What does it take to become a millionaire next door?



The millionaire next door! Wow, probably one of the most interesting books I have read.

Actually Caroline suggested I read this book, and while I was traveling reading material is always welcome. So, what is this book about?

Main message: Wealthy people do not have a lavish lifestyle. People with a lavish lifestyle are not wealthy.


Now, I can hear you already raise your hands and talk about people who are wealthy and have a lavish lifestyle. Sure there are always exceptions, but this book talks about how to become wealthy. It is not through spending money. Let us look at what the book talks about. The authors Thomas J. Stanley und William D. Danko in this book refer to a study conducted in the US in the 1990s. They wanted to find out why and how people are or become millionaires (a person with a net worth of more than one million USD).

The findings surprised them: the main proportion of millionaires were found in the middle-class neighbourhood and not in the white-collar communities, hence the title “the millionaire next door”.


Why is that?

Thomas J. Stanley und William D. Danko found out is that on average people living in a white-collar neighbourhood and very often with a high income job live a lavish lifestyle, meaning living in a rather large house, spending money on cars, watches, clothes and entertainment. Due to living in a neighbourhood where it seems everyone is spending money on a lavish lifestyle, the social pressure is higher to conform to these standards. The same goes for certain careers. The authors brought up the point that often lawyers, doctors or bankers are expected to dress in a certain way and have a certain lifestyle which leads to spending money and not accumulating wealth. At the other end of the spectrum, the authors found, that for example teachers with an average income have a higher likelihood to accumulate wealth as they are not expected to have a lavish lifestyle and potentially as teachers represent a role model function. They hence also act as role models when it comes to their money management.

The book distinguishes three categories:

  1. the under accumulator of wealth (UAW),

  2. the average accumulator of wealth (AAW) and
  3. the prodigious accumulator of wealth (PAW).
The PAWs are those accumulating wealth way over the average considering their income.


How do millionaires next door accumulate their wealth?

  1. Spend less than they earn. Sure this sounds easy, but the book shows examples where PAW saved 50% or more of their income. This is also highly dependent on the partner you have should you be in a relationship. The book suggests that even if you are frugal and do not overspend, you will hardly accumulate wealth if your partner is not pulling on the same string. The book compares the most expensive item a PAW ever bought vs. an AAW or UAW and found that PAWs often buy e.g. clothes during sale and are always up for a bargain, leading to a rather low figure i.e. couple hundred bucks (not thousands).

  2. No status objects. PAWs, or millionaire next doors, avoid status objects such as nice cars etc. Many said during the study that these objects only depreciate and not create value, hence they try not buy them. A millionaire next door typically bought a used car which was known to have a good value for money and did not have a high fuel consumption.

  3. Invest. Until now it seems to become a millionaire next door you need to be super frugal and not spend any money. Well not exactly. It turns out that many millionaires did not save money to put on their bank account, but often invested their money to participate from the compound interest  by investing in the stock market. In addition many also invested in their own business or other businesses. The interesting fact was, that PAWs had one thing they did spend money on which was to have a good accountant and financial advisor. It seems from the book that PAWs often really shopped around in order to get the best value for money.

  4. Family. The family situation was very interesting for millionaire next doors. The book concludes that children from millionaire next doors were more likely to be independent and self sufficient compared to children from people with a lavish lifestyle. Children from parents with a lavish lifestyle often received a presents, money or other contributions. This often led to the fact that they had less motivation to achieve. So what the book basically says: if you want your child to achieve and build their own wealth, you might want to think about how much you want to spoil your children and what type of role model you are likely to be.


So, if you have good savings habits and invest your wealth in accumulating assets, you are already taking the first step to become a millionaire next door. Congrats! A study found that you are 43% more likely to achieve your goals when writing them down. Visualizing your goals help you to stay on track in the long term.


If you would like to know more, you can find the book here (https://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1589795474) or alternatively have a look at our knowledge lounge to see more articles on how to budget, save and how to invest.


Written by Clara Creitz
Finelles Founder. Coach and Consultant (UBS, Towers Watson). 



(4 min read)