’s Recommendation: Absolutely read the book

Or at least pay close attention to the findings from the book. This book is a really good introduction to sound personal finance principles. If you’re a seasoned “personal finance expert,” then you may already be familiar with the guidance offered in this book. Check out “The Seven Factors” listed below. If you already feel like you have a good grasp of them, you may be fine to skip this book. 

Where to buy or listen to the book: 

Amazon affiliate link for physical copy

Audible link for audiobook 

Useful Insights from The Millionaire Next Door

The authors of Millionaire Next Door put together a set of factors that they found are the biggest indicators of who becomes wealthy. I think this best summarizes the findings of the research as well as the overall “actionable” findings from the book: i.e. the things that you and I can do to have the best chance of building meaningful wealth.

“The Seven Factors [of Millionaires]: 

  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 the right occupation.

Where The Millionaire Next Door Could Be Improved

  • Out of date – The Millionaire Next Door was first published in 1996. My main complaint is that many of the facts and figures in this book are out-of-date. There was an update to the preface, but little else in 2010. Accordingly, most of the facts and figures within the book remain the same. There is a sequel of sorts written primarily by the late Thomas J. Stanley’s daughter, Sarah Stanley Fallaw Ph.D, but that book doesn’t do a whole lot to update the findings. Ultimately, the advice and findings in this book are universal and still very applicable, even though the specific data are outdated. 
  • Missing explicit personal application – Because this is a compilation of research findings, some of the points lack specific direction. In other words, the book is somewhat lacking in specific “follow these steps to become wealthy” guidance. But to be fair, that wasn’t the direct intent of the book. The book is a compilation of traits and behaviors that are often seen in millionaires, and the reader can figure out how to adopt them.

Correlation does not equal causation – Some of the research in this book is seemingly ignored to drive a narrative, while other research is over-emphasized or stretched to make a specific point. Overall the authors seemed to make an honest and mostly-fair effort to present their findings without bias, but it naturally creeps in.