I picked up this book for $1 at a used book sale at my local library. I just finished reading it and I’m glad I did. There are many great truths and lessons to be learned from this book, no wonder this book is so popular. I thought this book would just be a book that chronicles the lives of millionaires and their habits, but its so much more than that. The authors draw many conclusions about accumulating wealth and the culture that we live in. I’m dividing this book review into two parts. Today I’ll cover the first four chapters and tomorrow I’ll cover the last four chapters. I’ll try to highlight the things that really stood out to me.

Chapter 1 - Meet the Millionaire Next Door
The book starts off with various statistics about millionaires. “About two-thirds are self-employed even though self-employed people make up less than 20 percent of workers in America.” “97 percent are homeowners.” “About 80 percent are first generation affluent.” “95 percent of millionaires are married.” “Half the wives of millionaires don’t work outside the home. Those who do, the number one occupation is teacher.” The wealthy are defined by the authors as being “those who get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.” Being frugal and not succumbing to a hyper-consumer mentality is a continuous theme throughout this book. They authors again and again urge those who desire to become wealthy to avoid it like the plague.

The authors give a simple rule of thumb to determine whether you are on track to becoming wealthy according to your age: “Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.”

According to this, I’m supposed to be sitting on well over $100,000, but obviously I am no where near that.

If you are further along in your wealth according to this equation, the authors call you a “PAW, prodigious accumulator of wealth”. If you scored quite poorly, then the authors refer to you as a “UAW, under accumulator of wealth”. Throughout the book the authors use their research to show that “UAW’s tend to have a higher propensity to spend than those in the PAW group.” “UAW’s tend to live above their means and they emphasize consumption.”

As mentioned above, most millionaires are first generation affluent. In addition, most millionaires are not of English decent. Contrary to popular belief, “the longer the average member of an ancestry group has been in America, the more likely it will produce millionaires and the more likely he or she will become fully socialized to our high-consumption lifestyle.”

Chapter 2 - Frugal Frugal Frugal
“Being frugal is the cornerstone of building wealth.” We see the lavish lifestyles of celebrities and athletes on TV and in the magazines, but this is not the typical millionaire. Its is precisely because they said no to a “high-consumption lifestyle that they were able to become millionaires in their lifetime.” In fact, the authors provide a glimpse into the spending habits of millionaires. “Average of most they ever spent on a suit: $399. Average of most they ever spent on shoes: $140. Average of most they ever spent on a watch: $235.” Lucky for me that the most I’ve ever spent on these items is far below these averages.

“Do you wish to become affluent and stay affluent,” the authors ask. Well you have to be able to say yes to these four questions:
- “Does your household operate on an annual budget?”
- “Do you know how much your family spends each year on food, clothing, and shelter?”
- “Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?”
- “Do you spend a lot of time planning for your financial future?”

Finally in this chapter the authors give advice about mortgages, “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.” Why? Because when you live in a less costly neighborhood, it will enable you to spend less and save more. Property tax and mortgage payments will be less. And it will be easier to keep up with the Joneses. Live in a high-status neighborhood and you will more likely be pressured to live a high-consumption lifestyle.

Chapter 3 - Time, Energy, and Money
“People who become wealthy allocate their time, energy, and money in ways consistent with enhancing their net worth.” PAW’s spend far more time planning, analyzing, strategizing their financial goals and plans. They also spend far less time worrying about their financial future outlook. UAW’s on the other hand spend their free-time and resources shopping and maintaining their high-consumption lifestyle. In fact “There is an inverse relationship between the time spend purchasing luxury items such as cars and clothes and the time spend planning one’s financial future.”

Chapter 4 - You Aren’t What You Drive
Here are some facts about millionaires and their vehicles: “The typical millionaire spent $24,800 on their most recent vehicle.” “About 81 percent purchase their vehicle instead of leasing.” “And only 23.5 percent of millionaires own new cars.” “The most a typical millionaire ever spent on a vehicle averages around $29,000.”

Half of millionaires purchase vehicles from dealers they have bought from before. Since many millionaires are business owners, they utilize this by making connections and exchanging patronage and referrals in return for good deals. The other half of millionaires purchase vehicles from the cheapest sellers they can find. They haggle and bargain and spend a fair amount of time shopping around. Being savvy and frugal is the way in which many of these millionaires became wealthy, so its no different when it comes to car-buying.

The authors pause here to give another remark. The majority of Americans will never be able to significantly increase their annual income (they call this offense). So, “if you cannot increase your compensation significantly, become wealthy some other way. Do is defensively. This is how most of the used-vehicle prone shoppers did it. They successfully inoculated themselves from contracting the high-consumption lifestyle so many of their neighbors adopted.”

Throughout the first four chapters the authors give numerous examples of people who earn very high income and yet have virtually no wealth to show for it. In fact, they might be living next to neighbors who make half of the annual income they do, but may have five times their net worth. How can this be possible? It is often the case that a high-consumption lifestyle is paired with high-income. The authors do a great job here of showing that “Great offense and poor defense translates into under accumulation of wealth.”

We’ll take a look at the last four chapters tomorrow…