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The Millionaire Next Door by Thomas J. Stanley and William D. Danko.
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Most Americans have many misconceptions about wealth. They don’t know how to define it or what it takes to become wealthy. They have a misleading image of millionaires and how they live.

In The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko counter the myths and sketch a surprising portrait of the average millionaire, who could be living in your own neighborhood. They assert that many more Americans could become millionaires by adopting the habits and traits common among them.

For decades, the authors studied and profiled America’s millionaires—the 3% of the population with a net worth of more than $1 million, who account for more than half the country’s personal wealth. Although this book was first published in 1996, the principles the authors identify for how to accumulate wealth and ultimately achieve financial independence are still applicable.

The popular image of a wealthy person in the U.S. is someone who has a high-income occupation, or who benefited from an inheritance or windfall—for instance, an athlete with a multimillion-dollar contract. He displays all the status symbols of wealth, including a big house, expensive vehicles, expensive clothing, and private schools for his children. But that image describes a big spender rather than an accumulator of wealth.

What Is Wealth?

Wealth is different from income. Your income is what you earn; your wealth is what you accumulate. If you make a lot of money and spend it all, you’re not wealthy—you’re living a high-consumption lifestyle.

When it comes to wealth, appearances can be deceiving. High-income people can work hard, yet live paycheck to paycheck, not accumulating any wealth—and hard-working people with modest incomes can accumulate great wealth.

Many higher-income people wonder why they aren’t rich—they feel they can barely keep up with expenses. Many lower-income people feel the same way. Neither type of household could survive more than a few months without a paycheck.

But if you start young and embrace the right habits, you have a better chance of accumulating enough wealth to become a millionaire than you do of winning the lottery.

Characteristics of the Wealthy

The millionaires in this book could maintain their lifestyles for years without a paycheck—they’re financially independent. They didn’t inherit their wealth from their families. More than 80% of them accumulated it over their own lifetime. They’re self-made businesspeople who have lived in the same town most of their adult lives. They own a business and live in a modest neighborhood. The key to their success is living a lifestyle that makes it possible for them to build wealth.

The authors’ research found average millionaires share these characteristics:

  • They live beneath their means.
  • They use their time and money efficiently to build wealth.
  • They prioritize attaining financial independence over displaying social status.
  • They’re skilled at identifying investment opportunities.
  • They chose the right line of work.

In addition:

  • They didn’t inherit their wealth; they built it—80% are first-generation millionaires.
  • Many are self-employed. They’re entrepreneurs or professionals in unexciting fields—for instance, they may be welding or paving contractors, factory owners, accountants, or auctioneers.
  • They’re extremely frugal and budget their expenses. Their total annual realized (taxable) income is less than 7% of their wealth, meaning they spend less than 7% of their wealth a year.
  • On average, they invest 20% of their realized household income a year. They accumulate wealth by investing in assets that will grow, while reducing taxable income.

The bottom line is that building wealth and becoming financially independent takes hard work, frugality, and discipline.

Are You As Wealthy As You Should Be?

A way to assess your own wealth is by calculating what your net worth should be based on your income and age.

The greater your income, the greater your net worth should be. Also, the older you are—that is, the longer you’ve been earning income—the greater your net worth should be. For people your age, earning the same income as you, there’s an expected level of net worth. If your net worth is significantly below that level, you're probably living a consumption-oriented lifestyle; if your net worth is significantly above the level for your age/income category, then you’re wealthy.

Here’s how to calculate how much you should be worth:

  • Multiply your age by your realized (taxable) annual income
  • Divide by 10

For example, for a 61-year-old with an annual income of $235,000, her net worth should be $1,433,500 ($235,000 X 61 divided by 10).

Similarly, for a 41-year-old with an earned income of $143,000 plus $12,000 investment income, his net worth should be...

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The Millionaire Next Door Summary The Millionaire Next Door Guide Introduction

Most Americans don’t understand wealth.

  • They don’t know how to define it.
  • They don’t understand what it takes to become wealthy.
  • They have a misleading image of millionaires and how they live.

In The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko counter the myths and sketch a surprising portrait of the average millionaire that could resemble someone living in your neighborhood. They assert that many more Americans could become millionaires by adopting habits and characteristics common among millionaires.

For decades, the authors studied and profiled America’s millionaires—the 3% of the population with a net worth of more than $1 million, who account for more than half the country’s personal wealth. Although this book was first published in 1996, the principles the authors identify for how to accumulate wealth and ultimately achieve financial independence are applicable today.

The popular image of a wealthy person in the U.S. is someone in a high-income occupation, or someone who benefited from an inheritance or windfall—for instance, an athlete with a multimillion-dollar contract. He displays all the status symbols of wealth,...

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 1: Who Is the Millionaire Next Door?

High-income people who spend freely and ostentatiously fit the Texas description, “big hat, no cattle.” In other words, they put on a show, but lack substance—they have very little accumulated wealth.

