The Millionaire Next Door
Thomas J Stanley, William D. Danko

I found this book an interesting read. The authors are Ph.D.s who have spent a great deal of time researching the affluent portions of the American population. They have found some interesting corollaries about the way that people save and spend and how wealthy they become later in life.

They present information from the various surveys they administered to members of the affluent community ( those with more than $1 million in assets ). They noticed that many of these people manage to amass their wealth by living well below their means. People who made $60,000 a year in income each year would live like they only made $50,000 in income. The remainder went into saving and investments. It makes a lot of sense and most books will tell you the same thing. In addition to giving advice in terms of saving and investing they also provide anecdotes and case studies about people who spent more than they made and some of the reasons why.

A significant portion of the book talked about the reasons why people overspend. The authors went over several reasons. The primary reason they noticed was a phenomena called “Economic Out-patient Care.” This occurs when affluent parents give significant gifts to their offspring to “help” them. It turns out that these gifts often cause more harm then they help. The children end up becoming reliant on these annual gifts and basically factor these gifts into their spending habits. In many occasions these parents will help their children buy homes ( which, realistically, are too expensive for the child to afford on their income alone ) in upper-middle class neighborhoods, put their grandchildren through private school, and many other benefits that generally come with having money. These children, who are now living in their expensive house in their expensive neighborhood, feel compelled to emulate the lifestyle of everyone else who lives in their neighborhood. They buy luxury cars, expensive clothes, eat out at expensive restaurants, join the local country club, and partake in many other facets of upper-middle class lifestyle. They end up spending more than they make because of these gifts from parents. It’s a vicious cycle.

Overall, the book is interesting and a very nice read. It’s not too long at 245 pages. It really opened my eyes to the ways that people put themselves into the rat race despite having decent incomes or having affluent parents. I recommend it to anyone who wants to get at least some grasp on their spending and saving habits. The rat race sucks.

This entry was posted on Sunday, January 15th, 2006 at 9:59 pm and is filed under Books. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.