A Classic book written in the 1990’s

The Millionaire Next Door was based on a study performed by Thomas J. Stanley and William D. Danko. The purpose was to take an objective look at the millionaires in the United States and how they achieved financial independence. They interviewed over a thousand millionaires and asked each 249 questions. The goal was to take all of that data and determine the key attributes of america’s millionaires.

The book clearly defines the difference between a high-consumption lifestyle and a frugal lifestyle. Those with a lavish lifestyle appeared wealthy. Those with the frugal lifestyle were wealthy. There is a classic Texas quote in the book that describes this lavish lifestyle of many as “Big Hat No Cattle,” which means many look like they have money but they really don’t.

What is interesting about the frugal lifestyle is that it is contrary to the high consumption society that we life in. That means that those who are frugal are living very intentionally as it is the opposite of all of the influences that we have to spend freely and show our success by displaying expensive cars and homes.

Ordinary People

The study found that the vast majority of millionaires were not individuals with a high social status but rather ordinary people who did not spend much money. For them financial security is more important than living lavish lifestyles and driving luxury cars. The book calls these very frugal people “prodigious accumulators of wealth,” or PAWs.

PAW’s could definitely be your next-door neighbors. In fact, they might appear to be less well off by the way they dress or the used car they drive. That’s the thing. They have money because they don’t spend money freely. They are intentional about controlling expenses and saving.

In the interviews conducted by the authors the pattern was obvious. When asked what was the most they spent on a watch or suit, for example, the amounts were quite low compared to what most average people would spend. For example, more than 50% of all the millionaires surveyed never spent more than $399 on a business suit or $235 for a wristwatch. Their high consumption counterparts spent much more than this.

When it comes to credit cards, they typically hold two basic cards, one Visa and one Mastercard. This is unlike the popular belief that a millionaire would have lots of credit cards including high end platinum and gold cards.

Controlling Expenses

In the book it states “they became millionaires by budgeting and controlling expenses, and maintain their affluent status the same way.” For the average millionaire, planning out their expenses and setting a household budget is very common. They don’t all make a lot of money, but by carefully budgeting and watching their expenses they are able to consistently save and invest.

Many of the millionaires would spend a decent amount of time each month setting and reviewing their financial goals. Long term financial planning is very important to those with the millionaire mind. Their savings goals included investing their money for long term returns in the stock market and in real estate.

For those that did not budget, they were still very diligent about saving before paying their bills. This is the “pay yourself first” concept of paying yourself by saving and investing before using the rest to pay your expenses.

One of the common denominators was saving and investing diligently on a regular basis. Even those with a low income became wealthy over time by saving and investing.

In my opinion if you save a good percentage of your pay consistently by paying yourself first, you don’t really need a budget, because the purpose of a budget is to make sure you save and invest. If you save and invest first you have already done it. That method forces you to keep your expenses in line. These successful individuals saved and invested at least 15% of their take home pay before using the rest to pay for expenses.


A common question asked of these frugal people is “are you happy?” The concern is that they are not enjoying life and therefore are not happy. The authors concluded that financially secure people are happier than financially insecure people in the same age and social group.

Those that are considered under accumulators of wealth (UAW) are often motivated by material possessions as status symbols to keep up with others and to show their success. It’s common for high income individuals to be big spenders of luxury items such as multiple cars, boats and houses. These material possessions themselves don’t result in happiness.

High Consumers

High consumers don’t save. Instead they earn so they can spend, and if they want to spend more they have to earn more. Expensive vacations, private schools, and boats, are often others examples of a high consumption lifestyle.

It is common if the parents were high consumers, that their children have similar habits. Being taught to earn a high income in order to have a the “finer things in life” feeds into the consumption mindset of spend what you earn.

A good example in the book described two high consumption parents who both smoked for over 40 years. They were also high consumers in all aspects of their spending and therefore did not have much wealth.

If instead of smoking, had they instead used the money they wasted on smoking and instead regularly invested in Philip Morris, a tobacco company, their investment would have been worth $2 million and they would have been able to retire. But because they didn’t save they had to keep working.

Another case study included a specialized physician making over $700,000 per year, yet he and his family had a small net worth. By spending $30,000 a year on clothing for the family and $40,000 on country club fees and related expenses, for example, along with a high consumption lifestyle all around, there was very little left over.

Rolls Royce

What would you do if you found out that you were going to be given a gift of a Rolls Royce from a number your business associates? That dilemma was a real situation for one of the successful millionaires interviewed by the authors.

He had to turn it down. It was against everything he was about. He only owned an older full size sedan. It fit great with his outdoor lifestyle (putting caught fish in the back seat) and when parking at the dirty manufacturing plants he ran. He would feel uncomfortable pulling up to his manufacturing plants with a fancy car.

Of all the millionaires interviewed, only 24% had new cars in the last year. All the others were driving older models. The most common makes owned were Ford, Cadillac and Lincoln. Only a minority owned high end luxury vehicles.

Many UAW’s would consider it degrading to shop for a used car. That is the mindset difference. The frugal millionaire embraces the idea of driving a high quality used car and and a high consumer won’t consider anything but a new car.

