Book Review: 5 Takeaways from The Millionaire Next Door

Here we are. The first book review EVER posted on this website and I could not think of a better book to begin with.  Finally, after many references on other blogs and suggestions in forums, I decided to read “The Millionaire Next Door” by Thomas Stanley, PHD and Willian Danko, PHD.  It amazes me that it has taken me THIS long to read the book, but I guess it is better late than never, right?  One of my goals in 2017 was to read more books, so this seemed like a great place to start.  Here are some of my thoughts on the book.

My 5 Takeaways

In this review, I am going to try to avoid re-stating the definitions and facts discussed within the book.  I may cite and define some as a part of the analysis, but my intent will be to give my analysis on the book rather than a summary.  Here are my 5 takeaways from reading this book:

Takeaway #1 –  The Lessons and Advice from This Book Will Resonate Forever –  I wish I could quote them all, but here are the lessons that I will never forget and will always be on my mind as I strive to become a millionaire next door.

  • Income Does Note Equate to Wealth
  • Live Frugally, Play Great Defense with Your Money
  • Avoid Lifestyle Creep, Live Below Your Means
  • “Financial Independence Is More Important Than Displaying High Social Status”
  • Teaching Children to be Economically Self-Sufficient (See “Take #5”)

 Again, I could have filled this article with quotes and lessons alone.  But I won’t, because I highly recommend you read the book and experience the lessons for yourself!

Takeaway #2I Should Have Read This Book Right Out Of College or Earlier in My Journey – My first impression of the book was “Man, I really wish I would have read this book right out of college versus when I was 27.”  Why?  Because right out of college, I wasn’t exactly the PAW that I am today (PAW = Prodigious Accumulator of Wealth).  There was a time in my life where I wasn’t as frugal and as early retirement as I am now.  I made some smart financial decisions and I made some dumb financial decisions.  It wasn’t until I met Lanny that I really began focusing on investing as much as possible, getting a strong passive income stream together, and analyzing the You Know What out of every decision to score the best possible deal.

With that being said, because I do consider myself a PAW now and I do put such thought and care into my life/financial decisions, part of the book was a little slow for me to read.  Since I already have this thought process, I didn’t necessarily need to be convinced to live frugally, avoid lifestyle creep, and focus on accumulating your wealth versus spending it.  I already believe that and it is a stubborn point of my mentality already.  There were sections that I was quickly reading through to see what was next.

That being said, I really wish I would have read the book when I started this journey.  I would have liked to think that I would have avoided my financial mistakes at an early age.  I most likely wouldn’t have bought a new Camry when I bought a car (instead opting for new) or I may not have rented when I was out of college (instead opting to live at home or buy a starter home).  Hindsight is 20/20 of course and there is nothing I can do about it now, so I’m not going to dwell on the past.  But going forward, I will suggest this book to anyone that is a UAW (Under Accumulator of Wealth) or someone who is fresh out of college or looking to discover living below their means and accumulating wealth.

Takeaway #3 This Book Helped Me With My Housing Search–  Just because I wish I would have read this sooner and found some parts slow, does not mean that the book wasn’t immensely helpful in other areas.  Reading this book could not have been more perfectly timed with two pretty big financial decisions that occurred in May.

We’ve discussed it many times on this website and I’m sure all of you are tired of hearing me talk about it, but my wife and I recently purchased a new house.  I was nervous about the price, because it is the largest financial commitment I have ever made.  Our purchase price was $260,000 and with 15% down, that equated to a loan of $221,000.  In the book, Stanley discusses buying a house in-depth, discussing about resisting the urge of over leveraging, buying in an area that will only increase your lifestyle and spending habits, and resisting the urge to buy more because you can.   He broke down an equation:

“The market value of your house should not be more than three times your household’s annual income”

Boom, this sentence in the book put me to ease. We fell within this mark.  I’ll always be uneasy having a large outstanding debt and a mortgage to pay, but knowing that I checked this box was important to me and a much-needed sigh of relief in a process that was stressful.

Takeaway #4 – This Book Was Extremely Influential in My Car Purchase –  If you aren’t sick of hearing me talk about my house, I’m sure you all are sick and tired of hearing about my wife and I purchasing our first used vehicle.   If you recall, I was leaning towards purchasing a new car for a long time.  Then after purchasing a house, we decided to pursue the “Used” car market for the first time.   Oh wait, that wasn’t the only triggering event in between.  I also happened to read the chapters in the book relating to millionaire’s car buying habits.

