The Millionaire Next Door personal finance book is written by Thomas J. Stanley and William D Danko. This book was published in the 90s in the United States after several years of study by the authors on how they were millionaires. The result was quite surprising, as people who were millionaire were not those who appeared to be millionaires.
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This is probably the deepest and long study has been done on Americans, or even the world millionaires. Because the surveys were covering their car brand, taking drinks, where they lived, etc. So how is the millionaire next door?
The Millionaire Next Door
The profile obtained is a married man whose wife does not work or if it does probably master (very usual in such millionaires is that they are teachers or engineers). It is in the 50s or 60s and their children are financially independent. In most cases they have their own business. Normally they live in a house in a normal neighborhood.
The Millionaire next door has not received help from their parents financially, however have made it themselves. They have chosen their careers well so they have a profitable occupation. They are also quite efficient transforming income into equity, devoting less time to spend and invest more than many other people.
They have about four or five times the wealth in comparison to their neighbors, however their behaviors are similar. The millionaire next door saves much of their income and most of those around them. It’s quite a surprise to see their true economic situation.
The fact is living in richer neighbors apparently increases our happiness, according to a study of British universities. They do not have to keep up with the Joneses since they are the Joneses; their purchasing power is much higher than their neighbors. However in practice they do not show it. An attribute of these millionaires is not seeking status symbols, however their independence and financial stability.
The Millionaire Next Door is loaded with tables, statistics, which is quite remarkable (indeed there is an overweight / cost ratio used cars). But the interesting thing is they do many statistics (there comes a time when you are overwhelmed), however is the rule for determining whether a person is doing well accumulating wealth.
The book gives a figure to be applied, our wages for our age and divided by ten. If this figure is equal to our net equity position means we are “accumulator Media Wealth” if our net worth is less than the figure we would be “dissipating Wealth” and if our legacy is twice this figure than we are “Prodigious Accumulators of Wealth”.
The first criticism that one can make it to the book is the ratio mentioned. This ratio may be suitable for people who have been saving for 50-60 years, however for someone who just started working is a complete fiasco. It is almost impossible for a person to be a prodigious accumulator of wealth when just starting, it’s not the savings capacity, however because they have not accumulated enough time. In fact 50-60 years it is when a person who has accumulated enough can see the effects of compound interest even though they have gone through some other crisis.
They also seem to foster a kind of compulsory savings without any particular objective. For authors it seems that what catches their attention is to become the richest in the cemetery, as they indicate something that is counter to the children, because they say that help is economically bad for your financial future. In addition to the blog of one of the authors, it seems to encourage leave inheritance to charity (in college scholarships, libraries, etc).
Another criticism is that although the study authors all (or almost all) of the millionaires were the austere and investor behavior, it is unclear whether all those who have followed them have ended up being millionaires or bad luck may have affected them in investments and removed from the list of millionaires.
However I believe that The Millionaire Next Door is a good read about personal finances. This is a study based on real profiles of people who got a strong heritage on their own and not a fiction as any other personal finance book that has had far more success than this.