Economic Outpatient Care

The authors spent a fair amount of time discussing those receiving economic outpatient care (EOC). These are adult children who receive regular monetary gifts from their parents to send their kids to private school, buy new cars, take vacations, etc.

What the authors discovered is that those receiving EOC assistance end up consuming more. They often inflate their lifestyle and then need more EOC. They develop a level of economic dependency that is hard to break. This also hurts them from being fully independent and in figuring out and planning their own financial future.

Guide to Affluent Parents for raising productive children

The authors mention a number of tips to help raise productive kids. One is to never tell your kids that you are wealthy. This is even more important for a UAW (under accumulator of wealth) because if the kids think they are wealthy and they are hyper consumers then they believe that is what the wealthy do. In other words, they pick up on the same habits which leads to an under accumulation of wealth.

Also to teach your children about discipline and frugality. Kids model after their parents so what they see are the habits they tend to pick up.

Another tip is to emphasize your children’s achievements rather than symbols of their success. In other words, what they achieve in their career, sports, and personal goals rather than just chasing money and the symbols of having money.

Be sure that your kids understand that there are things much more important than money. Those things include good health, happiness, a loving family, friends, and independence. The key ingredients include reputation, respect, integrity, honesty and achieving. Money should be considered icing on the cake and not a be all end all. It’s definitely a tool to allow you to have more freedom and security in your life. Money is a tool, not the goal itself!

The last tip was to not shelter your kids from adversity, but to teach them to embrace the challenge. Without learning that early in life they will be denied the valuable opportunity to try, fail and grow. By learning to deal with adversity as a young person they will develop the skills to become independent. Without it they will be cast out in the world and be forced to deal with it. They will likely lack the confidence and have a very difficult time adjusting to becoming independent.

As a parent myself, one of our goals was to raise confident, independent adults. We wanted them to be able to stand on their own feet and be confident they can navigate through life’s challenges.

Your Career Choice

The authors spend some time at the end of the book to discuss what careers determine success. One big trend they point out is that 20% of affluent households are headed by retirees. Of the 80% that remain, 66% (two thirds) are headed by the self employed business owners. That means that just over half of all the millionaires surveyed were self employed. That is a big trend!

That being said, they point out that it’s not the business that determines the success, but rather the quality of the owner. They have a chart that shows how the top business niches rotate even over a short periods of time. They also point out that being self employed is not for everyone, and that it has plenty of risks and uncertainties. However, it is a notable trend that over half of the millionaires surveyed were self employed.

One of the best benefits of being self employed, as mentioned by one millionaire was that many people work at jobs that they really don’t like. The beauty for for this millionaire was that he woke up every morning looking forward to going to work each day rather than dreading going to work each day. That is a huge difference!

My take on the book

One of the key discoveries in the book is that the typical millionaire is not what you think. I believe that is because when we think of a millionaire we normally think of the super wealthy living in ritzy communities such as Beverly Hills. The super wealthy often have visible signs of wealth by their homes and cars. These people are so wealthy that they can have really expensive homes and cars and still have a lot of wealth.

However, that is not the normal millionaire. The normal millionaire is someone who carefully saves and invests over time, and does not waste money. That is how they became millionaires.

We don’t know that because it is invisible. You can’t see that they are wealthy. It is too easy to make judgments on wealth based on what we see. If we see a fancy car, fancy clothes, or a big home we immediately assume the person is wealthy. What we learned from this book is that line of thinking is very often wrong!

The whole point of the millionaire next door is that the typical millionaire lives in an average house and they drive an average looking car. You don’t know they are wealthy, and they prefer it that way! They are not trying to show off their wealth. Rather, they prefer to have the security and time freedom that having wealth provides.

Meanwhile, often those that look wealthy with expensive clothes, cars and homes are just the opposite. They often have high incomes but they are not wealthy because they spend everything they earn and often have large mortgage loans and car payments.

This is a judgement free zone. Ultimately there is no right or wrong answer, but instead personal preference. Those that want financial security set goals to achieve them. Those than want to have expensive cars and homes do that as well. The main thing in my opinion would be to understand the trade offs of both ways of life and make a decision that is right for you. Be intentional rather than just drifting through life financially. Be sure to make a financial decision that is right for you and your family and do not make decisions just to impress others.

Conclusion of Book Lessons: The Millionaire Next Door by Thomas Stanley

  • The average millionaire is not what you think. They could be your next door neighbor.
  • The average millionaire is quite frugal with saving and investing being a high priority
  • The consumption of things is not a high priority for the average millionaire
  • Those with high consumption lifestyles were not millionaires – they had very little wealth
  • The average millionaire does not care about looking wealthy to others
  • More than half of the average millionaires are self employed business owners

Other Articles that may be of interest

Fortune’s Children: The Fall of the House of Vanderbilt

How far above or below water are you financially?

Yes – You can be a Student without a Student Loan!

Adopt the 20% rule and get on the path to financial security

“You Can’t Eat Your House”

Age 30 – Time to Get Serious about your Finances


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