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Insights From The Millionaire Next Door Pt.1 (#35)

For this summary, I'm looking at The Millionaire Next Door by Thomas J. Stanley.

Wealth vs. Income

  • Wealth is what you accumulate, not what you spend. 
  • Most millionaires were keenly interested in being financially independent. That’s why they lived below their means.
  • Many people who live in expensive homes and drive luxury cars do not actually have their wealth and many millionaires don’t even live in upscale neighborhoods.
  • 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. Wealth is often the result of a lifestyle of hard work, perseverance, planning, and most of all, self-discipline. 

“wealthy” defined

  • Many people who display a high-consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights or timber land. 
  • Net worth is the current value of one’s assets less liabilities (exclude the principle in trust accounts).
  • Multiply your age times realized pretax annual household income from all sources except inheritances. Divide by 10, this less any inherited wealth, is what your net worth should be. 

What are you?

  • PAW, prodigious accumulator of wealth - worth 2x the amount of wealth
  • UAW, under accumulator of wealth - ½ of the wealth expected
  • AAW, average accumulator of wealth
  • To be well positioned in the PAW category, you should be worth 2x the amount of wealth expected.

Some Stats On Americans

  • Nearly ½ of America’s wealth is owned by 3.5% of our households (1996 Stat - I’m pretty sure it’s the same or even worst come 2021). 
  • The median household in America has a net worth of less than $15K, excluding home equity. 
  • More than often than not the household has 0 financial assets, such as stocks and bonds. How long could the average American household survive economically without a monthly check from an employer? Perhaps a month or 2 in most cases
  • Without Social Security benefits, almost ½ of Americans over 65 would live in poverty.

Stats For Americans

% of Americans 

Type Of Property/Asset Owned


Have a Money Market Deposit Account


Certificate Of Deposit


Money Market Fund


Corporate or Municipal Bonds

> 25%

Stock, and Mutual Funds


Rental Property


U.S. Savings Bonds


IRA or Keogh Accounts


Equity in their own Home


Own 1 or more motor vehicles


7 Common Denominators Of Millionaires

  • They live well below their means
  • They allocate their time, energy, and money efficiently, in ways conducive to building wealth
  • They believe that financial independence is more important than displaying high social status. 
  • Their parents did not provide economic outpatient care. 
  • Their adult children are economically self-sufficient. 
  • They are proficient in targeting market opportunities
  • They chose the right occupation.

Portrait Of A Millionaire

  • About 70% of us earn 80% or more of our household’s income. About 20% of us are retired.
  • ⅔rds of the above are working are self-employed
    • Self-Employed people make up less than 20% of the workers in America but account for ⅔rds of millionaires
    • ¾ of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants. 
  • Our household’s total annual median realized income (income you’ve actually received and earned) is $216,150 (in 2020 dollars)
  • We have an average household net worth of $6.1 million (in 2020 dollars). 
  • We live on less than 7% of our wealth. 
  • 97% of us are homeowners. We live in homes currently valued at an average of $528,000. About ½ of us have occupied the same home for 20 years.
  • About 80% of us are first-generation affluent. 
  • Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles. 
  • Most of our partners are planners and meticulous budgeters.
  • We have a go-to-hell fund. We have accumulated enough wealth to live w/o working for 10 or more years. 
  • About ⅔rds of us work between 45-55 hours per week.
  • We are investing 20% of our household realized income each year. 79% of us have at least 1 account with a brokerage company. But we make our own investment decisions. 
  • We hold nearly 20% of our household’s wealth in transaction securities such as publicly traded stocks and mutual funds. We rarely sell our equity investments.
    • On average, 21% of our household’s wealth is in our private businesses.


  • Most millionaires do not have all of their wealth tied up in their stock portfolios or in their homes.
    • Typical millionaire often had ~ 20% of their wealth invested in publicly traded stocks.
  • Millionaires are financially independent. They could maintain their current lifestyle for years and years without earning even one month’s pay.
  • Married once and remains married.
  • Lives next door to people with a fraction of his wealth. 
  • A compulsive saver and investor. 
  • About 95% of millionaires in America have a net worth of between $1 and $10 million (1996 stat).

Confidence and Beliefs Of The Wealthy

  • Most people who become millionaires have confidence in their own abilities. 
    • They do not spend time worrying about whether or not their parents were wealthy.
    • They do not believe that one must be born wealthy. 
    • Only 19% receive any income or wealth of any kind from a trust fund or an estate. 
    • Fewer than 20% inherited 10% or more of their wealth. 
    • More than half never received as much as a $1 in inheritance. 
    • Fewer than 25% ever received “an act of kindness” of $10k or more from their parents, grandparents, or other relatives
    • 91% never received, as a gift, as much as $1 of the ownership of a family business.
    • Nearly half never received any college tuition from their parents or other relatives. 
    • Fewer than 10% believe they will ever receive an inheritance in the future. 

Mental Roadblocks To Achieving Wealth

  • Too many people think that American’s affluent population is composed predominantly of direct descendants of the Mayflower voyages. 
  • This isn’t a new phenomenon - the same was true from 1892, with 84% of millionaires being nouveau riche, having reached the top without the benefit of inherited wealth. 
  • Hard to produce a lot because we are a consumption-based society
  • First-generation Americans tend to be self-employed. Self-employment is a major positive correlate of wealth. 

Children Of Immigrants

  • A successful entrepreneur is usually a first-generation (foreign-born) American.
  • Entrepreneurs have typically been characterized by their thrift, low status, discipline, low consumption, risk, and very hard work. 
  • What do they teach their children? Do they encourage them to follow Dad’s lead?
    • To not be entrepreneurs, to spend many years in college.  
    • His children should be well-educated and have a much higher occupational status than he did. “Better” means better artifacts: fine homes new luxury automobiles, quality clothing, club membership. 
    • Being well-educated has certain economic drawbacks.
  • Well-educated adult children have learned that a high level of consumption is expected of people who spend many years in college and professional schools. 
  • America needs a constant flow of immigrants with courage and tenacity
  • Many people in this country had always believed that wealthy people inherited their fortunes. 

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