Book review: The Millionaire Next Door
If The Richest Man in Babylon is the first book I would recommend to anybody interested in becoming wealthy, The Millionaire Next Door is undoubtedly the second.
I once saw co-author William Danko speak at an event, and it is funny he was probably the wealthiest person in the room, and he was the also the only one who took the stage who had no expensive product ($2,000+) to sell. It is beyond ironic that so many gurus of wealth creation need to hustle crowds because they are still trying to figure out how to create wealth for themselves. But I digress; on to this most wonderful book.
The virtue of frugality
With chapter titles such as, “Frugal Frugal Frugal,” and “You Aren’t What You Drive,” it isn’t difficult to ascertain the theme of the book. Towards the end are more entrepreneurial-forward topics such as, “Find Your Niche,” and “Jobs: Millionaires versus Heirs.”
One of the core themes of the book is that a very large percentage of self-made millionaires are business owners. This book tends to speak a little more toward the solopreneur freelancer, or even the successful dentist with an office staff of five, and less toward the Silicon Valley tech startup business owner, or the corporate senior vice president of a publicly traded company.
Still, the frugality lessons should be required reading for every person growing up in a commerce-denominated society. That $40 you spent over the weekend at the movies, if you had saved it and invested it for a 10% annualized return over 30 years, you would end up with $697.98 at the end. And while an extra 700 bucks isn’t going to make you rich in retirement, those $40 expenditures add up quick, and if you save them, so do the $700 boosters. In fact, by saving $40 in expenses per week for just one year, your retirement nest egg will be $35,000 higher.
And then there are the big, BIG savings: instead of buying a new car every other year, buy a used car in great condition, and drive it for ten years. Using round numbers, let’s assume a new leased car costs $625 per month, or $7,500 per year, and a three-year-old used car costs $15,000. Over a ten-year period, renewing leases will eat up $75,000, and so just by buying something decent instead of cutting edge, that is $60,000, post-tax CASH that is in your bank account. Four decades of this will ring up $240,000 in savings account cash, not counting investment accumulation.
Would you like to have an extra $35,000, or an extra $240,000, in your bank account, by making very reasonable and modest sacrifices? These are the arguments presented in The Millionaire Next Door, and while they do involve basic math, it ain’t rocket science.
It’s a matter of habit
There was an advertisement I saw at bus stations in New York, that went something like this: “Can you name more bands in your CD collection than stocks in your portfolio? If so, you need to speak to us–the financial experts!”
Now, I don’t advise that anybody invest in any full brokerage’s mutual funds (except for low-fee index tracking funds), but this poster did get me thinking. It was one of my ah-ha moments, where I recognized a choice to direct my thoughts toward a certain direction, namely becoming wealthy.
What do you spend your time on? Computer games? Local bands? Drinking? Single life dating? (Full disclosure, I have been big-time guilty of all of the above) Or maybe on getting a job, because you are desperate. But let’s say you get that job: then what? Will you go back to hemorrhaging time and cash, or will you start putting your time and cash toward things that will take care of you as time goes on? This is another of The Millionaire Next Door’s core themes.
You can spend 60 hours bullying vacation brokers to get the best deal that will give you bragging rights. Or, you can spend those 60 hours thoroughly researching a stock you are considering buying. Or you can buy a new real estate rental property. As your intention goes, your life flows.
The one big objection I hear
“I don’t like to ‘save’ money, I like to ‘MAKE’ money!”
Once upon a time, I met successful entrepreneur who spawned many businesses. We had a long brunch on a Sunday afternoon, and he was as interested in my story as I was in his. As we conversed, it became obvious to me that as good as he was at making money, he was just as bad at keeping money.
Despite the fact that he had several times my net worth, I berated him and gave him a strong lecture on his risky behavior, all but raising my voice. After all, he also had several times my monthly expenses. What would he do if he became sick or injured? What if he took a big risk, and wound up with nothing? What if he burned out six months later, and just plain felt like doing something else? Would he be willing to go back to macaroni & cheese dinners? How cruddy would that feel? And on and on.
He was not offended in any way by what I had said. In fact, he became humble real quick, and thanked me for giving him this wake-up call. However, towards the end of the conversation, I could tell the root message just did not sink in. Why should he focus on saving, and risk losing another opportunity to be making?
What can I say….I tried. But this is the most common objection I hear, and perhaps the only legitimate one. Others have said the book is boring, or it is written at the eighth grade reading level, or, “Well it’d be nice to have this problem, if I can just make MONEY…” (Stamping the foot and all).
Slowly accumulating wealth makes you less needy
I remember walking into a Subway, counting dimes and pennies to pay for my six inch sandwich, and asking the guy behind the counter to put on extra olives and green peppers because this was all I could afford. It was a powerless feeling.
You don’t want to be dependant on others. If you have no money, you’ll be just that. If you do have money, then there is one aspect less, that your colleagues need to worry about, when deciding whether or not to accept you into their life.
Where your attention goes, life flows. If you want to talk loud, act proud, and act like you know everything so that you don’t need to listen to anybody else, then your will experience the end result of that course, and The Millionaire Next Door includes several case studies of where this approach leads.
On the other hand, if you apply your spare time toward investing, becoming frugal, and other cool stuff, you will not only find yourself achieving results in those directions, you will also meet others who are interested in the same directions. You’ll find a form of social support, a boost even, that will propel you further, and perhaps you never imagined this would happen. But support is out there, and there are a lot of people becoming wealthy underneath the seems, who are extremely selective about who they share their topics of interest with.
You can spot them easily, once you know the type: they’re the ones who are modest, stable, and givers more than takers. They have contentment, because they have what they want in life: peace of mind, space to build relationships with loved ones, and space to appreciate the little things in life. And they are watching you, not in a judgemental way but in a hopeful way that they will be able to support you along the good journey, and one day, welcome you into the winner’s circle that has no cheering stadium crowd.
Are you interested?