Reading Corner: A Review of The Millionaire Next Door

A Review of The Millionaire Next Door

Reading Corner: A Review of The Millionaire Next Door

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If you ever wanted to learn how the wealthy become wealthy, this book may give you the best answers you’ll ever get. Thomas J. Stanley and William D. Danko, authors of The Millionaire Next Door, spent twenty years researching how people become wealthy. Despite the lavish lifestyles of celebrities seen on TV and in magazines, the authors found that most millionaires became wealthy by leading modest, frugal lives. They posit that millionaires actually look a lot like your average next-door neighbor.

From their research, the authors discovered seven common factors of the wealthy. While following these seven principles won’t guarantee you to become a millionaire, they are good to follow if that is your goal.  Of the seven factors, I found three most relevant and easy to implement for the young adult.


1)  Live well below your means

The millionaires that the authors studied were first and foremost frugal. The authors reported that about half the millionaires had never spent $140 or more for a pair of shoes, more than $399 for a suit, or more than $235 for a wristwatch. The dollar amounts are from a number of years ago, but they reflect careful spending of the millionaires versus the non-millionaires studied. It didn’t matter how much the millionaires earned, they were careful to avoid unnecessary spending.

Being frugal in order to save your earnings is the bases of wealth accumulation, no matter what your income is. You’re better off being a teacher making $30,000 but spending only $25,000 a year than being a lawyer or CEO making $300,000 but spending beyond your earnings. You’re even better off if you have a spouse or partner who also believes in being frugal and has the same financial goals as you do.


2)  Believe that financial independence is more important than displaying high social status

The millionaires researched did not try to keep up with the Joneses. They often drove used, American-made cars, not the newest and latest model foreign cars. They shopped at stores such as Sears and JC Penny versus Neiman Marcus and Saks Fifth Avenue. The millionaires preferred low-end to luxury retail stores where they got the most value for their dollars. Interestingly enough, the authors later noted that the millionaires spent well where it mattered such as on investment and legal advice to assist them in increasing and maintaining their wealth.


3)  Allocate time, energy, and money efficiently towards building wealth

The millionaires studied were considered prodigious accumulators of wealth (PAWs) versus under accumulators of wealth (UAWs). The PAWs were found to spend nearly twice the number of hours on financial planning as the UAWs. Many of the millionaires were self-employed or had jobs such as being a doctor or accountant, not too different from non-millionaires, but they spent more time setting up a budget, tracking their income and expenditures, and researching investment opportunities in order to grow their wealth.

For the young adult, it’s often not too difficult to find a few extra hours each month to work towards building your wealth. You can probably find a few minutes during work breaks, while commuting, while waiting for food to cook, or during web browsing time.  Add up all those minutes and use them towards building a better budget and reading up on saving and investment opportunities and you’ll likely find yourself with increased wealth. 


The additional four factors to building wealth are just as important, but I’ve left them off for the sake of space and time. I would recommend reading the book though because I think all seven factors all easy to understand and reasonable to implement.

I often get some good-natured teasing for doing lots of research before making decisions and for wanting proof of something’s effectiveness before I make a change. The best thing about this book is that all seven factors have been thoroughly researched and proven to work. There’s no harm in reading about them and giving them a try.

Before I give a full two thumbs up on the book, I want to point out a few things that could be addressed or improved upon. Here are some additional considerations:


1)  The book is somewhat outdated.

This latest edition was published in 2010 while the research behind it began in the 1980s. A lot has changed since then, least of all the dollar amounts for items mentioned in the book. The authors write about self-employed men with frequent mentions of Texas, big hats, and driving American-made cars. Obviously they haven’t spent much time studying the tech millionaires of Silicon Valley.


2)  The millionaires studied lack diversity. 

The authors list the top ten ancestry groups of American millionaires based on their research and they could all be considered European except for the category of Native American.

I live in the San Francisco Bay Area, which I like to think is a pretty diverse place. A lot of people of Asian, Hispanic, and African-American backgrounds live here. While I can’t be certain that people of these groups would make the list of top ten ancestry groups of American millionaires today, I would like to read more about how people of various ethnicities and backgrounds succeed to become millionaires in this country, even if it’s only to discover that they follow the same seven factors discussed above.


3)  Cultural differences.

One of the seven factors mentioned in the book is that millionaires provided limited monetary subsidies to their adult children beyond providing for educational expenses. In my experience as an Asian-American person, Asian-American parents tend to provide subsidies to their adult children as much as they are able. This can be in the form of living at home rent-free after college, helping with the down payment on a house, or assisting with purchasing a car needed for work. Parents do it to help their children get ahead with the expectation that it will pay off for all of them in the future.

I suspect that many of the Asian-American parents that I know would frown upon hearing of this tenet of limiting financial support to their children in order to increase their own wealth, especially if they have the means to help.  Although the tenets are based on research and can be considered fact, this one doesn’t sit well with me because it goes against some of the cultural norms I see.


Despite my issues with the book, there is a wealth of knowledge in it and the main tenets are undeniable for achieving wealth. Is any of it really surprising? Probably not. It makes sense that being frugal instead of spending your money would help you become wealthy, right? The seven tenets are logical but not easy to rattle off clearly off the top of your head. And that’s why this book is so good. It’s educational and a reminder of seven things to focus on to grow your wealth. And if you like statistics, you’ll enjoy all the facts and figures given in the book too.  

Have you read The Millionaire Next Door? What do you think about the seven factors? Would you be able to follow them?


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