Library / Personal Development | Human Psychology

Date of review: April 2023
Book author: Thomas J.Stanley & William D.Danko
Вook published: 1998

The Millionaire Next Door: The Surprising Secrets of America's Wealthy by Thomas J.Stanley & William D.Danko

The book discusses the seven common traits among those who have accumulated wealth and is based on a multi-decade study.
Even though I have heard about this book a few times, I found the title too simple and stopped myself from reading the book until very recently. Luckily, during my one-week vacation on the Isle of Wight, I decided to visit the biggest bookshop in the coastal town of Ryde.

The shop has over 30,000 books and provides a real treasure hunt experience. Since there are mainly used books, their prices are about 70% lower, which should excite every value hunter. I bought a few books for my children and myself. The Millionaire Next Door was one of them.

The study and the results

The book's authors have been studying how people became wealthy since the 1970s. They had conducted various surveys and interviews. For the latest survey (the results of which were primarily used in the book), they interviewed more than 500 millionaires personally and in focus groups and surveyed 11,000 high-net-worth individuals. The survey had 249 questions.
Here are the eight common denominators of those who successfully build wealth:
1. They live well below their means.

2. They allocate their time, energy, and money efficiently in ways conducive to building wealth.

3. They believe that financial independence is more important than displaying high social status.

4. Their parents did not provide economic outpatient care.

5. Their adult children are economically self-sufficient.

6. They are proficient in targeting market opportunities. Find your niche.

7. The character of the business owner is more important in predicting his level of wealth than the classification of his business.

8. They chose the right occupation.

Additional characteristics

  • Most (97%) are homeowners, about half have occupied the same house for over 20 years.

  • About 80% of them are first-generation millionaires.

  • Only a minority of them drive the current-model-year car, and only a minority ever lease their motor vehicles.

  • They tend to have "go-to-hell funds". They have accumulated enough wealth to live without working for at least ten years.

  • They save at least 15% of their earned income.

  • They are fairly well educated, with only one in five not having a college degree. They believe education is extremely important for them, their children, and their grandchildren. While only 17% of them have attended a private school, 55% of their children are currently attending or have attended private schools.
The relationship between education and wealth is negative. High-income individuals are significantly less likely to hold graduate degrees…Millionaires typically indicate on our survey 'business owner' with 'some college', 'four-year college graduate', or 'no college'.


Perhaps unsurprisingly, the millionaires in the survey are fastidious investors. On average, they invest about 20% of their household income each year. 79% have at least one brokerage account, and most make decisions themselves.

Nearly all millionaires own stocks (95%), but on average, they have just above 20% of their net worth in publicly traded stocks. "They rarely trade and don't follow the ups and downs of the market day by day. Most don't call their stock brokers each morning to ask how the London market did."

Unlike a typical investor in the stock market, only 9% of surveyed millionaires own stocks for less than a year. 42% of them had made no trades whatsoever in their stock portfolios in the year prior to the interview. 32% hold their investments for more than six years. 20% and 25% hold between 1-2 and 2-4 years. 13% between 4-6 years.

Supporting their children

The book uncovers some of the mistakes millionaire parents make when it comes to supporting their children. For example, many are willing to help their children financially for a long time. According to the authors, however, a gift precipitates more consumption than saving and investing. Gift receivers never fully differentiate between their wealth and their parents' wealth. Such children end up being more dependent on credit.

According to the authors' study, children who received wealth from their parents tend to have 19% lower net worth than those who have not received a gift and 9% lower annual income.

Interestingly enough, the authors also give some advice for parents. For example, they advise not to mention to their children that the parents are wealthy, trying to teach them frugality and discipline instead.

The right occupation?

The authors have not identified a single business associated with millionaires: "You can't predict if someone is a millionaire by the type of business he's in."

As they noted:

"After twenty years of studying millionaires across a wide spectrum of industries, we have concluded that the character of the business owner is more important in predicting his level of wealth than the classification of his business."

One of the characteristics of millionaires is that they spend less time worrying about things. There are also fewer problems they worry about. The time saved is spent on solving problems instead.

As Peter Lynch wrote in his books, the authors point out that "dull" businesses can consistently perform well for their owners (e.g. auto parts, building materials). According to the authors, "these industries don't sound very exciting. But typically it's these mundane categories of businesses that produce wealth for their owners. Often dull-normal industries don't attract a great deal of competition, and demand for their offerings is not usually subject to rapid downturns."

The importance of wife (and husband)

As a married man, I would like to finish this book review with a reference to the role of a partner in a family. As the authors stated, "Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth in one of its members is a hyperconsumer. This is especially true when one or both are trying to build a successful business. Few people can sustain profligate spending habits and simultaneously build wealth."

Actionable Advice

1. Build frugal habits from the early years.

2. Don't buy status. Buy freedom instead.

3. Invest in businesses with a long-term horizon, don't just trade stocks.

Thank you for reading this book review.

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