By ofwisdomowl By Thomas J. Stanley
Short summary
“The Millionaire Next Door” is the result of a research conducted in the US to understand what is the profile of Millionaire people. The results are pretty interesting. The book argues that the typical image of a millionaire as a flashy person is not accurate at all. Actually most millionaires live normal lives, drive average cars and live in mid class neighborhoods. Their wealth was built based on savings, avoiding bad debt, investing smartly and in many cases living frugally. This book will be an eye opener for sure.
“The Millionaire Next Door” Takeaways
- What the wealthy do and what is their typical profile
- Their income is always higher than their expenses. They live below their means
- Wealthy people spend in average 2X of the time learning and planning their financial future than the average person
- Financial freedom is more important than accumulating things (large house, expensive cars, expensive accessories, etc). Having the freedom of time to enjoy lifes is more important that accumulating things
- Family and personal relationships are more more important than money
- Most of them tend to be self-employed
- Most of the them are 50+ years old
- They are well educated. Either through formal education or have spent a significant amount of time learning new things either on money management of their area of expertise
- They invest, on average, 20%+ of their income
- Their investment strategies are focusing on gains in the mid or long term (at least over 1+ year)
- The book also suggests a formula to assess if you are on the right track to achieve wealth. The formula is based on your age, income and the result would be your net worth (Net worth = sum of all your assets minus all your liabilities). If your actual net worth is above the calculated one ( as per formula above) then you are on track to achieve financial freedom
- The formula is:
- (“your Age” X “your Yearly Income)/ 10 = Net worth
Quotes that resonated with me:
- “Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high.”
- “The best thing money can buy is financial freedom.”
- “The key to becoming wealthy is to determine what you want, what you’re willing to give up to get it, and then make a plan.”
- “Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and most of all, self-discipline.”
- “The biggest obstacle to wealth is your lifestyle.”
- “The rich do not just work for money, they make money work for them.”
- “The secret to wealth is to make your money work as hard as you do.”
- “The wealthy in America are not particularly extravagant people. They simply live well below their means.”
- “People who live below their means enjoy a freedom that people who live beyond their means will never know.”
- “The wealthiest people are those who are content to live modestly and invest the rest.”
- “Spending money to pretend to be wealthy is a very expensive habit.”
“The Millionaire Next Door” Practical Advice
- Live below your means. This is the key to building wealth. Spend less than you earn and save the difference
- Avoid debt. This books recommends avoiding consumer debt as much as possible, and only using it for investments that will increase in value over time (see Bad debt vs Good debt on “Rich Dad Poor Dad“)
- Save and invest consistently. The book suggests that people save and invest at least 20% of their income
- Invest in yourself. Investing in education, skills, and knowledge
- Be disciplined. Wealth requires discipline, sacrifice, and hard work. Don’t be tempted to spend your money on things that don’t matter
- Build a diversified investment portfolio
- Start early. The earlier you start saving and investing, the more time your money has to grow and compound
- Avoid lifestyle inflation. Be careful not to increase your spending as your income grows. Keep your lifestyle as simple as possible
- Seek advice from trusted sources. Seek advice from financial professionals, but also be cautious about who you listen to. Look for people who have successfully done what you are looking for
- Avoid get-rich-quick schemes. Focus instead on a long-term, disciplined approach to building wealth
To read more on Amazing Investing Books for Beginners click here.