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November 07, 2007


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I agree, Millionaire Next Door is a great read. I'm reminded of the book whenever I see someone driving around in an expensive SUV. Why can't I have that is what I wonder. Then I remember it's because I'd rather be wealthy later on than have something flashy now. Even as my wealth grows I'm going to stick to a simple lifestyle. It is easy to become wealthy. What makes wealth unique is that most don't want to follow the basic principles like spend less than you earn.

FFB - somebody's gotta keep those Hummer dealers in business. It really does amaze me how many luxury cars I see on the road today. My guess is at least 50% of the people driving them shouldn't be.

But seriously, I feel the same way you do. Even if I was making $200k a year, I don't see myself living in more than a simple 3 or 4 bedroom house in a decent neighborhood. And I'll still happily drive my 1998 Jeep Cherokee until it dies.

I loved that book too. I knew NOTHING about personal finance before I read it. My parents just spent everything they made (which wasn't much) and didn't worry about the future. They taught me to do the same. To this day my mother has next to nothing saved for retirement. The Millionaire Next Door really opened my eyes about the virtues and financial benefits of living beneath your means. I have been living by the basic principles outlined in the book for the past 5 years, and have not done badly.

I think part of the reason millionaires "adhere to middle-class values" is because being a millionaire now is not the level of wealth that it once used to be. We'll be millionaires before the decade is out and to me, we'll still be middle-class (albeit upper middle-class). If we tried to "upgrade" our lifestyle, we wouldn't be millionaires for very long. A millionaire just isn't "elite" anymore. It's regular, everyday people who make a decent living and live below their means.

@ FFB - I think too often people tend to paint with a broad brush when they see someone with something deemed "expensive". Having nice things and being/becoming wealthy are not mutually exclusive. Why work and grow wealth if not to enjoy it?

Work 70 hours per week. That's not much of a lifestyle to me. That's not working hard that's called WORKING DUMB.

buddha- i dont think its necessarily dumb to work 70 hours per week if you are self employed, paid by the job, comissions, etc. if you are making $200 an hour and want to work 70 hours a week for 5-10 years and then relax, go for it. if you are making a $50,000 salary and working 70 hours a week, you should perhaps rethink your situation.

while a million dollars isnt jawdropping anymore, it is still certainly a good amount of money to have to fall back on. i assume that $1,000,000 is in investments and does not include your main residence, cars, jewelry, other personal items. you can easily make $50-100k a year in interest with $1,000,000 to invest. possibly $200k-300k on a good year. i dont believe $300k a year is considered middle class...

i have that same urges to buy nice vehicles, but i am glad that i hold back. after a few years go by, i realize that those amazing cars are now like every other automobile out there and those that bought them are out $30-50k more than myself.

i find that book to be flawed because it considers your personal residence value in your net worth. you can live in a $3 million house and owe $2 million on it and still never be able to stop working because you are a slave to your own consumption habits. buy a normal house, a normal car, dont go out every night, build your invest-able assets to $1M + and live off of the interest, dividends, rent checks, whatever you choose...

Err... ironically, the book says that these "millionaires next door" buy big cars. Huge cars, by the pound, IIRC.

It's an interesting read, but since their surveys weren't scientific they are practically useless. After all, they didn't bother to check if people who are destitute followed the same patterns!

Lastly, even with inflation at 3%, a million isn't what it used to be.

The Millionaire Next Door is a great and inspirational read. Certainly there is room to quibble over how "scientific" the research is (still miles ahead of a lot of other books on financial subjects) and matters such as whether an owner occupied house should be included in a person's net worth (absolutely, yes - I have never seen a valid arguement to the contrary). However, none of that can detract from the very simple message backed up by real life examples.

As has been mentioned above, being a millionaire is not what it used to be - for many it will not be enough to fund a decent retirement lifestyle.

From the Yahoo article:

"You could be a hard-working, dedicated chemistry teacher but you will never create wealth in that way," he added.

