Introduction
One of the greatest wishes that everyone has is to create wealth in order to live a comfortable life and share it with other people. This wish comes true for some, and for others, it does not. A common myth that has existed for a very long time is the assumption that wealthy people live in expensive neighborhoods, drive expensive cars, dress in pricey clothes, and spend their money without creating spending plans.
However, several research studies have proved this myth to be untrue. The Millionaire Next Door is a book that was authored by Tom Stanley and William Danko. The authors aimed to show how wealthy people create their wealth, how they spend it, and the types of lifestyles they embrace to maintain it. The book contains numerous statistics that are based on interviews and studies conducted b the authors. It offers insights on how millionaires achieved their wealth and what readers can do to become financially independent. All the millionaires covered in the book are financially independent and can survive for several years without generating any money.
Common characteristics of wealthy people
The book starts by enumerating the 7 traits that characterize the millionaires. Rich people save money by living below their means. They ensure that they spend less than they earn in e form of income. Their time and money are very precious. Therefore, they allocate them in a way that augments their efforts and activities that create wealth. Rich people hold a common belief that being financially independent is more important than flaunting one’s financial might.
They avoid showing off their wealth. Many of the millionaires covered in the book did not receive financial support from their guardians while building their wealth. Wise investing, frugality, and industry are the reasons for their wealth. On the other hand, they are good at identifying and taking advantage of market opportunities that add to their wealth. Finally, they choose occupations that they love and enjoy in order to guarantee high productivity and performance.
Frugality
The authors also discuss the concept of frugality as an important factor in wealth creation. Millionaires interviewed by the authors revealed that they live frugally by buying cheap things, living below their means, budgeting, and avoiding lifestyle inflation when they increase their income. Many millionaires drive secondhand cars, shop in middle-class malls, live in cheap neighborhoods, and contribute a certain amount of their earnings to savings accounts. The rich have the money to buy expensive things. However, their habits and lifestyles do not allow them to spend money on expensive things. They avoid fancy clothes and cars, control consumption, and use the things they buy for prolonged periods before renewing them. They use the money saved to invest and build more wealth.
Time, energy, and money
Wealthy people are so concerned about how they use their money, time, and energy. They allocate these resources in ways that help them to create more wealth. For instance, they spend time and money on education because education is one of the prime drivers of wealth creation. They amplify their earning power by increasing their skills and knowledge through personal development and training programs. In order to use time wisely, many millionaires choose careers and occupations that they love.
Their choices are determined by their passions. One of the most valuable habits that rich people possess is saving. They understand the role that time plays in wealth creation. Therefore, they start saving early and invest their savings in different financial portfolios such as retirement schemes, children education plans, bonds, stocks, real estate, and hedge funds. They buy affordable cars that do not match their wealth. For instance, the common models among the millionaires interviewed were Ford, Cadillac, Lincoln, Chevrolet, Toyota, Buick, Nissan, Volvo, Chrysler, and Jaguar.
Chrysler and Jaguar were the least common. One of the areas in which the rich spend a lot of money is in seeking financial and legal advice. Millionaires spend money to hire accountants, financial advisors, and legal experts in order to ensure that their decisions do not involve breaking the law. They need advice on the best investments that have the least tax implications based on tax legislation.
PAW and UAWs
The authors describe three groups of people, namely Prodigious Accumulators of Wealth (PAW), Average Accumulators of Wealth (AAW) and Under Accumulators of Wealth (UAW). Each of these groups is characterized by a different net worth and annual income. Many millionaire families are PAW because of their frugal lifestyles. They spend little on cars, clothes, houses, watches, and other luxuries.
Conclusion
The Millionaire Next door is a book that chronicles the lifestyles of millionaires in America. The book debunks the common myth that millionaires live in expensive neighborhoods and are spendthrifts. The book gives numerous insights to readers on how to save, invest, and create wealth by living the lifestyles that millionaires in America embrace. The numerous statistics and surveys provided support the arguments presented by the authors. The authors cite frugality, wise investing, proper choice of occupation, and education as important factors for wealth creation.