Book Review: The Millionaire Next Door

Most of you have probably heard of The Millionaire Next Door:  the Surprising Secrets of America's Wealthy by Thomas Stanley and William Danko.  Today's financial climate is a good time to review its points. 

The authors state that many people who live in expensive homes and drive luxury cars don't actually have much wealth.  Also, many people who have a lot of wealth don't live in upscale neighborhoods or buy expensive things. {tobuy} 

The authors say that the ones who become wealthy live well below their means.  Their parents and spouses are also very frugal.  They allocate a lot of their time, energy, and money to building their wealth.  They believe that financial independence is more important than displaying high social status.  Most of them did not get money from their parents.  And, their children are also economically self-sufficient.  They are experts in targeting marketing opportunities, and they chose the right occupations.

The authors believe that wealth takes discipline, sacrifice, and hard work.  Most of the wealthy were not born into money.  They are typically married with kids and self-employed or professionals.  Most have college degrees and believe strongly in education for their kids.

What can you do if you want to be a millionaire?  Earn and invest early in your life.  Be frugal and develop an annual budget.  Keep track of all of your expenses.  Make definite financial and career goals.  Spend a lot of time planning your financial future.  You need to minimize your taxable income and maximize your unrealized income (wealth or capital appreciation without cash flow).  Consider tax-free municipal bonds, tax-sheltered real estate, or stocks with unrealized gains.  Never buy a home with a mortgage over twice your household's total annual realized income. 

The authors' advice for parents:
Teach your children discipline and frugality.  Don't tell your children that you are wealthy until they have started their careers and are already self-sufficient.  Don't discuss their inheritance with them.  Don't bribe them with money.  Don't meddle in their family affairs.  Emphasize their achievements, and make sure they know that health, happiness, family, self-reliance, and friends are more important than money. 

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