Thomas Stanley and William Danko’s bestselling finance book, The Millionaire Next Door, is oft cited in places such as the reddit frugal forum and the comments section of various finance related articles. Just from my own observation, I’d say it’s the No. 1 finance book recommended on the Internet. I’ve always been equal parts worried about and interested in money due to student loans (and before that, watching the recession hit my family a bit harder than others) so it had been in my to-be-read list for quite a while when I noticed a beat-up, dated copy in a used bookstore bargain bin. When I say dated, I mean the book was written in 1996 and I was holding a 1998 printing. Everything was in 1996 dollars, and the book made a lot of “predictions” about the market and economy for the next 10 years ranged from horribly off the mark to scarily accurate. Even so, it was only a dollar, so I chose to make the investment—a wise one, I soon found out. The thesis of the book has stood the test of time even without any modern corrections.
The book assumes its readers are making a solid middle class wage and is certainly geared towards those who are earning $35,000 or greater. Even if your salary doesn’t quite hit that mark, Stanley and Danko’s advice advice all the same will help you to save a little cash now, and finesse your monetary hoarding skills until the day you join the 35k club. The thesis statement is so prevalent all the chapters seem to blend into one endless narration and because of this, the authors’ arguments can be broken into a few key points:
Don’t be an idiot.
It is commonly mentioned that you shouldn’t spend more money than you have. It’s written in headings and paragraphs; bolded in some places, italicized in others. There are entire charts backing up this standard common sense that you shouldn’t throw your money around like confetti. Nearly just as often Stanley and Danko stress that you can’t spend all the money you make, either. At the very least, you need a savings account and an emergency fund (the standard suggestion is that this be enough for 3-6 months worth of expenses). The bottom line: just be reasonable with your income. Make sure to devote something out of each paycheck for savings, even if it’s only $0.50 (though you’re not going to be a millionaire any time soon if you’re saving the bare minimum. Millionaires save as much as they can. (See No. 3 for more details.)
Don’t fall prey to consumerist culture.
Only fakers have jetskis, country club memberships, and multiple luxury vehicles. This premise threads throughout the entire book and one chapter in particular (aptly titled “Frugal, Frugal, Frugal”) spells out just how many ways keeping up with the Jones’s can spell your financial doom. Nearly as often as they stress the first point, the authors remind us that the outward appearance of wealth is not the same thing as actually being wealthy. Their years of market research prove that many millionaires do not have the standard outward trappings of wealth, but rather assume a middle or working class appearance.
One interesting if not completely absurd story on this topic involves a woman who was gifted a $9,000 rug. I know. Who even does that? She then decided the rest of the room and all of its reasonably-priced furniture looked bad compared to the rug, so she spent another $9,000 to make over her living room—to go with the rug. When asked about her financial habits later on, she complained she hadn’t been able to save a thing. Like, no, really? I wonder why.
Another example cited families who spent $10,000 dollars a year on clothes, but only put a total of $2,000 a year into their savings. The same people then worried about insufficient retirement funds. The moral of the story? If we tracked our own spending, we could potentially identify a category of costs (food, clothing, entertainment, luxury, etc.) where we can easily cut back and transfer those unnecessary costs into savings.
Hoard money like a dragon. An investment dragon.
All that aforementioned savings? Save it. Then save more. Millionaires don’t become millionaires on income alone—many do not exceed annual incomes of $100k (remember, this is in 1996 dollars, but still notable). They get rich by spending as little as possible, and then amassing their hordes of money. Perch on your money-hoard with a sword and defend your riches. Make your own lunches and save even more. Shop at dollar stores not because you have to, but because every dollar saved is another for your own personal treasure. If you are as frugal as can be, you too can be king of a treasure mound, counting your golden coins and polishing your rubies without worry.
Short of growing scales and sprouting fangs, what Stanley and Danko really suggest is to put that money into investments like a 401(k), index and mutual funds, and whatever else there is. While they don’t go into too much detail about your stock options, they emphasize the fact that you need to make your money do some heavy lifting for you instead of letting it all snooze in a savings account or under your mattress. The investments are where you really earn your money, and the more money you funnel into those investments, the better.
Money habits can be generational.
Financial dysfunctionality is hereditary. Kids of parents who are hapless spenders are much more likely to be financially dysfunctional themselves. The kids of millionaires, on the other hand, are more likely to be millionaires. After a crash course on modeling good financial hygiene for your children, Stanley and Danko take on the many ways people who do have a large amount of money can ruin their children. Here, it got interesting.
Turns out, Donald Trump isn’t the only millionaire to have received a “small loan” of a million dollars from his dad (despite his insistence that he got where he is thanks to hard work and grit, goddamnit!). The most striking thing I read in the entire book was the following: “About two of every three adult children who receive significant cash gifts periodically from their parents view themselves as members of the “I did it on my own” club.
If you didn’t have the luxury of having financially secure parents, millionaires or otherwise, don’t worry, this doesn’t mean you are slated to financial ruin. In fact, you can reflect on how your parents managed money and adjust your own habits. If you feel like you don’t know where to begin, pick up a few books on the subject, or check out some articles online. Conversely, if your parents do happen to be millionaires, try to replicate what they did with as little monetary assistance as possible. Start your own savings plan and look at your investment options. After all, every dragon must leave the nest one day and learn to manage their own horde.
To be honest, this book didn’t change my life as much as I thought it would, and I’m glad I only spent a dollar or so on it. I’ve been in the habit of squirreling away money since I was a child (or should I say baby dragon), and so most of the information on saving vs. spending was preaching to the choir. What it did inspire me to do was pick up a book on investing (I’m only a few chapters into it at the moment, but don’t worry, I’ll report back). I also enjoyed the large amount of data that made its way into the book, as well as the numerous case studies about things like $9,000 rugs. My advice: If you are in any way interested in rates of wealth accumulation, countless charts of raw data, or desire a deeper look into the absurdity of how some people spend their money, The Millionaire Next Door will not disappoint. Stanley and Danko’s narration, though informative, is far from dry as they combine a conversational tone with intriguing anecdotes to address a topic we should all know more about. Save thy funds and pick this book up at a library near you.