The Millionaire Next Door Summary
The Millionaire Next Door Summary book of Thomas J. Stanley. In this book, Thomas wants to explain how to leave a wealthy life and what are its characteristics and takeaways. So let start with a takeaway and exmples of it.
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| The Millionaire Next Door Summary |
Who are the Millionaires?
Is it the people living on the Upper East Side in New York the
people living in Stockholm?
Well, yes, and yes, but the typical millionaire doesn’t live
there they live next door.
What can we learn from these peoples so that we also one
day, may call ourselves, Millionaires?
Takeaway 1: The 12 Characteristics of a Millionaire
Contrary to many people’s beliefs, it’s rarely luck or
inheritance that decides whether you will be a millionaire or not. It’s much
more a result of hard work, lifestyle decision planning and self-discipline.
Let’s pretend that we can interview the millionaire
population.
This is what we can interview the millionaire
population.
This is what they would tell us: we live below our mean.
About 50% of us have lived in the same house for more than
20 years.
Our time, energy, and money are allocated towards wealth.
We spend more than twice the amount of time on financial
planning and investment as our non-millionaire friends.
We think freedom and financial security are more important
than displaying high social status.
We never received cash gifts from our parents.
We are self-employed.
About 2/3 of us have ourselves as our bosses.
75% of us consider ourselves entrepreneurs.
Most of us are in our 50s and are males.
We have a go-to-h**|-fund, which means that we can keep our
lifestyle for 10 years or more, without bringing in additional income.
We are well educated.
Only 1/5 of us aren’t college graduates.
We invest a lot! On average, about 20 percent of our
realized income per year, and we make our own investment decision.
We invest in the long run.
Over 90 percent of us hold our investment for more than a
year.
We buy cars by the pound.
And screw those environmentalists! Ha, we are cheapskates.
Ina good way, we would argue.
Takeaway 2: Play Defense.
Let’s do a quick quiz.
Does your household operate on an annual budget?
Do you know much your family spends each year on food,
clothing and shelter?
Do you have a clearly defined set of daily, weekly, monthly
and lifetime goals?
Do you spend a lot of time planning your financial future?
Did you answer yes to all the above?
Millionaires, to a greater extent than others, do.
Now you probably think: hold on a second!
Why would someone who’s a millionaire need a budget?
To that, the answer is: because they became millionaires
that way and they maintain their affluent status the same way.
A parallel could easily be drawn to training.
Have you seen all the tubers that go to the gym every day?
They are the ones who seem not to need it, right?
But that’s why they are fit! Becoming and staying
financially independent is not much different from that.
So how do you play great defines then?
For starters, you should buy (or rent) a house in a modest neighborhood, not an upper-class one.
The price tag of an apartment or Manhattan for instance even
though, I know, it’s stunning, does not factor in all the variables.
To live there it’s expected that you have a certain
lifestyle.
This lifestyle might be even more expensive in the long run
then the apartment itself.
Live in a modest (but safe) area instead and you will find
it easy to keep up with, and even stay ahead of, the joneses and still
accumulate wealth in general, spend as little as possible on consumables and
spend smart on possessions that will depreciate in value.
To be honest, most millionaires do both.
They have a decent offensive as well as quality defense.
But only a minority plays such good offensively that they can
eat their salary and keep it too.
If you don’t belong to that category, which only is 0.1% of
we do anyway, learn how to play defense.
Takeaway 3: The True Cost of Consumption
Let’s disregard all the costs that a certain purchase might
result in later, as explained thought the apartment on Manhattan example in our
last takeaway.
The price tag still does not fully represent what you pay
when buying something.
There are two reasons why this is not true.
1: the opportunity cost, the monetary one.
An opportunity cost is the loss of other alternatives when
one of them is chosen.
Let’s pretend that you had an iPhone 6 in November 2017.
Now, if you like most people, you upgrade your phone every
second-year or so.
So now you’re thinking about the new iPhone X.
Even though the price tag was hard to swallow, to begin with
(seriously 999 dollars for a phone)
You haven’t yet factored in opportunity costs.
If you choose to buy the iPhone X you miss the opportunity
to invest your money, for instance, in the stock market.
At an annual 10% in returns, the price of your new phone is:
$2,591 after 10 years.
$6,720 after twenty years
$117,000 after fifty years
Now, do you still want to buy that new phone?
Cigarettes (yeah, yeah, it’s a cliché, I know) are an even
greater example.
At least your iPhone X doesn’t affect your life expectancy
negatively.
If you, instead of smoking 3 packages of cigarettes every
day, invested the money in the money in the tobacco company Philip Morris,
during the time period of 1950 to1996, you would have been a multimillionaire at
the end of the period.
2: the opportunity cost of time.
To acquire and maintain large inventories of luxury goods
such as fancy cars, expensive clothing and so on, does not only require money,
but also a lot of time.
You don’t buy a Ferrari without first studying the market.
Neither can you keep a high-profile wardrobe without
investing a lot of time in understanding the latest trends, the greatest
brands, and so on?
This is time that could have been used to increase your
financial intelligence, to improve your business or to set up a proper budget
for your household instead.