In contrast, those who are truly wealthy typically don’t flaunt it—for instance, they don’t wear expensive clothing or jewelry, or drive luxury or even late-model cars. They aren’t interested in status symbols.

The authors’ research paints the following picture of the average millionaire:

  • They didn’t inherit their wealth: 80% accumulated their wealth in their lifetime.
  • Many are self-employed. They’re entrepreneurs or professionals in non-flashy fields—for instance, they may be welding or paving contractors, factory owners, accountants, or auctioneers.
  • They live below their means. For instance, they live in modest-looking, rather than showy, homes. They wear non-brand name clothing and accessories, and often drive used cars.
  • They’re extremely frugal and budget their expenses. Their total annual realized (taxable) income is less than 7% of their wealth, meaning they spend less than 7% of their wealth a year.
  • On average,** they invest 20% of...

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Shortform Exercise: Do You Have Millionaire Habits?

Contrary to popular belief, many millionaires live below their means, spend frugally and budget their expenses, invest 20% of their income, and are self-employed in unexciting fields such as paving contracting and accounting.


Does this description match your picture of a millionaire? Why or why not?

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Shortform Exercise: What’s Your Net Worth?

Your expected net worth is what you should be worth, given your income and age. It gives you an idea of whether you’re a spender or an accumulator of wealth. Calculate your expected net worth as follows:

  • Multiply your age by your realized (taxable) annual income
  • Divide by 10


Calculate your expected net worth. Does the result surprise you, or is it about what you expected? How does it compare to where you are now?

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 2: Waste Not, Want Not

The word that best describes many millionaires is “frugal,” which means using your resources economically and not being wasteful.

However, frugality has a bad name in our consumption-oriented society, which celebrates lavish lifestyles. For instance, we often admire celebrities and millionaire athletes for their gaudy mansions and expensive tastes. But while they’re millionaires in terms of income, most highly paid athletes are UAWs.

For example, a ballplayer might make $5 million a year but only have a net worth of $1 million—he should actually be worth $15 million or more. He shows off his wealth instead of building it. His millionaire status is probably temporary.

If such an under-accumulator of wealth gets an increase in income, he spends it. UAWs opt for immediate gratification. They view life as a game show where winners enjoy quick cash and showy gifts such as large boats. (Game shows are about instant gratification—they don’t offer anything of long-term value like tuition money.)

In contrast, not spending—being frugal—is the foundation of wealth-building.

The Frugal Millionaire’s Lifestyle

The typical millionaire’s frugal lifestyle wouldn’t make a...

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Shortform Exercise: How Frugal Are You?

Millionaires are typically very frugal: they live below their means, budget their expenses, know what they’re spending on basic needs, and minimize income taxes by investing 20% in assets that appreciate without generating taxable income.


How would you describe your lifestyle and spending habits?

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 3: Use Time and Money Efficiently

To build wealth, you must use time and money efficiently. Prodigious accumulators and under-accumulators take vastly different approaches.

  • Prodigious accumulators spend significantly more time budgeting expenses and planning investments, which enable them to accumulate wealth. As a result, they don’t spend time worrying about a precarious financial future.
  • In contrast, high-income under-accumulators of wealth focus on maintaining their present high-consumption lifestyle. They don’t control or budget expenses, and they don’t spend nearly as much time as prodigious accumulators in planning investments. As a result, under-accumulators worry about not being able to live comfortably in retirement.

Investment Planning

Smart planning is essential to wealth accumulation. Wealthy people spend a significant amount of time—8.4 hours a month or 1.2% of their time—planning their financial future. They do regular planning each month and prioritize managing their financial assets over other activities.

High-income under-accumulators—many busy doctors are a prime example—feel they don’t have adequate time to plan their financial future. Compared to millionaires, they...

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Shortform Exercise: Improve Your Game

Building wealth is similar to playing football. You have to play both great offense and great defense—move the ball by generating income and by smart planning and budgeting, and hold the defensive line by controlling your spending.


In terms of accumulating wealth, are you better at offense or defense? In what way?

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 4: Why Millionaires Drive Used Cars

Millionaires believe financial independence is more important than displaying social status. Consequently, millionaires don’t drive high-status vehicles. They often buy quality vehicles that are several years old, and they never lease or finance them.

In addition,

  • Fewer than 25% drive a current year model.
  • Only 23% of millionaires own new cars.
  • A quarter haven’t bought a car in four or more years.
  • 37% buy used vehicles.
  • 80% purchase rather than lease.

Millionaires understand that new cars are overpriced. Buying a two- or three-year-old car is a bargain because the original owner has paid for the steepest depreciation. Many millionaires sell these vehicles in a few years and get nearly what they paid for them.

In the 1990s, when this book was written, most millionaires favored full-sized American-made vehicles, which...

