The Millionaire Next Door by Thomas Stanley and William Danko

The Millionaire Next Door made waves when it was published as the revolutionary book based on the lives of millionaires.  It is based on 20 years of research by Thomas Stanley and William Danko.  The concepts I remember most from this book are:

  • UAW vs. PAW.  Or underaccumulators of wealth vs. prodigious accumulators of wealth.  It doesn't matter how much you earn, you can be a PAW relative to that income.

  • The PAW formula for net worth: Multiply gross annual income by age and divide by 10.

  • Wealth building, at least for most of the millionaires in the book, is a slow and long process.

  • Your offense is the process of earning income.  Defense is being frugal.  Millionaires drive second-hand cars and don't necessarily live in expensive neighborhoods.

  • Most people who look wealthy are probably not.
One significant takeaway, for me, is how to raise kids such that they will be financially independent and secure about their own ability to earn and keep wealth.  Sheltering them from the difficulties or the experience of earning weakens them.  This is proven by the numerous cases of first generation millionaires who's wealth are all spent by the third generation becuase the parents shelter their children financially.  In a way, this is a parenting book. :)

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