Time and energy of
finite resources, even for high-income producers
Or perhaps especially for high-income producers
Why would you spend 60 to 80 hours a week at a job trying to
become wealthy and then spend the remaining few hours of the week, ruining this
same wealth?
It’s like trying to build a house during weekdays, but then
bringing in the wrecking ball on the weekends.
Do you think that you’ll ever be able to raise a house with
that strategy?
Takeaway 4: Cash Gifts are Bear Favors.
A bear favor is a Swedish expression of someone doing
another person a service that they think will have a positive impact but which
ends up being a disservice instead.
Well, I guess the English expression for it is just
disservice.
Takeaway 4: cash gifts are disservices?
Nah! Every wealthy parent, or actually every parent, wants
their children to be prosperous and successful in life.
How do wealthy parents make sure that their kids get a head start?
Well, they provide them with extra money of course!
This proves to be counterproductive though.
In fact, in general, the more dollars children receive the
fewer they accumulate.
Adults who sit around waiting for the next injection of
fathers and mothers are much less productive than their counterparts.
Cash gifts teach children to live above their means.
Gift receivers have in 80% of the instance a lower net worth
than their peers.
Adults who get money from their parents have a hard time distinguishing their parent’s wallets and their own.
In fact, more often than not, they think they belong to the
‘’I did it on my own club’’.
It’s much easier to spend other people’s money than dollars
that are self-generated.
So, in case you’re wondering, what can you give your kids
that will increase their likelihood of becoming prosperous and successful?
The single most common gift millionaires received from their
parents is tuition.
Apart from that try to create an environment where
independent thought is cherished and where achievements, responsibility and
leadership is rewarded.
Yes, the best things in life are often free.
Takeaway 5: How to decide if you are on the Right Track
Now, are you on your way to become financially independent,
or are you actually going in the opposite direction, towards a life of the credit
cards and spottily fermium accounts?
You’re expected net worth can be estimated using the
following formula: age x realized yearly pre-tax income / 10 = net worth.
Exclude any inherited wealth both on the yearly pre-tax
income and your net worth.
Let’s take a few examples: the Swedish prime minister,
Stefan livens, earned approximately $220,000 last year at the age of 61.
This means that his net worth should be 61 x 220,000/10
which $1,342,000 is ….
An engineer at Volvo who recently was promoted to the rank
of the middle manager is earning $70,000 at the age of 30.
His net worth should be 30 x 70,000/10. $210,000
A student at the Stockholm School of economics is in his last
bachelor year of study.
He’s 23 years of age but earns nothing.
This means that his net worth should be 23 x 0 / 10…
Oh, well, I guess that the formula doesn’t apply to
students, HOORAY!
Students can just keep in parting night.
Now, this is just your expected net worth.
But you guys aren’t here to be average.
Am I right?
Above the ranks of the average accumulators of wealth ‘’are
the ‘’prodigious accumulates of wealth’’ if you want to be part of the exclusive club you must gather a fortune that is twice the amount of what the
formula suggests.
But it doesn’t end here.
Above this exclusive group are the super prodigious
accumulators of wealth to join this club of glorious elites, you must have a
wealth that is 10 times higher than the formula explained before.
Now that requires dedication!
On the other hand, only worth half of what the
formula says that you should be worth, you belong to the under accumulators of
wealth.
Calling out to the competitive person inside you, I have one thing to tell you: friend it’s time for us to get you on the right track.
Here’s a quick recap: first, becoming a millionaire is the
result of hard work, lifestyle decisions, planning, and self-discipline not
inheritance or luck.
The second takeaway is that you must play great defense to
accumulate wealth.
Takeaway 3 is that opportunity costs, both in terms of money
and time should be added to estimate the true cost of a purchase.
Takeaway 4 is the cash gifts are counterproductive to
accumulate wealth, and last but not least,
Takeaway 5 is that you can decide if you are on the right
track towards becoming a millionaire by taking your age x yearly income / 10
and comparing it to your net worth.
Guys, if you’ve been watching this far, I must first say
that I appreciate it a lot!
Also, you are probably on the right track towards financial
independence, no matter what the wealth formula say’s as you must have an
interest in the subject and a desire to improve.
In takeaway 2, I stand that financial planning, and more
importantly, financial goals, are key ingredients in succeeding with money.
A study from 2015 shows that you are a staggering 42% more
likely to achieve your goals, simply by writing them down on a regular basis
Today, I want to challenge you to write down your financial
goals for the future 5, 10, and 20 years.
Note that it’s not about where you are today, but where you
want to be tomorrow.
You can write down anything, even things such as expensive
cars, as long as it keeps you motivated.
Here’s one example of what you could write: in five years I
should have built a stock portfolio, which increased by at least 100%.
The portfolio should be worth at least $30,000 in 10 years.
I should own my own apartment, meaning that I have no
mortgages left to pay in 20 years; I should have paid off all my portfolio
produces.
Just remember that your goals should be reasonable for this
exercise to serve its purpose.
I wish all of you out there, good luck!
Characteristics of a Millionaires:
1] Income > Expense
2] 2X More Time Spent on Financial Planning than Average
3] Self-Employed
4] Invest 20% of Income
5] Well Educated
6] Don't display high social status
7] Future Planning
8] Planned their Goal
9] Never Stop Learning
10] Maintain their Health
2020 
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