★ Rockstar Book Review: “The Millionaire Next Door”
Welcome to our first Rockstar Book Review! Every Friday, we dive into one of our favorite books to help maximize your wealth, your career, and most importantly, your LIFE.
We’re bringing in financial book expert Hélène Massicotte to run this series (our new Curator of Books here at Rockstar Finance), and she’ll be covering everything from the classics, to the modern, to the up-and-coming and hot off the presses, in both personal finance and business. If you like books, or even just quick insights, you’ll love this series :)
We’re kicking it off today with the quintessential finance book… Take it away, Hélène!
“The Millionaire Next Door” Proves That Being Practical is Sexy, for Your Net Worth at Least
This is THE book to help us understand how real people become millionaires, to debunk the myth that millionaires are either lucky or inherit their wealth, and to find practical advice on how we too can succeed with money.
Stanley’s findings revolve around three main themes:
- Live below your means
- Choose a partner with similar values
- Focus time and energy on wealth accumulation
#1. Live Below Your Means
Sounds simple enough. We’ve heard this advice ad nauseum, so much so that our eyes glaze over whenever we read the words. That said, in Stanley’s case, he offers practical examples of how millionaire households put this into practice:
- Buy inexpensive but reliable cars and keep them for years (preferably Toyota four-door sedans)
- Keep housing costs in check (remember, Buffett still lives in the same home he bought for his family in the 70s… and he’s a billionaire!)
- Buy good value brands for your clothes and accessories (millionaires love Timex watches… for anyone who still wears one of those, oh and they usually carry a Sears card)
If you’re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income. (pg. 68)
Stanley also offers a way of measuring how we’re doing with our wealth accumulation that can help us put the Manolo Blahniks back on the shelf and walk out of the store:
([pre-tax income] x [your age]) / 10 = what your net worth should be right now
This calculation is valuable for one important reason: it matches what we need to have accumulated based on our current lifestyle. It assumes that we can live reasonably well on our current income in the future because we’re doing it now.
#2. Choose a Partner With Similar Values
A core theme in Stanley’s book is that the household functions as a unit, with members of the household having responsibilities in a number of different areas: earning, spending, investing and maintenance. If any member of the household is not playing their part, it doesn’t matter how good any one person’s intentions are, wealth accumulation becomes a whole lot harder.
If our partner wants the big house, the fast car, the lavish vacations and the bling and these don’t fit into what it will take to be comfortable financially, it means we’re choosing them over our own financial peace of mind. (It also means they’re choosing “stuff” over our comfort and security, and possibly a lasting relationship.) It’s no wonder money is a key driver in people’s decision to part ways.
Most people will never become wealthy in one generation if they are married to people who are wasteful. (pg. 37)
#3. Focus Time and Energy on Wealth Accumulation
What we focus on, we bring about. TMND is full of examples that support this statement. Millionaire households know:
- How much they have
- How much they make and, most importantly,
- How much they SPEND.
While the majority of us worry about whether or not we “have enough”, millionaire households are focused on what they need to do to be successful. They focus their time and energy on being well-informed about all aspects of their finances and they set and achieve money-related goals, both at work and at home (see reference, right, pg. 71).
Interestingly enough, they’re not overly focused on being invested in the market—though they know what they have, where it’s held and how much it returns. Their primary focus is on what they can influence the most: the success of their business(es)/work/side hustles and how they spend their money. Not super sexy, but their net worth certainly is.
If you want to know more about the above, including research summaries and some great real-life stories, TMND will not disappoint.
If you’re looking for other books about how to become wealthy no matter your salary, these are my picks: The Automatic Millionaire by David Bach, The Wealthy Barber by David Chilton and, for those who like books written by young men who think the whole world appreciates college campus humor, I Will Teach You to Be Rich by Ramit Sethi.
*Head to the forums to discuss this book further,
and for a chance to win a free copy!*
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