The majority of the millionaires in the book purchased used vehicles.  One of the interesting pieces, that was commonly noted in the comment section of my articles too, was that the people who purchased a used car felt like they were getting a bargain because the original owner paid for the depreciation.  That was a point that resonated with me.   To contrast that point, Stanley also discussed how under accumulators of wealth purchased expensive cars to maintain a high consumption lifestyle and “Keep up with the Jones.”   After reading this discussion, I was convinced that we were buying our first used car.  And most likely, all of our cars will be used going forward.

Takeaway #5 – Amazing Insight for Raising Financially Responsible Children –  I probably found this to be the most fascinating section of the book.  Stanly spent a lot of time discussing the importance of raising financially self-sufficient children and the impact that providing “economic outpatient care” has on the financial life of your children.  The cliché  “Give a person a fish, the eat for a day.  Teach a person to fish and you feed them for a lifetime” could not have described my takeaway any better.

If you have a child that is not a saver and lives a high consumption lifestyle, providing them an allowance or additional capital may just further enable or worsen the situation.  The intention of helping them with a gift or a down payment on their expensive house may seem like a great idea at the time, but the impact may not be as beneficial as you may think.   For example, Stanley often cited an example about helping with a down payment for a house in an area that will require the child to maintain an expensive lifestyle.  That’s the economic support that I want to avoid.  Stanley then does a great job of providing other examples that help further show beneficial and harmful sources of economic support.

But I didn’t leave the book feeling like I am never going to provide my children with financial support or education.  I think that would be the wrong takeaway there.     But I want to make sure I teach my children to become independent.  I’ll spend my time and money showing them how to save, how to live within their means, and teaching them how to become a Millionaire Next Door themselves.   Do I have the answer on how I will do this right now?  HECK NO.  But that’s the fun part of parenting. My wife and I will figure it out together and we will figure out what works best.

Summary

Hopefully you can all see that this book has provided me with a TON of great insight.   But there are SO many more lessons that I could have referenced here.  I would highly recommend this book to any person that is looking to start a journey towards financial freedom.  Heck, I’m almost saying this is a must read for those at the beginning stages of the process.

Please all, if you had other takeaways from the book, PLEASE SHARE them in the comments section.  I know there are a ton of others thoughts.   For those of you that have read the book, what did you think about the book?  Did this book inspire you and lead you to take any action on your finances?

-Bert

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31 thoughts on “Book Review: 5 Takeaways from The Millionaire Next Door

  1. Thanks for the recommendation and your thoughts on the book. I’ll definitely give it a try.

    And it’s all about the right mindset. Glad for those who get the proper support (and education) from their parents just from the beginning because they can use time to their advantage. Start early and Just Do It!

    CU Ingo.

    • CU Ingo,

      Worth the read for sure. You are absolutely right. You don’t have to follow everything said in the book to a T because each person will find their own way to adopt the principles talked about in the book. If you can shift from a high consumption mindset to a high savings mindset, you will be in great shape for the future. I’m lucky my mom focused and taught me about savings growing up and it helped me get my investing/saving mindset going at an early age. Books and blogs like these helped shape me in the future and influence who I am now, but my mom laid the groundwork for me.

      Thanks for stopping by!

      Bert

  2. This is one of my favorite books! I read it within my first year out of college and it has shaped my life. I was under the impression that millionaires were driving fancy cars, living in the big houses I drove past on my way to work in a posh southern California town, and sent their kids to the $30K/yr middle school next door to my employer. Nope! This book opened my eyes to the glorious reality that many millionaires were just like me… normal people driving normal cars, living in normal houses, cutting coupons, and working normal jobs. Thank goodness!

    • In college and even leaving college, I was the same way. It was all about making money to live the crazy lifestyle. I’ve been out of college now for five years now and am just reading this book for the first time. I am SO lucky that I stumbled on frugal living at an early age so that this book wasn’t a wake up call too far out and after too many dollars were burned. I’m happy for you that you had this at a relatively young age where it made a HUGE impact. I’m glad we are in the same normal car, coupon cutting, saving like crazy club here. It is great and I cannot promote this book to enough people!

