Title: The Millionaire Next Door
Author: Thomas J. Stanley and William D. Danko
Publisher: Longstreet Press
Publication Date: 1995
Summary: In the United States, most wealthy individuals don’t live in Beverly Hills or on Park Avenue. They live next door in middle-class neighborhoods. The tiny minority of America’s wealthy individuals usually don’t have advanced degrees and seldom receive an inheritance. They bargain-shop for their cars and clothes, and they reject the flashy lifestyles of the glamorous that most people think of as rich. In fact, they behave quite differently than the majority.
Are You an UAW or a PAW?
For those of you who haven’t read The Millionaire Next Door yet, you are probably unfamiliar with the acronyms, UAW and PAW, which are littered throughout the book. UAW refers to an Under Accumulator of Wealth, and PAW is a Prodigious Accumulator of Wealth. The books has plenty of stories from both sides of the wealth equation that will certainly scare the crap out of you and your future self if you have the lifestyle and traits of a UAW or will make you pat yourself on the back if you are living the PAW life.
In case you haven’t noticed, the way to become the millionaire next door is to leave the ways of UAW behind and follow the path toward PAW greatness. The best way to know if you are Team UAW or Team PAW is to calculate your actual net worth and compare that number to what your net worth should be at your age and with your income. According to the authors, the following rule of thumb provides one’s expected net worth:
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
Did you just get out your handy dandy calculator and determine what your net worth is supposed be? Were you shocked at the number? Were you frightened by how many zeroes are in that number? Did you just come to the realization that you are probably an UAW? Well, if you answered yes to those question, fear not, my friend, because you are not alone. I, too, am an UAW because my net worth should be around $200,000, but my Mint account reminds me almost everyday of my negative wealth. However, I am on my journey toward financial freedom, and this book has given me some guidance to reach that ultimate goal.
The Magnificent Seven
The best take away from the book is actually in the introduction, which gives the seven common characteristics of wealthy individuals based on the research conducted for the book:
1. The “Millionaire Next Door” lives well below their means and is not spending all of their income.
2. They spend their time, energy, and resources in ways that contribute to growing their wealth.
3. To them, financial independence is more important than looking like the stereotypical millionaire driving a fancy car and living in a McMansion.
4. They do not depend on their parents for financial support them as an adult.
5. They raise children who are also financially self-sufficient.
6. They seek the right opportunities to gain wealth.
7. They work in a field that is conducive to building and growing wealth.
The book expands on these concepts with data, tables, charts, and anecdotal stories about PAWs and UAWs. If you’re a PAW, you are probably already doing most if not all the tips and suggestions in the book. If you are a UAW, then this book will definitely be the wake up call you need to inspire and motivate changes in your mindset and lifestyle.
The Millionaire Next Door is a staple in the literary world of personal finance, so it’s never a bad idea to give this book a spin if you’re looking to increase your financial literacy. However, the book does not present any groundbreaking ideas. The information is common sense, but it is benefited with supporting data, which give more heft to the authors’ arguments. Also, do not expect this book to give a step-by-step play on how to become a millionaire. This is more of a reference book that provides characteristics that you may want to adopt if your goal is to reach millionaire status.
The Final Grade
Laborious Literature : This was a much longer read than my last personal finance read, so it took more than an afternoon to get through it. The book is full of useful nuggets of information, but there are parts of the book that were unnecessarily detailed, like the car buying section and the list of the businesses and occupations of these self-made millionaires, which seems to be every known occupation and proves that the job is not what is keeping us from reaching millionaire status.
So…have you read The Millionaire Next Door? Are you an UAW or a PAW? Let us know in the comments! |RL
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