Source: Amazon

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy is considered a landmark piece of work by many in the wealth management and diligent-savers communities. The book was stitched together from research done by Thomas Stanley and William Danko on the profile of millionaires. By millionaires we mean those with a net worth of $1 million or more.

The book is a survey of thousands of millionaires and identifies 7 defining traits of the “average” millionaire. They find that most millionaires:

• Live well below their means;
• Efficiently use their time, efforts and money for wealth accumulation;
• Value independence over social status;
• Were not dependent on their parents once they reached adulthood;
• Their kids are self sufficient;
• They are talented at pursuing market opportunities;
• They pick the right occupation for them.

These are pretty general, so the book goes into detail on some qualifying information about millionaires, mainly:

• They are typically a married couple with several children and have lived in their home for over 10 years;
• They are in their late 50’s and typically have a net worth of 6.5x their neighbors;
• They have a median net worth of $1.6 million (in 1996 dollars) and 20% of them are self employed or business owners;
• They are typically first generation rich and college educated;
• They are notoriously frugal and own late model cars, average to smaller size homes and spend handsomely on their children’s education;
• They buy and hold securities and typically 20% of their net worth is in the securities market;
• Oddly enough, it pointed out the the ethnic group most highly represented in the millionaire segment of society were those of Scottish descent.

The book likely made such a splash and turned into a best seller because it defied what the general public usually associates with millionaires: higher earners, those who inherited wealth and those who took huge risks.

As noted by some, there is great inequality when it comes to income but there is much greater inequality when it comes to net worth.

One of the reasons for this that The Millionaire Next Door points out is that wealth for many millionaires comes from a diligent habit of saving and taking measured risk over long periods of time, which is difficult for the majority of people who cave to the social pressure of spending their money for the approval or envy of others.

There is an ultimate irony and secret that many of the real wealthy seem to be aware of: that material goods do not make you happy but the freedom that money can eventually bring you can contribute towards your happiness. So those that chase social status and material goods their whole life end up being worse off financially than those that eschew such things in favor of building a nest egg that gives them more time and more life options apart from working for a living.

Living in a 90’s World

There is one drawback to reading the book today, that is that it was originally published in 1996 and much of the data and statistics it cites are out of date.

There is a valid argument that the original book and the studies that formed it were just a snapshot of a demographic in time and things could have changed in terms of the characteristics and makeup of the millionaire segment of the population since then.

In steps Chris Hogan, who is now part of the Dave Ramsey solutions team. He decided that this information and the survey, deserved a fresh update as it has been almost 25 years since it was published.

Source: Smart Asset

Take for example the discussion on the average salary of a physician in The Millionaire Next Door, which in 1996 was $140,000. That figure is now $223,000 so stats like this and home values need to be updated and analyzed with the same vigor that they were when the book was initially published.

Chris organized a survey of 10,000 millionaire households in 2017 and analyzed the information they received to formulate a new book called Everyday Millionaires. Not to my surprise, much of the same characteristics the original study found were still consistent almost 25 years later.

Source: Amazon

Some of his notable findings included the following:

• 89% of millionaires had a net worth between $1 million and $5 million;
• 18% are self employed;
• 88% have a bachelor’s degree;
• 9% have no college at all;
• Only 21% of them received any inheritance;
• 8 out of 10 come from middle class or lower households;
• 79% of the millionaires achieved their status through their employer sponsored retirement plan;
• 79% didn’t attend prestigious schools
• 1/3 never had a six figure income in a single working year;
• Only 31% averaged $100k per year;
• Only 7% averaged a $200k income over the course of their career;
• The average millionaire hit the $1 million mark at the age of 49;
• Not one millionaire out of the 10,000 put “single stock” in their top 3 wealth building factors;
• The top 3 occupations were engineer, accountant and teacher;
• 80% exercise at least 3 times a week.

As a person who likes to exercise and tries to do it at least 3 times a week, I find the last part interesting, because I think that it’s indicative of the self discipline of this group of people.