      Thanks so much for the comment.

      Bert

  3. It does help with big purchases like house and car. With such a major life purchase worth so much money, why not have the knowledge base behind it? If a bank tells you you can “afford” a million dollar house, it doesn’t mean you should. That is not living below your means at all. I think the main thing is to think critically and don’t just try to keep up with the Jones’. Great book though.

    • Couldn’t agree more Dividend Daze and you said it very well. That’s just common sense right there. I can only imagine how miserable I would have felt buying a house for the price that the bank told us we can afford versus what we actually paid. The disparity between the two was unbelievable.

      Thanks for the comment!

      Bert

  4. I agree 100% with takeaway number 1. I read this book years ago and all of the big picture lessons are still at the forefront of my mind. It really does an amazing job of extracting and explaining the most important parts of personal finance.

    • Thanks Matt – I couldn’t agree more. These lessons are ones that I will also always carry with me and cannot to teach my family about too. I’m sure I’ll be tweeting out some of the quotes as well haha

      Thanks again for stopping by and the comment.

      Bert

  5. Sounds like I have to add this book to my reading list. Ive heard of it before but never really taken the the time to read it from beginning to end. Now that I’m into audiobooks that might be the way to go with this one. Thanks for the recommendation.

    • I’m sure they have an audio book…they have to! If you enjoy reading finance books (or listening to finance books) I would DEFINITELY add this to the top of your list. Let me know what you think of it when you do finally read the book.

      Bert

  6. Woohoo, the first book review by a Diplomat! Great reading this, Bert.
    Really love seeing all the twitter headlines with you reading a book. That goal is really lifting of this time 😉

    I didn’t read the book. But as I read your take aways and the comments here, it can really help change the perception most people have of rich people, and better yet how to get a mindset to build wealth for yourself. Still on my reading list, so thanks for the reminder!

    • Thanks Divnomics. Hopefully there will be plenty more book reviews coming down the pipeline. I’ve been trying to read more (with limited success) but I’ll keep on trying and sharing the books I am able to finish with all of you. You hit the nail on the head. The main theme is to focus on accumulating wealth and saving your earnings. The author does a great, thorough job explaining everything as well. Definitely recommend reading it.

      Bert

  7. Good review! The only part of this book that bothered me was your takeaway #5. Partly I don’t like the condescending tone that the book takes toward children who get help from their parents, and partly I don’t feel it’s really accurate. If I take my and my brother’s cases, both of us got some help from parents in terms of cars and housing. This allowed us to do two things: (1) get on the housing ladder in high-quality areas that enjoy a lot of appreciation, and (2) start companies rather than maximizing short term salaries. We each ended up selling our companies for millions of dollars a few years later. While this is far from a guarantee, my point is that I feel the book makes too blanket of statements about inter-generational help. Certainly if you’re taking money to laze around that’s a bad idea, but taking money and being irresponsible are not the same thing.

    • A fan,

      Thank you so much for the comment and sharing your perspective. Based on your situation, I can understand why you feel that way about that section of the book and how the author presents the arguments and lessons. To me, the structure of each section was showing a poll. How many people did X or Y, with one being the accumulating wealth trend and the other…not so much. Then, the author would tend to highlight and focus the attention on the UAW trend and discuss ways of avoiding the pitfall. At least that is how I notice the structure. Since you fell into the other category, the one where you received help from your parents but also seemed to become financially independent, your situation was glazed over. Its not that every single wealthy person raises financially irresponsible children, that wasn’t the message. But it appears to be much more common than you would expect.

      I agree with you. Just because you take money from your parents or receive help from them doesn’t mean you will be on family welfare the rest of your life. Heck, you are a case study for the exact opposite. That point could have been articulated better.

      Thanks again for the comment and your perspective. Take care!

      Bert

      • Hi Bert,
        Thanks for your reply – I appreciate your thoughtful and constructive engagement. You’re right about the approach of the book in looking at averages and correlations. And, I do agree with the overall message, even if I quibble with some details. Not sure if you saw Mr Tako’s recent Top 4 book review, but there were some interesting titles in there I hadn’t seen before that you might want to check out.
        Lastly, wanted to reiterate how much I appreciate the blog – keep up the good work!

