They're out there, living among us. They could be your neighbor or the dentist you go to twice a year.
No, not visiting aliens. Millionaires. They're just not as flashy as you might have thought.
In The Millionaire Next Door, authors Thomas Stanley and William Danko have turned a career of studying how people become and stay rich into a best-selling book.
Contrary to popular conception and shows like Lifestyles of the Rich and Famous, those who earn large salaries are not necessarily wealthy, while those who earn modest salaries can become quite wealthy. Writing that seems almost heretical, somehow. After all, if you earn $250,000 per year, of course you're wealthy! But what if you spend $255,000 per year? Oops.
What the authors show, with results from surveys and twenty years of research, is that the path to becoming wealthy usually involves "hard work, perseverance, planning, and, most of all, self-discipline." Well, that puts it into the reach of most of us! (Actually, I was holding out hope for finding the Boardwalk game piece from McDonalds'
Stanley and Danko begin the book with a biography of the average millionaire. According to their research, millionaires are usually well-educated (college or better), drive older cars, and are often self-employed. They are assiduous investors but rarely sell what they are invested in. And they are tightwads. They actually spent two or three hours being interviewed by the authors for a measly $250 or less. But hey, money is money.
The authors then introduce the concepts of PAWs, or prodigious accumulators of wealth, and UAWs, or under-accumulators of wealth. It stands to reason, and their research bears it out, that most millionaires belong to the former category and not the latter. They weave the idea of PAW versus UAW throughout the rest of the book.
While the average biography might not fit every single millionaire, many of them do share similarities. What the authors did was take those similarities and boil them down to a list of seven traits that most millionaires share. These traits are:
1. They live well below their means.
2. They spend their time, energy, and money in ways leading to wealth.
3. They do not worry about social status, preferring financial independence.
4. They did not receive a lot of financial help from their parents.
5. Their own adult children are not financially dependent upon them.
6. They target opportunities that benefit from large amounts of spending.
7. They work in the right jobs, often for themselves.
Stanley and Danko then devote the rest of the book, one chapter each, to a deeper exploration of each trait. For instance, in the chapter devoted to not keeping up with the Joneses (No. 3 in the above list), they point out that most millionaires -- more than 57% -- drive American-made cars. The most popular are those manufactured by Ford
In the chapter devoted to what they call economic outpatient care, No. 4 above, the authors point out that most millionaires did not receive substantial financial help from their parents. Those people that do receive such help tend to be UAWs and not wealthy at all. For instance, their data shows that people who routinely receive financial gifts from their parents every year are favorite customers of credit card companies like MasterCard
However, I think the chapter that contains the most important advice is the one on living below your means. In discussing this topic and how it pertains to millionaires, the authors write, "Being frugal is the cornerstone of wealth building. ... [F]ew could have ever supported a high-consumption lifestyle and become millionaires in the same lifetime." In other words, buying lots of frills, such as jewelry from Blue Nile
If you haven't picked up a copy of the book and read it, and if you have dreams of becoming wealthy yourself, consider checking a copy out of the library. (After all, it's never too early to begin following the "live below your means advice," is it?) This book provides many insights as to what works and what doesn't, with data obtained from your neighbors.
Trait number eight might have been: They read Motley Fool GreenLight.Click herefor more details.
Fool contributor Jim Mueller isn't a millionaire -- yet. He owns shares of Blue Nile, but no other company mentioned. Blue Nile is a Hidden Gems and Rule Breakers recommendation while MasterCard is an Inside Value pick. The Fool is investors writing for investors.