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 #2 – I 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