Last updated on August 9, 2023
“The Millionaire Next Door: The Surprising Secrets of America’s Wealthy” is a 1996 book by Thomas J. Stanley and William D. Danko. The book presents the results of a study of millionaires in the United States, based on data collected by Stanley and Danko through surveys and interviews.
The book offers insights into the habits and characteristics of wealthy individuals and families. And argues that many of the stereotypes associated with the wealthy are inaccurate. Let’s go over the main characteristics as explained in the book.
What you'll learn:
⓵ Key 9 wealth secrets
❖ Self-made with working-class backgrounds
The first point in “The Millionaire Next Door” is that most millionaires in the United States are self-made. Meaning that they’ve built their wealth through their own efforts (rather than inheriting it). They come from middle-class or working-class backgrounds. And not from wealthy families (no excuses). And have often worked their way up from humble beginnings.
The book argues that many of the stereotypes associated with the wealthy, such as the idea that they all inherited their money or that they are all “trust fund babies,” are inaccurate.
The data shows that many millionaires in the US are entrepreneurs, professionals, or managers. These are individuals who started their own businesses or climbed the corporate ladder to senior management positions.
They’ve often built their wealth through hard work, determination, and a focus on saving and investing. Also, they are often highly educated, with many having at least a college degree. And strong family values too.
Entrepreneurship is a key driver of self-made wealth, these individuals take calculated risks and create new enterprises that can generate revenue and jobs. They are often the engines of economic growth and innovation, creating new markets, new products, and new services.
Professionals like doctors, lawyers, and accountants are another group of self-made millionaires. They’ve achieved high levels of education and got specialized skills that are in high demand. They often have stable and well-paying careers. And their high income allows them to save and invest heavily, building wealth over time.
Managers and executives are another key group of self-made millionaires. They often start their careers as employees in various fields. But through hard work and smart decision making they move their way up to senior management roles where they receive salaries, bonuses, and options that allow them to accumulate wealth.
In other words, take control of your destiny by working hard (and smart) with determination. Try to increase your income. But also try to come up with your own ideas to expedite the process. And never forget to save and invest in appreciating assets.
❖ Live modestly and avoid flashy things
The second point in “The Millionaire Next Door” is that millionaires are more likely to live in modest homes (yeap). Drive practical cars (no Lambo). And avoid flashy/expensive clothing and accessories (no bling bling either).
This is in contrast to the stereotypes of the wealthy, who are often portrayed as living in luxurious mansions, driving fancy sports cars, and wearing designer clothes.
Also, many millionaires live in homes that aren’t particularly large or luxurious. And are often in middle-class or working-class neighborhoods. They often choose to live in modest homes to save money and invest in other assets, such as real estate or stock portfolios.
They avoid spending money on expensive homes, as they understand that these things don’t generate revenue or appreciate in value, instead they focus on assets that appreciate over time. Yes, your home isn’t an asset if you choose to live in it.
The same is true for their cars, millionaires are more likely to drive practical and reliable cars, rather than expensive sports cars or luxury vehicles. They understand that a car is a depreciating asset and that buying a new or expensive car won’t appreciate nor generate revenue. So they focus on appreciating assets instead.
In the same way, they avoid flashy or expensive clothing and accessories, preferring to invest their money in things that will generate revenue or appreciate in value. They understand that money spent on clothes and accessories is money lost which could be used to buy assets instead.
All in all, live a frugal lifestyle, avoid depreciating things, and focus on accumulating appreciating assets.
❖ Work hard, save, and invest
The third point in “The Millionaire Next Door” is that many millionaires have a high net worth due to frugal spending habits, hard work, and a strong focus on saving and investing. And own real estate and their own businesses.
One of the key habits that many millionaires have is a frugal lifestyle. They are careful with their money and avoid unnecessary expenses. They are disciplined in their spending and focus on saving and investing a significant portion (a small simply won’t cut it) of their income. And thus are able to amass significant wealth over time.
They understand the importance of investing for their future and aim to save at least 20-25% of their take-home pay (I personally try to save at least 50% of my after-tax income). But they also put in the time and effort to learn how to invest wisely.
Another key habit is hard work. Millionaires often have a strong work ethic and put in the time and effort necessary to succeed in their careers and businesses. They are driven and willing to take risks to achieve their goals. They understand that accumulating wealth takes time and hard work. And they’re willing to make the sacrifices necessary to achieve their financial goals (you see, nothing comes for free).
