Book Review: “The Millionaire Next Door”

Hi friends!

I am an avid reader and enjoy switching up the books I read to keep myself from getting too bored with one particular genre.  Lately, I’ve been mixing it up by adding personal finance books.  I recently finished “The Millionaire Next Door” by Drs. Thomas J. Stanley and William D. Danko.  This book was written in 1996 but its advice and concepts remain timeless.  Here are a few highlights from the book:

-The terms “UAW” and “PAW” – A UAW is an under accumulator of wealth and a PAW is a prodigious accumulator of wealth.  Obviously, the goal is to become a PAW, not a UAW, although most people, even those with what would be considered high incomes, fall into the UAW category.  This leads me to my next point.

-Income does not equal wealth.  You aren’t wealthy if you have a high income but spend all of it.  This seems to be one of the major misconceptions about wealth in our society.  If you have a huge home, a fancy sports car, and all the latest toys and gadgets, you must be wealthy.  Not true.  You are wealthy when your income and investments equals much more than your debts.

-We are conditioned to believe that wealth and hyperconsumption go hand-in-hand.  We think that people who regularly make these high dollar purchases are wealthy, but that is a fallacy.  They may have these but are drowning in debt and have a negative net worth due to hyperconsumption.

-The large majority of the rich live well below their means.  Most Americans think they are emulating the rich by immediately consuming any upward swing in their cash flow.  It is easy to fall victim to lifestyle inflation.  If you get a raise at work or create a new income stream, rather than spending that money on a major trip, a bass boat (as Dave Ramsey would say), or some other unnecessary purchase as opposed to investing the money or putting in a high-yield savings account.  Personally, I don’t think it’s wrong to treat yourself every once in awhile, but it can’t become a habit every time you have a small windfall.  If you make $75,000 but live on $30,000, that leaves a lot left over to help you accumulate wealth.

-Being frugal and not wasteful is the cornerstone of wealth-building.  I think this is key and how I try to live my life when possible.  I am all for small things I can do to save money because it truly does add up.  A good example of this is the couponing I do.  Some may find it time consuming, but I do not.  I think I have a solid strategy that allows me to spend a small amount of time every week or two to plan my shopping, and through this I am often able to save 50-75% or more on household products, beauty supplies, and some groceries.  Another great thing about this is being able to have a small stockpile of supplies so I do not find myself running to the store a few times per week because I’m out of shampoo, paper towels, etc.

-The most successful business owners are the ones who put much of their own resources behind their ventures.  Many succeed because they have to succeed – there is no safety net.  It’s their money, their product, their reputation and they have no one else to rely upon for their success or failure.  While I am not a business owner (yet, anyway – I’ve always thought it would be fun to have my own home organizing/cleaning business), I find this to ring true in other aspects of life as well.  I’ve said before that in college, I was pretty much on my own.  I did not have my parents as a safety net.  I am proud to say I funded 100% of college on my own through finding, applying for, and receiving grants and scholarships and by working 25+ hours every week.  I had a vested interest in my education and knew that I was entirely responsible for my future.  Taking on this responsibility at a relatively young age has set me up for success in life.

Have you read this book?  What were some of your favorite concepts?  Did you disagree with anything the authors wrote?

~Autumn

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