The Millionaire Next Door

Author: Thomas J. Stanley PhD and William D. Danko, PhD

Central concept:

High income != High Net Worth

Frugal Frugal Frugal – living below your means

AAW: Average Accumulators of Wealth, aka. expected net worth

• Net Worth = (Age * yearly income / 10)

PAW: Prodigious Accumulators of Wealth

• Net Worth = 2* (AAW Net worth) = 2 * (Age * yearly income / 10)

UAW: Under Accumulators of Wealth

• Net Worth = ½ * (AAW Net Worth) = ½ * (Age * yearly income / 10)

Tips from the book:

If you are 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.

PAWs allocate more time each month to plan for their financial investment where UAWs spend more time worrying about the issues than taking proactive steps to change they under-investment and over-consumption.  They also take more calculated risks in investment with stocks, bonds, etc where UAWs tend to be safe with their investment.

Planning and controlling consumption are key factors underlying wealth accumulation.         

Parents who provide EOC (economic outpatient care) often do more harms than good when trying to help their children by gifting money or other economic advantages.  The money often is earmarked for consumption before it is received and only serves to fuel the consumption habits of the adult children. The best help you can give to your financially struggling adult children is through education and by example of living a fiscally sensible life yourself. “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime”