This book by Thomas Stanley and William Danko was first published in 1966 and it is still relevant today! It is one of my favorite personal finance books because it shows you habits that can help you become wealthy.
The authors spent twenty years researching and surveying wealthy people in America, and the book simply shares the results of their research. It defines the wealthy as those who have attained financial independence – those who can maintain their lifestyle for several years without even earning one month’s pay. It also introduces readers to two categories of people: Under Accumulators of Wealth (UAW) – whose net worth are much lower than their yearly income as a result of living high-consumption lifestyles or making poor financial decisions; and Prodigious Accumulators of Wealth (PAW) whose net worth far exceeds their yearly income as a result of accumulating income and careful planning.
The book shows reasons why some people are able to accumulate large amounts of wealth even while making seemingly “low” incomes; while people with much higher salaries are not able to accumulate such levels of wealth. The authors share 7 common characteristics of these high net worth individuals:
#1 They live well below their means: They are frugal or savvy spenders, and tend not to lead high-consumption lifestyles.
#2 They allocate their time, energy, and money efficiently, in ways conducive to building wealth: They spend time budgeting, planning and researching their investments. They also spend time examining ways to increase their unrealized income, in order to reduce their taxable income.
#3 They believe that financial independence is more important than displaying high social status: They do not worry too much about keeping up with the Joneses; as they realize that high-consumption lifestyles have a negative correlation with one’s net worth.
#4 Their parents did not provide economic outpatient care: Research shows that the more financial assistance adults receive from their parents the more likely they are to spend than accumulate wealth.
#5 Their adult children are economically self-sufficient: They are aware of the fact that cash gifts to their adult children increase the children’s dependence on their parents and also deplete the parents’ financial standing.
#6 They are proficient in targeting market opportunities: Rich people tend to be entrepreneurial, and they are good at finding and exploiting niches.
#7 They chose the right occupation: They make sure they do something they are passionate about. As wealth is generated through talent, desire and discipline.
In all, The Millionaire Next Door is a truly exceptional book. It helps you see things in perspective and shows you how your seemingly harmless financial habits and decisions can affect your ability to accumulate wealth/ become rich. I recommend it to any body who is serious about becoming financially independent.
Recommended By: Chinazom