Real estate is often a favorite investment among millionaires, as it has the potential to generate rental income and appreciates in value over time too. Additionally, owning a business can be a great way to build wealth, as it allows individuals to generate revenue and profits for themselves, rather than just working for a salary. They are often the ones who take the greatest financial risks, which can lead to the greatest financial rewards.
❖ Avoid bad debt and invest in assets
The fourth point in “The Millionaire Next Door” is that many millionaires tend to avoid consumer debt. They understand that taking on unnecessary debt can be a major hindrance to building wealth because of interest payments.
They avoid taking on unnecessary debt, such as credit card balances, car loans, and other forms of consumer debt. In case they have any bad debt then they focus on paying it off as soon as possible.
Millionaires also tend to have a long-term perspective when it comes to investing. They are not swayed by short-term fluctuations in the markets. They understand that building wealth takes time. And that investments need to be held for the long-term in order to reap the full benefits. So they remain patient and fully invested when bad times hit.
So, avoid consumer debt if possible. If not, then pay it off as fast as possible. And focus on investing in appreciating assets for the long term (and don’t get swayed by short-term market fluctuations).
❖ Teach the young ones early on about money
The fifth point in “The Millionaire Next Door” is that the children of millionaires are often instilled with a strong work ethic and taught to be financially responsible. They are also encouraged to take risks and become entrepreneurs, rather than seek out high-paying jobs.
They also understand the importance of hard work and teach their children the value of putting in the time and effort necessary. They often provide opportunities for their children to work and learn from an early age. Encouraging them to take on responsibilities. And learn the value of hard work.
Another key habit of many millionaires is teaching their children financial responsibility. They understand the importance of managing money effectively. And teach their children the skills they need to manage their finances successfully (this is why I’m writing a book on all things money). This includes budgeting, saving, and investing, as well as understanding the importance of avoiding unnecessary debt.
In addition, they encourage their children to take risks and become entrepreneurs. They understand that the path to wealth often involves taking calculated risks and starting one’s own business. They instill the importance of being self-reliant. And not relying on others for financial support. They also encourage them to develop and improve their skills and talents and look for opportunities to turn them into revenue-generating businesses.
So teach your kids (from an early age) the importance of hard work, financial responsibility, budgeting, saving, and investing. And don’t forget to encourage them to take calculated risks.
❖ Educated with strong family values
The sixth point is that millionaires tend to be highly educated, with many having at least a college degree. And they also have strong family values.
A high level of education is positively correlated with wealth. They understand the importance of knowledge and education in achieving success. And this is why they invest time and effort into their own personal and professional development.
Another key characteristic is strong family values. They understand the importance of family and the role it plays in supporting and nurturing individuals. They value family time and prioritize it over other activities. They also often pass on their values to their children, teaching them the importance of hard work, financial responsibility, and the value of family.
Additionally, family values also play a key role in the way they manage their wealth and their relationship with money. They understand that money is a tool to help them achieve their goals and provide for their family. But they don’t put money above family values (never do that). And won’t make decisions that go against their values. Even if it means a short-term financial sacrifice.
So, spend time with your family. This is why you need the money in the first place. To be free to enjoy life with those you love. Use your wealth to support and nurture your families. And never let money come in the way.
❖ Forget luck
The seventh point is that not all wealthy individuals are successful because of inheritance or luck. Many wealthy individuals are self-made, meaning they have built their wealth through their own efforts. And not by inheriting it.
They’ve often worked their way up from humble beginnings. So luck (or chance) had nothing to do with it. Success is the result of a combination of factors, including hard work, determination, education, and smart investing. Therefore, success is the result of following a set of habits and principles that anybody can learn and apply. Yes, some may have a head start over others. But still, that shouldn’t stop you from getting started.
❖ High income is not enough
The eighth point is that the true path to wealth isn’t through high income (nobody got truly wealthy by working for someone else I guess, right?). But through frugality, investing, and taking calculated risks.
High earners are unable to accumulate wealth simply because they spend their money as fast as they earn it (instead of saving and investing it).
So, trying to earn more is always good. But it won’t get you to true wealth. Taking calculated risks early on will teach you valuable skills and lessons. So that you can apply to start something of your own.