So where do these millionaires get the idea that anyone could attain wealth through hard work?

Dude, I think you have misunderstood the phenomenon.

Yes, it is a story about people building wealth through work versus inheritence. But most of these households built that wealth through one of two ways. Stock options in boom areas or they work themselves to the bone.

The reason they are called middle-class millionaires is not because they are living below their means, it's because they don't feel rich. They feel they don't have enough, are not secure, need to get more.

Go visit the website for the book and their blog. You will see what I mean. These are people who have half the prize. They have the net worth, just not the stomach to live off of it.

I mean seriously, re-read the Yahoo article. I don't know many middle-class people who are shopping for 80 foot yachts.

I know this new class of "rich" all too well. They are my colleagues. Wage slaves. They work 70-80 hours a week, probably two wage earners, have a larger than necessary house with a full time nanny for their 2 kids that they rarely see. Sure they chose the neighborhood because of schools, but it's not like they opted for a really middle-class neighborhood with a good school. It's a neighborhoods surrounded like people like them. They vacation in nice resorts for a week or two each year with the kids, but are glued to their cell phone and laptop the whole time. They make, combined, probably 250-400K a year, maybe more, but are saving those funds at a much lesser rate than most of you. So they will end up with net wealth (I'm guessing 4 million+ in twenty years), but would have hit numbers much higher than that if they were saving like most pf blogs advocate. They are basically people who are fortunate enough to have tastes that run more modest than what they could actually spend, but they are not really saving or planning for wealth.

And most of them are pretty miserable. They feel not in control of their lives. They've sacrificed wealth in time for wealth in money. But they have no experience of being truly wealthy.

It's a great sign that you don't need to be born into wealth, you can accumulate it. But don't think these people are great role models. There's a lot bad in the way they live.

To me, being wealthy is far less about a fat bank account as it is being able to choose what makes me happy. That's not what these people are doing.

It may be easy in that you don't have to do a lot, but it isn't easy in that it takes a long time. Thirty years is a long time and can be hard.


You can make $50 - 100 K a year in interest from $1 million? How is that? I thought banks are paying about 5% so that is $50K per year, figure $32K after tax. What about inflation?

I agree $1 million isn't a big number these days, that is the price of a very average house in the Bay area / So Cal.


In 1980, I started as a lowly staff accountant in a national CPA firm earning $14,500/year. I managed to save money by living below my means. How? I drove the same car for 10 years and then bought another small, fuel efficient vehicle; I shopped for bargains; and my first priority, paying me. I worked more than 70 hours per week electing to be paid for the comp time instead of taking time off. Hard work and savings paid off; my salary increased but my life style did not incrementally keep pace. At age 40, my net worth was $1 million and I was still driving a Toyota Corolla. At age 50, my net worth is three times that at age forty but I still live as though I was earning substantially less. I am now 51, the house has been paid off some 4 years and I don't have to worry about losing a job or relocating to find better pay. I work about 60 hours per week not because I have to but because I love to. My parents had no money but I am proof, that with discipline and the ability to forgo gratification, it can be done.

I am a 37 year old business owner, single, no kids, I have a 3000 sq.ft home and a convertible and suv. All of my shoes are designer. Well you see where I'm going with this. I save roughly 10% of my gross wages every month but yet I feel like a fool. Friends poke fun at me. Yesterday someone called me a consumer and said I don't like $. I get so confused and feel trapped sometimes. I practice law and generally speaking I love it. I love lobster and beautiful sunny days with the top down but then I think no no I shouldn't have these things just the $ in the bank. But I struggle with it. I could die tomorrow and all the guru's say live modestly but didn't a get an education to have a good life? I like the things that I have does that make me a fool. I so respect those of you drive a 10 year old car, I can't, I just gave mine away bc I didn't need 3 cars. I can't imagine how to stop the cycle. Because I like the toys!

