Just Started on 52 weeks! - 1/52 - The Millionaire Next Door

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This book is listed in r/personalfinance's reading list. Accompanying the recommendation was "If this book doesn't scare your spending habits straight, nothing will."

This book lives up to that promise. It's not the most gripping book ever. It's largely several research papers. There are, however, several case studies that become stories all their own.

While some of the advice is outdated, like how to price shop by phone for car deals, here are the key takeaways that I believe still hold up:

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Millionaires, meaning those with a net worth >= $1,000,000, are most often NOT the profile we typically envision.

Before reading this book, I envisioned a millionaire to live in a swanky house, with loads of brand name suits, watches, and cars. While that's not at all what I wanted if I had that much money, that is what I envisioned millionaires to be. The research of this book shows that's not at all what the majority of the reality is. Most millionaires live middle-class lifestyles, are incredibly frugal, invest, and tend to avoid large purchases they know will depreciate in value (brand new cars as an example).

The researchers were surprised by this as well. They describe interviews they had when they were first conducting their research. This is how they prepared for interviews with "decamillionaires" (people worth >= $10,000,000). In their own words:

"To make sure our decamillionaire respondents felt comfortable during the interview, we rented a posh penthouse on Manhattan's fashionable East Side. We also hired two gourmet food designers. They put together a menu of four pâtés and three kinds of caviar. To accompany this, the designers suggested a case of high=quality 1970 Bordeaux plus a case of a "wonderful" 1973 cabernet sauvignon."

Most of their participants displayed discomfort. When they offered the Bordeaux to one man, he responded:

"I drink scotch and two kinds of beer, free and BUDWEISER!"

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High income does NOT necessarily equal high wealth.

This is not to say that high income will not generate you high wealth. The researchers simply found that in many cases, high income was used as an excuse to live an exorbitant lifestyle. There's a big problem with that. You likely have to spend all of your income to maintain that lifestyle. If at any point you experience a hit to your income, you will not be able to sustain that lifestyle.

The authors present a case study of two doctors, Dr. North and Dr. South. These doctors make roughly the same income. Dr. North makes $730,000 a year, while Dr. South makes $715,000 a year. Dr. North's net worth is $7.5 million, while Dr. South's net worth is $400,000. The difference, Dr. South and his family spend much more than Dr. North and his family do. As an example, Dr. North's family spends $12,000 a year on motor vehicles, while Dr. South's family spends $72,200 a year on motor vehicles (I wanted to quote the mortgage payments, as they are far more drastic, however the authors don't specify if these doctors practice in the same area. We can safely assume they do because the authors specify the doctors are top of their fields).

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Large financial gifts to children, especially if continued into their adult lives, may do more harm than good.

I'll be honest, I didn't retain a lot of this information. I don't have children yet so most of this information I used to reflect on my own childhood. I'd love to discuss finer details in the comment section!

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While this book shows its age, for example American made cars are not the pinnacle of reliability anymore, it's still rife with knowledge that has the ability to start anyone at becoming a savvy accumulator of wealth.

For my week 2 book, I'll be reading Mere Christianity, by C.S. Lewis... interesting shift I know.