❖ UAW and PAW
The ninth point is about the difference between “UAW” (Under Accumulator of Wealth) and “PAW” (Prodigious Accumulator of Wealth).
The book introduces this concept to distinguish between individuals who are able to accumulate wealth and those who are not. UAWs are individuals who earn high incomes but are unable to accumulate wealth due to their high spending habits and lack of investment in appreciating assets.
Whereas PAWs are those who (despite earning lower incomes) manage to accumulate wealth. And they do that by being frugal, investing in assets, and taking calculated risks.
Also, many UAWs have a high standard of living and often live beyond their means. They often have large homes, expensive cars, and a fondness for luxury goods. And tend to prioritize their current consumption over long-term saving and investing. They also often have high levels of consumer debt and little investment in assets.
On the other hand, PAWs have a long-term perspective and don’t have a high standard of living in the present. They also tend to have low levels of consumer debt.
So start with what you have. and try to maximize your efforts by simply cutting back on unnecessary expenses. and by focusing on accumulating appreciating assets over the long term. In other words, forget instant gratification. And don’t eat that marshmallow.
⓶ Top 7 “The Millionaire Next Door” FAQ
❖ What is the main thesis of “The Millionaire Next Door”?
The main thesis of “The Millionaire Next Door” is that the wealthy in America are often self-made, coming from middle-class or working-class backgrounds and that many of the stereotypes associated with the wealthy are inaccurate. The book argues that most wealthy individuals in the United States are not “trust fund babies” who inherited their wealth, but rather self-made individuals who have built their wealth through hard work, determination, and smart investing.
❖ What are the key habits of millionaires according to “The Millionaire Next Door”?
The key habits of millionaires according to “The Millionaire Next Door” include frugal spending habits, hard work, and a strong focus on saving and investing. Significant investments in real estate, owning their own businesses and avoiding consumer debt. And investing a significant portion of their income in assets.
❖ How do millionaires differ from the general population in terms of their spending habits?
Millionaires differ from the general population in terms of their spending habits. They are frugal, avoid unnecessary expenses, and invest a significant portion of their income (20-25% of their take-home pay).
❖ Why do millionaires tend to live in modest homes?
Millionaires tend to live in modest homes because they are frugal and avoid unnecessary expenses. They understand that their home isn’t an investment and that owning a large and expensive home can be a hindrance to building wealth.
❖ How does education level relate to wealth according to “The Millionaire Next Door”?
The book argues that a high level of education is positively correlated with wealth, with many millionaires having at least a college degree. They understand the importance of knowledge and education in achieving success. And invest time and effort into their own personal and professional development.
❖ How does the book define the difference between UAW & PAW?
The book defines UAWs (Under Accumulator of Wealth) as individuals who earn high incomes. But are unable to accumulate wealth due to their high spending habits. And lack of investment. On the other hand, PAWs (Prodigious Accumulator of Wealth) are individuals who are able to accumulate wealth despite earning lower incomes by saving, investing, and taking calculated risks.
❖ What does the book say about the correlation between high income and wealth?
The book argues that high income doesn’t necessarily equate to wealth. Because many people who earn high incomes aren’t wealthy because they spend their money as fast as they earn it. So a high income isn’t the sole determinant of wealth. The true path to wealth is through smart financial habits. It shows that those who focus on earning more and more, without being mindful of their expenses (and investing) may not be able to create wealth in the long run.
⓷ Best 5 “The Millionaire Next Door” quotes
“Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”
“Formal education can make you a living; self-education can make you a fortune.”
“The wealthy in this country are those who have invested wisely and have learned to live well beneath their means.”
“Most people have the potential to accumulate wealth. They just need to be shown how to do it and given the opportunity to do so.”
“The key to wealth is not a high income. It’s living below your means.”
Final thoughts
Overall, “The Millionaire Next Door” provides an in-depth look at the habits and characteristics of wealthy individuals in the United States, challenging many of the stereotypes associated with the wealthy and offering practical advice for building wealth through hard work, frugality, and smart investing. Feel free to read the entire book for the full experience.
It’s funny how most people think you need to inherit money or win the lottery to become wealthy. When, in reality, you already possess the skills needed. You just need to learn the rules. And apply them. It takes time (duh). And this is why most never start. But it all starts with the decision. So what are you waiting for?
