The Millionaire next door (book review)

I finally finished reading “The Millionaire Next Door” by Thomas Stanley and William Danko. Early this summer at a garage sale in my neighborhood I got a copy  of the first original edition from 1996: And I say “finally finished” because it was hard to go through it, I was a bit disappointed but I still got a few good things out of it (details towards the end).

The idea

When I first heard about this book a couple of years ago I thought there was a great idea behind it: go visit with millionaires and figure out what they are like. If you analyze people that did well financially then compare them with people that have not done well and realize what makes them different, or what makes “regular” people different, then you are onto something. Sort of like a pattern recognition approach. I keep reading old(er) books, if books from the ’90s are old… but I think they are, kind of, they are from before the internet. But we are reading them nowadays because they are classics and they still have value.

The findings

Anyways the authors surveyed and interviewed millionaires for years as part of their academic research and some of their findings got to this book, they synthesize what they found in the “seven factors”:

1. Millionaires live below their means
2. They allocate their time, energy, and money efficiently, in ways conducted to build wealth
3. They believe financial independence is more important than showing off
4. Their parents did not provide “economic outpatient care”
5. Their adult children are economically self-sufficient
6. They are proficient in targeting market opportunities
7. They chose the right occupation

Many of these are self-explanatory and quite obvious (I realize many times the obvious needs to be stated): spend less than what you earn, don’t waste money in expensive and useless displays of status, give your children a good education and your good example but not money.

The bad (my take)

I did not like many things in this book: the lack of statistical references (i.e. “millionaires spend X in cars” but how much do regular people on average? or are we supposed to compare the stats just to our own… I don’t know), the constant bashing of parents who spoil their children (therefore ruining their economic lives, the only acceptable “gift” to kids is an education), the sort of admiration of lawyers and auctioneers and other professions that probably I don’t really care too much for…

The good

The one thing I will always (“always…”) remember from this book is the quote “big hat and no cattle“, how they supposedly describe in Texas people that show off their possession to appear more wealthy than they are. While further reading as I was writing this blog post I found out that apparently the first known use of the quote came from non other than JR Ewing (the character from the TV Show Dallas played by Larry Hagman back in, I think, the ’80s), and there is even a “big hat and no cattle” song by Randy Newman. Big hat no cattle would be not only the Texan that wears a big hat but actually has no cattle (or ranch) but also the guy we all know that drives the fancy car while he is buried in debt. Don’t be that guy. And I didn’t love the book but had some fun for just 25 cents. Have you read it? What’s your take?

A close cousin of that book is Your Money or Your Life.