In fact, the percentage of Americans that get the recommended amount of exercise or more each week is a minority as well. According to a report found here only about 23% of Americans get the weekly recommended amount of 150 minutes of moderately intense exercise or 75 minutes of intense exercise. Considering that about 7% of all the households in the US are millionaire households, there is a good chance that a number of people at your local gym are millionaires (assuming of course they don’t have their own gym, but this question didn’t seem to make the survey).

Overall though, there are 4 main lessons that I think everyone can take away from both The Millionaire Next Door and Everyday Millionaires.

Get An Education

There is a lot if doubt today as to whether college is worth it. Some of those arguments have some validity. Not much you learn in college will help you deal with your mindset, navigate office politics or move you up the ladder. Much of that comes from life experience and what you have going on deep inside of you.

Despite all that, there still is an argument for college here. If you go to college, start a business, fail miserably and start again from nothing, the characteristics of millionaires should show you that you can still fall back on a routine job that requires a college education to slowly build your assets up over time to achieve millionaire status. The statistic that 88% of them have bachelor’s degrees when the general adult population figure is 33%, should be overwhelming evidence that education is a much easier path to millionaire status.

Save

The only way to become a millionaire in terms of net worth is to save a million. Whether you do this in 2 years or 20 years is not the point, you have to save it to keep it. If you consistently spend all your income, you will never become a millionaire, period. Not only that, you shouldn’t pat yourself on the back for saving once or a few times, but make it a habit. You should be making saving part of your daily routine. Routine is at the heart of achieving great things over time, each book is written page by page not all at once.

If there is any better evidence that demonstrates this, it is that one of the top 3 occupations is teacher. That’s right, teachers. If you think about it, teachers are around other teachers all day and they usually share a culture of savings and frugality but are also highly educated. This seems to be a rarity, especially in other industries like finance or tech where a Porsche or Lamborghini shows your success. Teachers know they won’t be in the highest paid profession so they have to make what they have work, which includes saving and investing diligently. That brings me to the next key takeaway.

Investing

Notice that most millionaires now achieve that status through their employer sponsored retirement plan. This is not a coincidence. Those savings are usually invested in the stock market or a mixture of stocks and bonds. The long term return of a 50/50 mix of equities and bonds or 80/20 mix of equities to bonds, yields returns between 7% to 10% annually over time.

When savings are consistently poured into these funds over time and compounding is left alone to take its effect, the end result is multiples of whatever you put in.

Take for example, the fact that the average millionaire becomes one at the age of 49. If we were to break down what would be needed annually at an 8% average annual return back to the time when that millionaire was 22 and getting out of college we would need about $12,000 annually put away over that period to achieve $1 million. This may sound like a lot but comes out to about 20% of the median household income of $59,000 in the US which means this amount doable for likely more than half of all households. Especially if part of that $12,000 is not all from you but rather matched from an employer. This brings me to my final point.

Discipline

As I pointed out with the exercise example, it’s evident of people that have a high form of discipline. Discipline is something that just about anyone can learn, but it comes from internal motivation and dialogue which pushes you to consistently do whatever it is you know is the right behavior that pushes you along towards your goal.

Many people have pieces of all these 4 factors but not the whole package. You can be educated, save and invest but if you don’t do it consistently, your efforts likely won’t work out over the long run.

It also represents a consistency in shunning what society tells us we should do: buy the newest car or the biggest house. Discipline in the case of millionaires is knowing that your goals are not necessarily material things. One thing consistent in both books is that millionaires valued their time over material possessions. Having the resiliency and discipline to know your why will help you answer the question of how over a long period of time.

Conclusion

The verdict is in and millionaires are still frugal, practical, savers and investors. They aren’t what you see on TV, most aren’t sports stars or Kardashians. Most millionaires remain in plain sight, happy to have you overlook them as they stack their riches. If you want to take the easy road to getting rich, get to know one of the “average” millionaires, you may be surprised at how down to earth they really are.

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