Skip to main content

Book review: The Millionaire Next Door: The Surprising Secrets of America's Wealthy by Thomas J. Stanley

The Millionaire Next Door: The Surprising Secrets of America's WealthyThe Millionaire Next Door: The Surprising Secrets of America's Wealthy by Thomas J. Stanley

My rating: 3 of 5 stars


Most Americans believe "wealthy" and "high-income" are synonymous. Surprisingly, most high-income earners are not wealthy; although they earn a lot of money, they don't keep much of it. To be wealthy is not to amass material possessions, but to increase net worth by collecting appreciating assets.

The book categorizes people as PAWs or UAWs; Prodigious Accumulators of Wealth (PAWs) achieve, create wealth, become financially independent, and build from scratch. Under Accumulators of Wealth (UAWs) simply display a high-status lifestyle. Most wealthy people (PAWs) don't drive new cars, buy expensive clothes, or live in upscale neighborhoods.

I read this book because it was recommended by one of my favorite financial authors, Robert Kiyosaki, author of the Rich Dad Poor Dad series. This book explains 7 factors that contribute to wealth-building. These factors aren't set forth in a step-by-step "how to become wealthy" checklist, but are more indirectly investigated through statistics and interviews explaining the behavior of the wealthy.

The briefest formula for wealth given: be frugal, invest, and own a profitable business.

I found it interesting that (as of 1996) self-employed people (entrepreneurs and self-employed professionals) are less than 20% of the American workforce, but 33% of millionaires. Also, 80% of American millionaires are 1st-generation rich, people who earned their wealth rather than inheriting it.

I liked the comparison between budgeting and dieting or exercising. When you see a fit person eating healthy or working out, you're tempted to think "Why do they need to diet and exercise? They're in great shape!" Of course, the reason they're in shape is because of their diet and exercise regimen. The same goes for the wealthy. You might think that they don't need to budget because they're wealthy, but it's often due to their budgeting that they became wealthy.

To determine your expected net worth, multiply your age by your gross (pretax) annual income, then divide by 10.

The 7 factors of wealth

They live well below their means.
Control spending by creating an artificial economic environment of scarcity. Pay yourself first by investing at least 15% of income before spending on anything else.
Minimize realized (taxable) income, maximize unrealized (non-taxable) income.
Sacrifice high consumption today for financial independence tomorrow.
Get a mortgage less than twice your annual income.

They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
Save and invest early. An early start with low income can outweigh a late start with high income.
Invest at least 15% of gross/pretax income.
Follow a budgeting and plan your finances.
Invest passively with a buy-and-hold method to reduce capital gains and turnover.

They believe that financial independence is more important than displaying high social status.
Dollars are like seeds; you can consume them or plant them to grow.

Their parents did not provide economic outpatient care.
The more dollars adult children receive, the fewer dollars they accumulate. Those forced to provide for themselves tend to be wealthier than those who are given financial aid.

Their adult children are economically self-sufficient.
Helping the financially weak generally makes them weaker.

They are proficient in targeting market opportunities.
Offer goods and services to the affluent. Although they're often frugal concerning consumer goods and services, they're not as price-sensitive about investment services, accounting services, tax advice, legal services, medical care, educational products, homes, and products and services for their businesses.

They chose the right occupation.
Sell your intellect; it's portable across industries and geographic locations.



View all my reviews

Comments

Popular posts from this blog

The difference between burritos, chimichangas, and enchiladas

I love Mexican food, but I'm embarrassed to admit that I always get confused between burritos, wet burritos, chimichangas, and enchiladas. Here are the descriptions, with the differences in bold and pictures following each description.

burrito
A flour tortilla wrapped around a filling (meat, beans, vegetables, etc)


wet burrito
A burrito that's covered in red chili sauce and cheese. Because of the sauce covering, it looks like an enchilada, but it's made with a flour tortilla, whereas the enchilada is made with a corn tortilla.


chimichanga
A burrito that's deep-fried. Sometimes covered with cheese or another topping.


enchilada
A corn tortilla wrapped around a filling, covered with chili pepper sauce


Sources
Wikipedia: BurritoWikipedia: ChimichangaWikipedia: Enchilada

Edit scanned documents with Word 2007

Office 2007 includes support for converting scanned documents to editable text using OCR (optical character recognition). To get your text from a paper document to Word 2007:
In the Control Panel, open Add or Remove Programs.Find Microsoft Office, click it, and click Change.In the Office Installation Options window, expand Office Tools, click Microsoft Office Document Imaging, and select Run from My Computer from the dropdown.Click Continue or Next until you reach the end.You can now scan documents and convert the scanned images to editable text:
From the Start Menu, find Microsoft Office, then select Microsoft Office Tools, then click Microsoft Office Document Scanning.Choose your preset and options, then click Scan.The scanned image should open in Microsoft Office Document Imaging. To perform OCR and open the editable text in Word, click Tools, Send Text to Word.You can now edit and save the scanned document as a Word document.

Considering retiring this blog

I'm seriously considering retiring this blog. When I started it in 2008, it was a place for me to share thoughts and links on a variety of topics. For at least the last year, however, it's just been a place where I re-post book reviews from Goodreads.

You can see all my book reviews on my Goodreads profile, and subscribe to my Goodreads RSS feed to be notified of new reviews. I also intend to keep blogging about WordPress, web design, and web-related topics on my OptimWise blog, which also has an RSS feed.

Would you miss this blog if I discontinued it? Please leave a comment.