I remember a few years ago when I was in college we had an entire lecture in my stats class about the flaws in The Millionaire Next Door book. I wish I had the notes on me from that time but suffice it to say there were a host of problems and it is why the book is popular with the average Joe but not with any professionals, researchers, etc. A couple of things I remember, the focus for instance was on the lowest end of the "rich" scale and was disproportionately skewed to much older people. So their typical "rich" person tended to be people who saved for a long time and built a decent (but by no means large) nest egg for retirement. The surveys took several hours and they paid something like $100 to the respondents to do it. I know of few rich people who would spend an entire day taking a survey for $100, this biases the results to "penny pinchers".

The best wealth studies I've found are the ones put together by private banks because for them it is actually their business to understand the profiles and habits of the rich, they are after all the people they service. If you read these you will see that the rich in fact ARE what you'd expect. They are mostly people who earn a lot and build up considerable net worths ($5mm+) and do live the life. They typically have nice vacation homes, I think the median amounth they spend on a 1-week vacation was something like $25,000 from one of the reports I read. They do tend to buy high end luxury brands and pay for personalized services. They are overwhelmingly disproportionately educated in top schools like the Ivy Leagues.

The Millionaire Next Door book is popular because it gives the Average Joe some hope. It tells you what you want to hear, that even though you're not earning a great deal you can be "rich". It sells well because it makes you feel good that you can point to people who have $100,000 BMWs and make the ridiculous assumption that they probably can't afford to live the way they live.

If you want to really be rich, put down the dumb mainstream books like The Millionaire Next Door and instead read about how truly wealthy people became wealthy. More importantly go out and EARN MORE MONEY. Saving is important but there is a strict limit to it. If you make $100,000 a year which is pretty average for most white-collar professionals these days, after taxes and very tight living expenses you might be able to save around $30k. Not a lot of money. If you try to earn more money, making an additonal $30k is not much at all. If you're young enough, try to get into top schools. The average MBA from places like Harvard, Columbia, Wharton, etc. makes over $500K/year between 5-10 years out of school. I know a lot of these types of people, they don't own their own businesses, they don't have to take all the risks associated with that, they worked hard, went to top schools, work as investment bankers, doctors, lawyers at top firms, etc. and make several hundred thousand or more per year and they are in their 20s or early 30s. You can save a million dollars in a couple of years that way, after a little while you'll build up enough to make great passive income from your investments.

I remember a profile of an investment banker after the dot-com bust. He was in his early 40s and got laid off, he was not a rock star banker, just an ordinary one. They were talking about his life as transitioning from being a banker to being a stay at home dad. The thing that struck me though was that he had saved over $15 million in liquid investments. Partly do to getting out of the dot-com stocks in time, but the point is even these average guys in some industries make millions. The entry ticket to these industries is usually an Ivy League degree, hard work, and luck. Of course if you're already out of college thinking about this is pointless.

I would have to agree with trapped. I am the same as you I have a nice house /suv/ classic car/ atv/Vacations. etc. I still manage to save 15-20 % of my pay. I would say that is being trapped it is called balance. Why should people penny pinch and not have fun. If I am really frugal for 40 Years and then what
take my first vacation at 70 or buy a Ferrari at 80?Life like finaces is about finding the balance that suits you. In regards to the millionaire next door. That book was recommened to me by a friend and I couldn't even finish it. I found it hard to believe that all millionaires were made up of middle-class earners, but the book did point out that you don't have to make 500k/year to have decent wealth. Most people are confusing the words "wealth" and "rich" in these posts.
They don't mean that making $100,000 a year is going to put you in the wealthy elite of the country. It means that you can have a middle-class lifestyle and build a decent nest-egg (3-5 million)and still have a good life. Most people would not put the time or effort to make the high amounts of money anyway.People don't make 300k or more and work 20 hours a week it is long hours that can affect other aspects of life. In regards to myself I make a decent living low-mid six figures I could make a lot more , but in doing so I would not see my kids/ wife/friends and would not have a life. To me it is not worth the trade-off I have the ideal balance for me. If you work 70 hours a week when is there time for family? Which for me is more important than money.

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