If you have just stepped foot in the world of investment or wish to gain new insights into fields like finance, wealth management, or financial freedom, there are many books that can guide you.
Speaking of the hottest book in 2002 that conveys ways to improve your wealth management skills, there’s only one that comes to my mind instantly. The best book on wealth management has got to be ‘The Millionaire Next Door’ by Thomas J. Stanley and William D. Danko.
Being a New York Times best-seller, it has some amazing ideas to preach.
Today, I am going to give you a brief review of this book and highlight some of the best advice the authors have given to the readers. By the end of this piece, you’ll be able to understand and see for yourself if this book is for you. Without any further ado, let’s dig in…
Brief Background on the Authors
‘The Millionaire Next Door is a masterpiece by two renowned authors, Thomas J. Stanley and William D. Danko. Stanley was an American business theorist and writer. He has contributed to many famous books on finance and wealth such as ‘The Millionaire Mind’.
He founded a company called Data Points, where he worked as a chief advisor. He completed his education at the University of Georgia after which he got a doctorate in business. He has served as a leading professor at universities like the University at Albany and the University of Tennessee.
William D. Danko, Ph.D., is another co-author of the book. He has written great academic publications which have been featured in the Journal of Business Research, Journal of Consumer Research, Journal of Advertising Research, and more such journals.
He is a professor and chair of marketing at universities like the State University of New York. Currently residing in New York, Danko has teamed up with Stanley in many academic studies.
What is the book all about?
This insightful wealth management book talks about ways that will help you channel your savings and build your wealth in the long run. It teaches readers to be consistent in their efforts to save and also proposes that living below your means can be a secret to becoming a millionaire.
It is about how to build and manage your wealth in America and features stories of people who sought to enter the Millionaire club but had nothing except perseverance and the will to work hard. Sometimes, education, inheritance, and IQ take a backseat in helping you build money.
Only a dedicated and persevering approach takes you a step ahead in your journey of achieving financial independence. With some simple ideas to make big money and case studies of ordinary people, this book has a lot to offer to those who are ready to fight and build their future.
Best lessons to take away from the book
The book emphasizes important points that one must imbibe for a secure future. Some of them worth mentioning are listed below.
Follow the principle of intentional frugality
Although the book mentions this a bit too much, being frugal can help you build wealth in the long term. Having a high level of earning doesn’t ensure being wealthy. It is more about your saving habits rather than how much you earn.
Save as much as you can so that years later, your savings will give you a decent living when life gets harsh. Stop spending on luxuries like cars and bungalows. Instead, create an emergency fund that will help you in tough times.
Your partner should share your financial values
Discussing financial goals is crucial before you marry someone. If your financial values overlap, life will be easier to maneuver and you will see a lot of savings in the long run.
If you have a spendthrift wife, nothing can stop your hard-earned money from going out of your account in bulk amounts every day. Many divorces are a result of disagreements over financial habits.
So it is wise to touch upon this topic if you are on the verge of getting into a relationship commitment. You might feel hesitant thinking it’s too early, but you will thank me later!
Passive investments can get better returns than active investments
Danko and Stanley have mentioned that passive investors can outdo active investors. They highlight that most American millionaires follow a passive investment approach and prefer it over active investment.
Passive investors can get equal or in fact, much more returns on their investments than active investors. So if you can get such high returns from passive investments, it is naturally better to go for passive instead of active investing.
Ensure your kids are financially capable
Affluent parents have a lot of responsibility when it comes to parenting. Even though you have successfully built loads of wealth, you need to teach your kids to understand the worth and value of money.
Tell them what it took for you to reach this level and guide them to become financially capable. It is seen that kids of rich households spend excessively and depend on their parents for money. You must ensure that your children are financially independent.
Daily financial habits decide your future
The journey of becoming a millionaire starts from the initial days when you start earning. It is important to understand how to save more rather than earn more. Practice frugality as much as you can and don’t buy things that you don’t need at the moment.
Plan what groceries you require for the entire month and don’t spend on unnecessary luxuries. Save an amount every month and put it in an emergency fund. It will show results later.
Outdated and irrelevant lessons that the book propagates
The authors have highlighted some lessons that might not be in sync with today’s times. Some of those which I couldn’t relate to are mentioned below.
Spend on children’s education enormously
Education and qualifications are important, but not to the extent that you would spend thousands of dollars just for the sake of sending your kids to the most renowned hostels or universities. The authors have mentioned in the book that millionaires tend to spend heavily on their kids’ education.
You must assess how much you can afford before deciding to consume your lifetime savings. If you wish to send your kids to big colleges and universities without using up a lot of your finances, options like scholarships, federal grants, and community college classes might help.
Practice frugality to the fullest
The book has repeatedly mentioned practicing excessive frugality and holding your money tight. Everyone would agree that this can do wonders in helping channel more savings. But at times, everyone needs a break from thinking too much about money.
You won’t deny that the idea of occasionally going out shopping or on a lunch date with your partner sounds exciting. So the idea is to be careful about your spending but to a limited extent without letting it get too much to your head.
Self-employment is the best to build wealth
The authors have said that most millionaires are self-employed individuals so the readers may assume that self-employment is the best way of building wealth. I don’t quite disagree but would state that this is extremely subjective.
Self-employment cannot work for everyone. Besides, there is so much more you lose if you run your business, like automatic tax withholding, health insurance perks, and unemployment benefits.
Furthermore, nothing can beat the idea of cooperating with ten other colleagues to work in a job environment. Also, starting your venture requires excessive capital, effort, and innovation. And not to forget, the risk is unlimited.
Who should read ‘The Millionaire Next Door’?
This amazing book has loads to teach individuals who are trying to find methods to build their wealth securely. Newbies and freshers who don’t have much know-how for building their money gradually should take a good read of this book.
Those who have recently come across the field of finance and investments should also get the book and have an idea about what it takes to channel one’s earnings properly. Not only freshers, but those who are finding it difficult to manage all the money they have earned so far should read this book too.
You must understand that only earning money will never guarantee you a financially-strong future. It is more about using the hard-earned money with care and saving as much as possible. So if you are someone struggling to handle all your wealth, ‘The Millionaire Next Door’ is meant to be for you.
So, is the book worth a read?
‘The Millionaire Next Door’ is home to some useful tips and methods to save more and spend your money carefully. Although it preaches valuable financial lessons, it doesn’t guide the reader on the way to implement those lessons.
With that in mind, it has more theory than practical application. Another drawback is that many lessons are repetitive in the book which might bore you. But all in all, you can consider getting hold of a copy to get meaningful insights from real-life experiences and stories.