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Millionaire Next Door

February 17th, 2010 at 02:49 pm

Wow I just found an old post that I was going to put on my blog but must have forgotten to do. It's my review of sorts of the Millionaire Next Door.

I just finished reading the Millionaire Next Door written by Thomas Stanley and William Danko. I have heard a lot about this book so I was curious about reading it. However, I was a little disappointed with it. First of all, it is not really written for 25 year olds. I do not really know who would benefit the best from this novel, but I am not its primary demographic. This is also not a normal personal finance book that makes suggestions on how you should change your life to increase wealth. Rather, it is merely a collection of statistics about the average millionaire in America. (The fact that the “average” millionaire is a 57 year old self-employed male may explain my difficulty in relating to some of the things in the book.)

Things that bode well for us:
There are several common themes that run through the book. The first is that despite our exposure to celebrity millionaires who have all the latest toys and blow money left and right, most of the millionaires are quite frugal. Purchasing items on sale or using coupons is common.

They spend more time tracking where their money is spent and planning for future financial endeavors.

I like that they have a formula to determine how much money a person should have saved: 10% of your age multiplied by your income. At age 25 and an income of roughly 50,000, DH and I should have saved roughly $125,000. Not going to happen. My initial thought was that it is skewed for older workers. I mean, I haven’t really had my first job yet and DH has only been working for 2 years. There is no way that in 2 years we could have saved $125,000. It does make me think that we could be doing better though.

*Update: DH is now further into his career and his income has leaped up. I, however, am still in school. Our new goal is about $220,000. However we are MUCH closer to reaching that than we were 2 years ago. We've started and fully funded our Roths, we started contributing to TSP, and our savings account has nearly doubled. At least I see that saving that much could be possible*

There was a large portion of the book that related to educating children about money and enabling them with gifts. Not having kids, I haven’t had a chance to mess that up yet. It made me reflective of my own childhood though. My parents lived fairly frugally, I don’t know how much money we had, but we didn’t live extravagantly, but there was always enough money for me to do what I wanted. I have always been interested in money and lived pretty frugally. I think that it was more of an internal thing, but maybe some of it was shaped by how my parents were. If you needed something you bought it, if you didn’t need it, you didn’t buy it. And we didn’t need a lot of things….we didn’t try to keep up with the Jones. Actually my parents bought our first DVD player after I was out of high school, probably in 2002 or so. My step-dad still has dial up internet.

But it did make me realize how important it is to teach children to be financially aware and financially responsible. I’m sure DH and I will help our children out financially at least for school, both of our parents helped us. But I think we’ll also take more of a hands-off approach and make them do it on their own too.

Another thing the book seemed to emphasize was that most of the first generation millionaires are all self-employed. This was a little disheartening to hear as that isn’t really a plan for me. They say that many of them are tax advantaged and that the income they earn is only a small percentage of what they make. I wonder if it is possible to have a similar tax shelter without having a business for write-offs. I mean, does increasing the amount I have in my Roth, increase my net worth without increasing my taxable income? Would a traditional IRA/401(k) have a similar effect? Are there non-retirement accounts that would do this?

5 Responses to “Millionaire Next Door”

  1. monkeymama Says:

    Yes - the MND model is a curve. The numbers early on are rather unacheivable, but are easier to reach with age. I much prefer the net worth guidelines I found from a website. I just found a blog that refers to the "Moratta asset" calculation and compares it to MND - read this:

    Text is and Link is
    Essentially, early on, your net assets should increase by your "annual income" about once every few years. By the time you are 40, it should be once every 2 years, etc. Or, if your income is really erratic, you can use "annual expenses" as a guide. In the end, it's all the same, but the Moratta calculation factors age into the whole curve.

  2. ktmarvels Says:

    Thanks for posting that! I know we're doing well, I just have to look at my peers to know that, but it was disheartening to see how far MND wanted us to go. According to one of the Marotta calculations we're rock stars. Much nicer to see. Smile

  3. Ima saver Says:

    My husband is 58, self employed and according to our net worth, we are millionaires, so he seems to meet the profile. I will tell you that we have never earned a large sum in one year. we just save as much as we can. when we got married, my husband made $4 an hour and I made $89 for a 5 day week.

  4. baselle Says:

    Yes "most" of the millionaires that were surveyed were self-employed, but not all of them. I seemed to remember the breakdown was something on the order of 60-65% self employed. It does mean that 35-40% were not.

    I think that holding onto the mind set of being self-employed is even more important than being actually self-employed. With savings of your own you can afford to be a bit entrepreneurial in your job, even if you are a cog in the wheel. The worst is thinking that "holy crap I have to do this, no matter what, because I'm debt up to my eyeballs".

  5. monkeymama Says:

    Oooh - I missed the last paragraph before.

    I agree with Baselle. "Most," not "ALL." I have no desire to be self-employed - my biggest financial mentor is a MMND type - employed all the way.

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