  8. That’s all very true for me. I do have several millionaire (and one billionaire) friends and they don’t all fit the book. A couple of them have their own jets and own three mansions in different places and all of them drive fancy new cars but they were also all CEO’s of very large corporations and/or inherited some serious family money. I don’t begrudge their lifestyles and enjoy going on an occasional road trip with them. They can easily afford everything they buy and they created a lot of value in their careers and are still generously supporting many worthy causes. They are honest and hard working people and good friends to have. In my case I started with nothing as did my wife and we are quite comfortable millionaires next door driving older used cars and still living in a modest neighborhood in our first and only modest house. Our grown employed kids do not require any money help from us and paid 95% of their own college costs via scholarships and working. However we would have paid their college if they had needed us to without any worries.

    • Steveark,

      Amazing. That you for sharing your story and you are this book and the picture they are trying to paint. There is one thing that I love in your comment. I love that you are happy with your lifestyle and you don’t resent or begrudge your friends for spending the money. You have a strong separation of your life and theirs, and clearly don’t try to push your frugal living beliefs on them. Sounds ridiculous, but I’m sure there are plenty of people that would not feel that way.

      Thank you so much for the comment.

      Bert

  9. Thank you for sharing your insights! This is one of my go-to books. When I start getting to spend-crazy, I need to be brought down to earth. Luckily, I read this book when I was in college. I don’t think I’d be where I’m at without coming across this book. Very helpful, especially for the millennial cohort!

    • Tim Kim,

      How’s it going?? Thanks for the comment and I couldn’t be happier to share my thoughts. I’m also loving all the comments and opinions I am receiving from others here. Glad you were able to get a hold of and read this book at such a young age. It is very informative and does a great job of breaking everything down.

      Bert

    • Didn’t mean to hit reply yet.

      Wealth > materials with the definition of wealth as a wealth of everything in your life. To me the millionaires appreciate the things that really make people happy, resulting in them having more money plus a much happier life.

      This is the book that literally changed my life and view on finances – thanks for the reminder !

      • Amen Chris! That’s amazing that it had such a profound impact on your life. Its all about accumulating wealth so you can focus on what makes you happy. That’s the name of the game and to me and so many of us, we want the time to appreciate our life. I’ll recommend this book to anyone that is willing to listen.

        Thanks for the amazing comment.

        Bert

  10. Fantastic Review! I read this book last summer and it provided great insights. Indeed, income does not equal wealth. You can make a big six-figure salary and yet have zero wealth. Living above your means hinders wealth accumulation. I liked the examples of PAWs and UAWs. I remember taking a refreshed financial look at myself and the people around me and realizing what side we all fell on. I recommended this book to a few UAWs and I hope it helped them out some. In hindsight, I wish I came across this book earlier in my life as well…

    • Thanks MDD! So here is the big question, what impact did the book have on the UAWs? I would love to hear the end result of it all. It just does a great job of breaking everything down and focusing on the habits and the easy changes that can be to become a PAW.

      Bert

  11. Hey DD,

    I love that you’re doing a book review! I’m the same way, needing to read more, especially finance-related books. These lessons learned are great. I was reading your third takeaway, calculating in my head what I should expect to pay for a house. So I was calculating three times my salary (it’ll be a small house). lol

    Keep these up, I might actually start picking up a book or two, =)
    Andrew

    • Andrew,

      Thanks for the comment and the tweet earlier! much appreciated. Doing a book review was fun and I was happy to do it and share the morals of the story. When you get around to it, definitely share your thoughts and lessons so I can find another book to add to my list.

      Bert

  12. It was a good book. I too wish I had read it when I was in college. Our first house put us in loads of debt. Even my second house was a blunder. All of our cars were newly purchased. That has all changed but I learned the hard way. Now my kids work for income which they mostly invest. My goal is to teach them how to be happy on less.
    Cheers,
    DFG

    • DFG,

      Wow – you’re kids are lucky that you are taking the time to share you lessons and knowledge with them. Clearly it is making them better financially. In a perfect world, everyone learns their lessons on the front end. But for so many, lessons are learned the hard way. What’s important is what you learn from the lesson and how you change your habits. And in your case, how you teach the habits to others so the lesson can have a more profound impact and reach as many people as possible.

      Bert

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