Lessons From The Millionaire Next Door Other Cool & Meaningful Topics Personal Management Stewardship
Do you have a goal of becoming financially secure? Do you know what that will look like?
The book The Millionaire Next Door written by Thomas J. Stanley and William D. Danko hit bookshelves in the late 1990’s, and although it is a snapshot with loads of data about millionaires in that era, it still has valuable principles well worth applying today. It is not a “how to” book, for certain, but more a research paper examining habits of millionaires.
Today I will share with you these highlights from the book The Millionaire Next Door:
- The Definition of Wealth
- The Seven Factors Most Millionaires Have in Common
The Definition of Wealth
The main premise of the book is that most Americans have a skewed view of what being wealthy looks like. We have been conditioned by the media to believe the wealthy must drive certain types of cars, live in certain neighborhoods, wear designer clothes, basically living a life of material consumption.
However, if material consumption is your goal, it is unlikely that you will become wealthy. Stanley and Danko define being wealthy in this way:
- They own substantial amounts of appreciable assets
- They can sustain themselves for 10 years without working
- They live on less than 7% of their wealth
- Wealth = Multiply your age times your realized pretax annual household income from all sources except inheritance. Divide by 10. This, less inherited wealth, is what your net worth should be.
Is this different than your definition of wealth? This gave me a lot to think about! What appreciable assets can you plan on obtaining? (Check out my article about the difference between Liabilities and Assets) How much will it take to sustain yourself financially for ten years?
With a definition like this, it is obvious we cannot be spending most of our income on a large house and fancy cars and neglecting to build appreciable assets. We must live below our means, my friend!
The Seven Factors Most Millionaires Have in Common according to Stanley and Danko:
- They live well below their means.
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth. (They spend time budgeting and planning finances!)
- They believe financial independence is more important than displaying high social status.
- Their parents did not provide economic outpatient care. (great monetary gifts)
- Their adult children are economically self-sufficient.
- They are proficient in targeting market opportunities.
- They chose the right occupation.
These factors made sense to me, although they are not always easy to do. Obviously, these take great self-discipline and resolve. I know of too many friends who are still supporting their adult children, for instance.
I believe living below our means is the crucial first step, so I have devoted a full article to that topic for next time. Check it out!
Reread each factor and let them sink in. Think about how you have defined wealth. Are you willing to commit to living these seven factors?
Check out this excellent video that sums up this idea of what the truly wealthy do!