Blue Shell Security
Blue Shell Security

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

Before we begin, a little aside.  The title above is linked to the Amazon page for this book.  These links aren’t affiliate links, and they will always be links to the hardcover version (if available), because that’s what I always buy.  I’m happy to pay even a good deal extra for the hard cover.  I like my books to look as nice as they can for as long as they can.  So let’s grab the notebook, take off that dust jacket and dive in, shall we?

If there’s one thing I will take away from this book, it’s this: Sexy != Rich.  In fact, more often than not, the two are mutually exclusive.  The book defines people in two categories: UAWs (Under Accumulators of Wealth) and PAWs (Prodigious Accumulators of Wealth.)  After reading the book, if you’re like me, you will begin placing people into those categories yourself.  As I was reading the book and its many many case studies, I saw more and more traits of people I know being displayed.

I’ll be the first to admit it: I’m not a good sport.  I don’t like seeing other people succeed without effort, I don’t like seeing people win large sums of money, I don’t like seeing people get lucky at anything.  These hold especially true if I’m in a bad mood or if I’ve judged that person unworthy of such gifts.  Conversely, I don’t like being offered handouts and have been known to take offense to being given things without working for them.  I know this isn’t an ideal set of personality traits to have, but no one is perfect.

This book has offered me something of a coping mechanism for dealing with seeing people display what appear to be unearned or disproportionate amounts of wealth.  Some of you may recall a little meltdown I had a few months back about watching a guy in his early 20s poorly drive and almost wreck his brand new Nissan GT-R (A ~$90k vehicle).  Now I have the ability to label him (and probably his parents) as a UAW and dismiss him from memory.

To determine if you are a UAW or PAW, plug your own numbers into this little formula: (Age x Pretax Annual Income (less inheritances)) / 10.  Take this number and compare to your net worth (less inheritances).  If your actual net worth is lower than the number produced by the formula, you are a UAW.  If it above that number, you are a PAW.  It’s that simple.  If you’re a UAW, don’t feel too bad.  I am.  Most people are.  Obviously the formula is imperfect and has a strong bias on age, how long you’ve been in the workforce, etc.  But it’s a decent baseline for well-established adults (the average age of PAWs is around 50).

The real question is not whether or not you are currently a UAW or a PAW, but if your habits and general attitude are leading you closer to becoming a PAW or not.  You may think you’re at a disadvantage from birth, coming from a humble background, but one of my favorite stats from the book proves that isn’t the case.  Ready for it?  80% of American Millionaires (net worth) are 1st generation millionaires.  80 percent.  I would have never guessed it was that many.  If you come from non-millionaire parents, there is a 1 in 30 chance you will become a millionaire at some point in your life.  Those sound like pretty good odds to me.

And that’s all this book is, facts. Facts facts facts.  Case studies, surveys, so much work has been done to back up every fact in this book.  The attention to detail is absolutely staggering.  The book also manages to avoid one of my least favorite things about non-fiction books.  There is no lead up. Not a single chapter starts with “In this chapter, we’ll talk about how blah blah blah” for 13 pages before actually starting with the content.

If you have any interest at all in accumulating wealth to spend how you want, how to live comfortably, and don’t mind skipping all the meaningless status items, this book is a must read.  It’s chocked full of tips and tricks from people who’ve done it all, and each one has the math to back it up. The following are my biggest takeaways from the book.

• 80% of American Millionaires are 1st generation rich.
• Sexy != Rich.  In fact, the opposite is often true.
• Never take a mortgage for more than 2x annual household income.
• A financial adviser is a key employee of the business that is your household.  Hire and fire accordingly.
• Movies are lies.  If you spend high, you retire low.  Spend low, retire high.
• Don’t tell your children of your wealth, this way they will learn the value of money and become PAWs themselves.
• Never become jealous of those who display their wealth rather than save it.  They have the worries of those who make half their income or less.

In closing, this book was incredible.  Anyone who ever touches money should read it.  It should be required reading for high school students.  Even though the statistics are a bit outdated (1995 mostly), the wisdom is timeless.  Read it.  Make your kids read it.  A definite must-have.