The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko was the first financial book I ever picked up. The book covers spending and saving habits of the wealthy and those that make a lot money but have nothing to show for it. They break the behavior up it tow categories:
- Unders Accumulator of Wealth (UAWs)
- Prodigious Accumulator of Wealth (PAWs)
A UAW is someone who makes a living, probably a good one, but doesn’t accumulate wealth through tools like homeownership and retirement savings. They are likely to have a lot of debt and a short term vision on what being wealthy means. They strongly buy in psychologically to a consumer mind set.
A PAW is someone who also makes a living of any kind and accumulates wealth through long term goals. They understand that they want to maintain the lifestyle long past when they no longer work. It doesn’t matter how much they make a year but a PAW always pays themselves first and are frugal with their spending.
What Stanley and Danko drive home through their research is that you probably wouldn’t recognize a millionaire on the streets. The people you think are wealthy are probably living pay check to paycheck to maintain their lifestyle.
Her are some common traits of a PAW:
- Buy used cars and/or shops around for a good deal
- Has a retirement savings (401k/IRA)
- Own their home
- Student loans and credit cards are paid off
- Are entrepreneurs
It has been about 4 months since picking up the book and all these things I mentioned still stand out to me. It seems like common sense but humans have a hard time being disciplined with their money.
One final take away that stood out to me was the high number of millionaire entrepreneurs. These people don’t own sexy finance companies. They owned small businesses like plumbing companies, maid services, or other service type companies. Americans are happy to pay others to make their lives easier and is a subject I am likely to explore in future posts.
I highly recommend this book to anybody. It is a perfect gift for any High School or College graduate as it can help them from learning other’s financial lessons instead of making the mistakes on their own.