The Millionaire Next Door – Thomas J. Stanley & William D. Danko

The Millionaire Next Door
Thomas J. Stanley & William D. Danko

This book is and should be considered required reading for…well, really for everyone, but at the very least for entrepreneurs and anyone interested in personal finance. The point is not just that there are average-looking people who live near you and just happen to be millionaires. The point is that you almost have to be average-looking to ever become a millionaire in the first place.
Stanley and Danko back up all their claims with statistics, and provide a lot of information about who the affluent of America really are. It becomes incredibly obvious how one should build wealth in this country. There is no trick to becoming affluent. You simply have to spend less than you earn. I don’t mean a little bit less. If you live well below your means, you can save millions before you retire easily on even a modest yearly income.

I personally like the equation given to measure your expected net worth.

Expected Net Worth = Age * Pretax Annual Income ÷ 10

If you are over this amount, you are a “prodigious accumulator of wealth” (someone who saves more than the average for their income and age); if you are under this amount you are an “under accumulator of wealth” (someone who saves less than average for their income and age). Where do you fall? Simply multiply your age by your pretax annual income and divide by ten. That is your expected net worth. Oh, and don’t forget to subtract from your net worth any inheritances that you have received. Money that you did not actually earn does not count.

Prodigious accumulators of wealth are those who are or will become your millionaire next door. What may surprise you is that many of those who live in fancy houses, drive expensive cars and wear trendy clothes and accessories are really not very wealthy at all. In fact most of them are under accumulators of wealth. Despite their six or seven figure incomes, they couldn’t live off their savings for more than a few months.

The mindset you have to have is that you want to become wealthy in order to be financially independent, to protect your family and to manage your own future. You will then budget, save and plan your personal finances. If you just want to have fancy toys, go ahead, but don’t fool yourself into thinking you are or ever will become financially independent without working to become so.

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