I bought this book at a second hand store for only $2. The regular price was $10.99. That’s an 80% discount for a book which is just as valuable today as when it was written in 1996. One of the millionaire’s habits is to constantly be on the lookout for good value.
The irony of Dr. Stanley’s death
Unfortunately Dr. Thomas J. Stanley (1943-2015) left us last year after a fatal car accident. He was a fantastic writer of business books. He wrote many New York Times’ best sellers including The Millionaire Next Door and The Millionaire Mind. The ironic thing about his death is that after a lifetime of pontificating abstinence and frugality, he died while driving his brand new, luxurious Corvette.
Are you a PAW or a UAW?
Dr. Stanley divides people in two categories: Prodigious Accumulators of Wealth (PAW) and Under Accumulators of Wealth (UAW). He creates this division by using a formula. He multiplies the person’s age, times their annual income, times 10%. If your net worth is above that number, you are a PAW. If your net worth is below that number, you are a UAW.
Let’s experiment, let’s see if I am a PAW or a UAW.
I’m 49 years old.
My income is about $18,000 per year.
49 old X $18,000 X 0.10 = $88,200
My net worth is about $150,000, so according to this formula, I am a Prodigious Accumulator of Wealth (PAW.) Yeeeaaahhh.
Try it! Are you a PAW or UAW?
The book goes on to describe the habits of millionaires and of people with high incomes who are not millionaires.
Dr. Stanley doesn’t tell us exactly the sample size, nor how he managed to have so much face time to interview all the subjects of his study.
I really enjoyed the book and I think everyone who wishes to be a millionaire should read it. It shares many of the principles and ideas that I am implementing to become a millionaire.
At the same time, I think that the book is highly deceiving favoring the romantic idea of a person who starts from a humble background and who through decades of self sacrifice, deprivation and hard work, becomes a millionaire.
Almost all the subjects covered in the book were self employed, white male, blue collar workers. In his samples, there were no females, no movie actors, no sport celebrities, no CEOs from big companies, no rich traders from Wall Street, no programmers from Silicon Valley or the equivalent from that time. Where were all those millionaires? They were nowhere because they don’t fit the ideal character which Mr. Stanley portrays in his book. Although I loved the book, it’s credibility is highly questionable.
Although I don’t believe the research, I believe that the lessons shared are of great value to anyone who wants to increase their wealth. Here are some of those lessons:
Spend less than you earn
According to the book, all the millionaires had frugal wives and they owe their wealth, in part, to the wife’s ability to cut coupons.
I am a deep believer in the “spend less than you earn” philosophy, but I think he could have found better examples than frugal wives.
Avoid buying status objects or leading a status lifestyle
There is a lot to say about this subject and there are many anecdotes to support it, but it boils down to spending less than you earn.
Willing to take a risk
Since most of the millionaires were business owners, they all took the risk of starting their own businesses. It’s hare to become rich when you depend on a salary.
Inter generational lessons
Dr. Stanley claims that sons of high consumers become high consumers and sons of frugal people become frugal. In short, your destiny is predetermined by the habits of your household. It is ironic that most of these millionaires were self-made millionaires from humble families. Yes, your family habits and background can influence your future, but all of the alleged millionaires overcame those odds.
Although the book is portrayed as serious research, I see it more as a depiction of the fictional character that Dr. Stanley had of the ideal millionaire. All the millionaires of the book became millionaires for the sake of becoming millionaires. They deprived themselves from their own money during their whole life.
Here’s the story of Mr. Ronald Read a Vermont gas station attendant and janitor, who had a portfolio of $8 million dollars by the time he died at 92. He accumulated that much wealth by saving, investing wisely, and being frugal. Mr. Ronald Read never enjoyed any of his own money. This is The Millionaire Next Door.
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