Hello friends, Author Thomas J. Stanley and William D. Danko learned from their 20 years of research that Self made Millionaire that is, “who become rich by itself” lifestyle and how they increase their wealth and then write a book that is The Millionaire Next Door.
So, today I can presents the millionaire next door summary. So let’s start.
According to Author, Rich is not the one who has an expensive car, house and expensive mobile phone, but rather the rich who is financially independent.
Finally independent means that one who can live well despite not getting salary for the month.
To become rich, it is not only necessary to earn, but also to invest and save. According to many people, Rich means living a lavish lifestyle means expensive mobiles, cars, and home etc.
But Lavish lifestyle will increase your expenses, not wealth.
According to Author, many rich people do not live high standard lifestyle.
Author has given the formula to calculate your expected net worth on the basis of your current age and income.
Expected net worth = your age × pre tax annual household income divided by 10
After calculating expected net worth, you should compare with actual net worth from it, Which will show that in which category you are, prodigious accumulated of wealth [PAW] category or under accumulated of wealth [UAW] category.
During his research, the author of learned about 7 reasons of rich people.
You can also become rich by using that reasons which I can explain in this summary of the millionaire next door.
So, let’s know about those 7 reasons one by one.
What’s in it for me?
- Frugal Live Well Below Their Means
- Allocate Their Time, Energy, and Money Efficiently
- Financial Independence is More Important Than Displaying High Social Status
- Parents Should Not Provide Economic Outpatient Care
- Their Adult Children are Economically Self-Sufficient
- Be Proficient in Targeting Market Opportunities
- Chose The Right Occupation
- Conclusion of The Millionaire Next Door
- Frequently Asked Questions
Frugal Live Well Below Their Means:
Frugal is opposite of Wasteful here, Wasteful means more expansive for Lavish lifestyle.
The author’s says that it is all misleading that rich people live in big houses, buy expensive cars, and wear expensive expensive clothes.
All this will increase your expenditure, not assets. Rich people do not waste their money on expensive cars, clothes. He keeps his expenditure under control.
The author says that you cannot remain fit just by exercising one day.
You have to exercise daily to stay fit, just like that you cannot become rich by controlling expenditures once, you have to control regularly.
To become rich, author said that to keep the taxable income low, such as expensive mobiles, expensive clothes and expensive electronics on which you will have to pay tax.
Unrealised means to get the return through investment and to maximize it, like fixed deposit, Mutual Funds, bonds, and equities etc.
Allocate Their Time, Energy, and Money Efficiently:
Time, energy, and money are infinity sources and also income generators. Spending time to buy luxury items such as car, clothes, and spending time in future financial planning has inversely relation.
That is, if you spend time to buying expensive clothes and expensive cars, then you will not be able to do financial planning.
And if you do financial planning, then you will not be able to buy luxury items.
People in the prodigious accumulated category spend their time, energy, and money for their learning, their future investment plans, and manage their current investments.
They balances their working, expenditure, planning, investment. People in the under accumulated category spend their time, energy, and money to maintaining their high standard lifestyle.
Read the 4-hour workweek summary which help you to understand the importance of time and money.
Financial Independence is More Important Than Displaying High Social Status:
Both Prodigious Accumulated and Under Accumulated are hard working.
So, Let’s discuss some difference between prodigious accumulated and under accumulated.
Prodigious Accumulated of Wealth
Means people have expected net worth higher than their actual net worth.
Prodigious accumulated works for financial freedom and Live a simple but highly effective lifestyle and enjoy it.
The Prodigious Accumulated people are happier. That category people’s spend more time and energy for the best deal, they negotiate and spend less money.
Under Accumulated of Wealth
Means people have expected net worth less than their actual net worth.
Under accumulated people work hard so that they can earn more and spend more and increase their luxury.
And they can maintain their social status, but they do not pay attention to their financial freedom.
Under accumulated people are unhappy because of their expenditures and they do not have financial security.
Those who are under accumulated people spend less time and energy for the best deal and spend more money.
Author says that people who buy used car or second hand car. Their income is average while the net worth is higher.
And I highly recommended you to read the book which is the magic of thinking big summary. This book help you to think big like a millionaire.
Parents Should Not Provide Economic Outpatient Care:
Outpatient care means if someone get financial gift in the form of love or kindness from their parents or grandparents.
Author says that instead of earned money, it is easier to spend money received from others.
Those people who get a outpatient care in gift are very productive because they keep waiting for the next financial gift instead of working hard.
Expenditure of people who has Outpatient care is higher while savings and investment are less.
They cannot distinguish between his wealth and his parent wealth. They do not get financial gifts in future that’s why they take lot of credit.
Author says that parents should give gifts like education, creative environment, responsiveness value to its children. So, that both parents and children will benefit.
Their Adult Children are Economically Self-Sufficient:
This point is similar to previous point. Here the millionaire next door author’s has given 10 rules which parents should use so that their children can become productive and creative.
These are the 10 rules which parents should use:
- Wealthy parents should never tell their children that they are wealth.
- No matter how much wealth you have, your children’s should learn to live with discipline and less expenses.
- Tell your children about your wealth after they are grown up, professional and matured.
- Do not give financial gifts to your children.
- Never promise to give gifts to your children.
- Let your children solution their matter themselves.
- Never do competition with your children.
- Appreciate your children’s achievement legs, no matter how small they are.
- Always remember that your children are also a independent person.
- Always ask the children to become master in their field and not to work only for money. When you become master of your field, then money will automatic comes to you.
Be Proficient in Targeting Market Opportunities:
Author wrote this book (The Millionaire Next Door) in 1996, but the prediction he made about Future Market Opportunity is quite right.
Author had predicted that in the coming 10 years, the wealthy people will need more service such as to solve their problem, and to manage their life and money.
And those people who specialist in providing service to the wealthy people will have more demand like dentist, psychologist, terminologist, psychiatrist etc.
So, like the author, you can also do research about the market opportunity in the future and target it.
Chose The Right Occupation:
People who do their own business like self-employed instead of doing jobs for others. I suggests you to read summary of zero to one to become self-employed.
Those people are richer than those who do jobs. There is no magic list of business, you can become any business successful.
You can start any business such as dentist, psychologist, shoe selling, furniture making, there is no magic business in them.
Even many people make money despite having a bad business condition.
Conclusion of The Millionaire Next Door:
- You can also become rich by not maintaining your social status, you can control expenses by spending less money.
- Spending your time, money, and energy to your future investment.
- And by not giving financial gifts to their children and making them financial self-sufficient.
- By targeting future market opportunities.
- By selecting the right occupation, you can also become financialy free.
Frequently Asked Questions About The Millionaire Next Door:
More often, rich people are in the category of prodigious accumulated of wealth.
Expected net worth = your age × pre tax annual household income divided by 10. This is the formula of the millionaire next door.
The millionaire next door book was wrote by Thomas J. Stanley and William D. Danko.
The millionaire next door by Thomas J. Stanley and William D. Danko was published on 1996.
So, I hope you can enjoy the summary of the millionaire next door and learned lot of things from it. And you can also apply these things in your life.
Hi, I’m Shivam | Currently, I’m pursing my first year B. Tech. I hope you like my articles.