Book Review: The Millionaire Next Door

The Millionaire Next Door is a book written by two authors based on their interviews with several millionaires. It details the common traits of millionaires and contains anecdotes from the interviews.

Although the book is a bit long and a bit dated, it is a must-read for all personal finance enthusiasts. Many books talk about how to become a millionaire, but this book provides a rare insight into the lives of millionaires and how they became millionaires.

Most importantly, the book reframes what we think about millionaires.

People Misunderstand Millionaires

When people think of millionaires, they think of upscale neighborhoods and flashy cars. What the authors found was something different. In their words:

Twenty years ago, we began studying how people become wealthy. Initially, we did it just as you might imagine by surveying people in so-called upscale neighborhoods. In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth.

Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.

People who live in expensive neighborhoods and spend a lot of money on costly items will struggle to accumulate wealth and thus will struggle to become millionaires. Unfortunately, our culture, media, movies, etc., focus on people that show off their wealth. This creates an unrealistic expectation of what millionaires are.

The vast majority of the millionaires never spend much money on fancy clothes or luxury cars. They usually live in modest neighborhoods where the cost of living and social pressures of consumerism are lower.

Look closely around you, there may be a millionaire living next door to you, and you may not even realize it!

Chose Your Life Partner Wisely

The single most prominent trait of millionaires is frugality – they live well below their means. It does not simply mean they spend less than they earn. They spend way less than they earn. They are prodigious savers.

However, it is not enough to be frugal yourself. The authors found that most interviewed people mentioned that their spouse was just as frugal, if not more!

This is true in the Finer family. I became frugal during my FI Journey, but MrsFiner has always been a paragon of frugality. I have never seen her waste money on things we don’t want or need.

Most people will never become wealthy in one generation if they are married to wasteful people. A couple cannot accumulate wealth if one of its members is a hyper-consumer. Few people can sustain extravagant spending habits and simultaneously build wealth.

Most Millionaires are Self-made

Now for the great news! One of the encouraging statistics from the book is that about 85% of the millionaires are self-made millionaires. They did not inherit fortunes from their parents.

Many made their money doing everyday work – welding contractors, auctioneers, farmers, pharmacists, pest controllers, stamp dealers, etc.

They accumulated their wealth in one generation, and they did it slowly and steadily over many years.

In this age of instant gratification, it is interesting to see that the old way of being frugal and saving money still works. Moreover, in this age of wealth inequality, it is heartening to see that people who do not have fancy jobs can also become millionaires.

Mindset of a Millionaire

There is an interesting story in the book about one millionaire family:

How did the wife respond when her husband gave her $8 million worth of stock in the company he recently took public? She said, “I appreciate this; I really do.”

Then she smiled, never changing her position at the kitchen table, where she continued to cut out twenty-five-and fifty-cents-off food coupons from the week’s supply of newspapers.

In the end, being a millionaire is also about having a different mindset. Most people would be overjoyed at getting $8 million.

However, having true wealth means you have enough money to live the life you want to live. If you already live the life you want to live, then getting more money does not matter – it would not change your life.

The couple in the story could have received $80 million or $800 million; I doubt they would have changed their lifestyle after receiving the extra money.

Isn’t that what being a millionaire is all about?

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