"The Millionaire Next Door"

Closer than you might think.

There are more millionaires in America today that at any time in the past, and it's not just because of inflation. "The Millionaire Next Door" exhaustively examines who these people are, how they live, and why most of us have completely wrongheaded ideas about the millionaire lifestyle.

Here's how it begins:

Twenty years ago we began studying how people become wealthy. Initially, we did it just as you might imagine, by surveying people in so-called upscale neighborhoods across the country. In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.

The book's central theme is that income is distinct from wealth. Spent income is just consumption; income has to be saved and invested to build wealth. The authors call earned income "offense" and savings "defense" – a family might pull down $1M+ a year (good offense) but if they don't save any more than most Americans (poor defense)¹, they'll have just as hard a time in retirement as almost everyone else.

Each chapter gives a slightly different picture of how millionaires live. Contrary to popular belief, most of them are self-made; most are frugal; most do not drive around in expensive cars filled with designer merchandise. The authors provide many contrasting examples of similar families with huge differences in accumulated wealth. One of the most memorable was two families of doctors, both about the same age and making over half a million a year, but on very different paths. The family that cared about appearances and status spent hundreds of thousands a year on clothing, automobiles, country club memberships, and home payments, while the other family were multimillionaires because they had different priorities, and crucially, a different peer group.

In a sense, the book is a thoroughly-researched argument against consumption. After a point it felt almost like I was listening to a song or reading a poem – let's call it Achieving The American Dream – with each chapter a verse and frugality the refrain.

Sadly, Thomas Stanley passed away last year after another car slammed into his at an intersection. The media expressed some consternation over his choice of vehicle² (a corvette is not a frugal ride), so I can only conclude that they missed the most important quote from the entire book:

Money should never change one's values.

It's a mistake to pursue wealth for its own sake. The point of saving isn't to lead a life of deprivation: the point of saving is to reach one's goals as soon as possible and live a lifestyle consonant with one's values for as long as possible. Stanley will be remembered for having set people on the path to do just that.

My highly subjective rating: I didn't find the thesis and evidence particularly surprising³, as I'm already on board. However, if other readers haven't thought much about wealth-building, this book just might change their lives.


1 The latest research I've seen pegs the U.S. savings rate at around 5% of annual income, meaning it takes 19 years to save one year's worth of spending, or 13 years 9 months assuming 5% annual compounding (thanks math). (back)

2 e.g. Paying Tribute to Thomas Stanley and His ‘Millionaire Next Door’ (NYT) (back)

3 "Preaching to the frugality choir," to coin a phrase. (back)