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Shortform Exercise: Assess Your Ride

As part of being frugal, many millionaires buy quality used cars that are several years old, rather than new cars or luxury vehicles that convey status. That way, they don’t pay as much for depreciation, and they don’t pay thousands of dollars simply for the pride or status of having a flashy vehicle. They tend to keep their vehicles for four more years.


What does a car mean to you? Do you judge yourself and others by what you or they drive? Why or why not?

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 5: Adult ‘Child Support’

Many millionaires give their adult children and grandchildren gifts—for instance, tuition or home purchases—as well as ongoing subsidies throughout their lives. This chapter looks at how the gifts affect both the givers and recipients.

While most millionaires accumulated their wealth over a lifetime by working hard, being frugal, and investing, they aren’t necessarily frugal in providing gifts and subsidies to their adult children and grandchildren. Nor do they always instill in their children the virtues that made them successful accumulators of wealth.

Research for this book shows that:

  • Over 46% of millionaires give at least $15,000 a year to adult children or grandchildren under 35. (Givers reported giving more gifts in higher amounts than recipients reported receiving.)
  • Nearly half of adult children of the wealthy get annual cash gifts
  • One in five receives gifts in their forties or fifties
  • As the parents age, they increase the number and size of gifts to reduce the estate tax after they die. Each parent can legally give $15,000 a year per child tax-free.

Among the purposes:

  • 61% of millionaires have provided “forgiveness loans” (money loaned that...

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 6: Wealth Distribution to Heirs

Most wealthy parents try to reduce their estate before they die to minimize the estate tax their heirs must pay. This requires deciding how to distribute their wealth among multiple children.

When children are young, parents usually plan to divide the estate among them equally. But differences develop as children get older: some seem to need more financial help than others, and so parents treat them differently when distributing wealth.

Research shows that:

  • Unemployed adult daughters and adult sons get the most support and greatest share of the estate. Financially independent siblings get less.
  • The most successful adult children may get nothing at all.
  • Daughters who are stay-at-home wives get the most—they’re three times more likely than siblings to receive a larger inheritance.
  • In contrast, daughters who work full time are less likely to get cash gifts and inheritance than non-working sisters.
  • Working daughters are still more likely to get gifts and inheritance than brothers who are financially successful.

Unemployed Adult Daughters

There are several reasons wealthy parents typically give more gifts and a greater inheritance to...

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 7: Follow the Money—And Get Rich too

While they’re frugal in lifestyle, millionaires spend considerable money on things important to them. This creates opportunities for others to make money by catering to those needs. The wealthy need quality advice and services—for instance, accounting, tax advice, legal services, medical and dental care, education, and home services.

If you’re in a business or profession in demand among the wealthy, you can boost your income by targeting wealthy clients. The opportunities are increasing as the number of millionaires continues to grow. (Shortform note: There are about 11.8 million millionaire households in the U.S. There were big jumps in the number in 2013 and 2017. The bull market has been a major factor.)

Besides needing personal services, millionaires who are self-employed also buy business and industrial supplies and services, office space, and technology.

Also, remember that the wealthy often aren’t frugal when spending on children and grandchildren. Nor are their children frugal in spending the subsidies they get from their wealthy parents. Each parent can give a child and grandchild up to $15,000 a year tax-free. This means a couple with three children and six...

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The Millionaire Next Door Summary The Millionaire Next Door Guide Chapter 8: Self-Employed Millionaires

As previously noted, 80% of millionaires are self-employed, compared to 15% of the general population. Put another way, self-employed people are four times more likely to be millionaires than those who work for others. (Of course, most business owners aren’t wealthy; many don’t make a profit.)

Those who own businesses in more profitable industries by definition make more money, although once-profitable industries can go into decline (for instance, the coal industry) as a result of external factors. Even having a profitable business isn’t a guarantee of wealth—regardless of your income, you won’t accumulate wealth if you’re an undisciplined spender.

That said, if you’re frugal, invest, and own a profitable business, you have a good chance of becoming wealthy.

The Challenges and Benefits of Self-Employment

Self-employed millionaires understand the challenges and risks of running your own business. For that reason, fewer than one in five millionaire entrepreneurs hand their business over to their children to operate.

Instead, they urge their adult children to take a less risky path and become self-employed professionals, such as doctors, attorneys, engineers,...

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Table of Contents

  • 1-Page Summary
  • Introduction
  • Chapter 1: Who Is the Millionaire Next Door?
  • Exercise: Do You Have Millionaire Habits?
  • Exercise: What’s Your Net Worth?
  • Chapter 2: Waste Not, Want Not
  • Exercise: How Frugal Are You?
  • Chapter 3: Use Time and Money Efficiently
  • Exercise: Improve Your Game
  • Chapter 4: Why Millionaires Drive Used Cars
  • Exercise: Assess Your Ride
  • Chapter 5: Adult ‘Child Support’
  • Chapter 6: Wealth Distribution to Heirs
  • Chapter 7: Follow the Money—And Get Rich too
  • Chapter 8: Self-Employed Millionaires