Book Report - Millionaire next door

[cute fuzzy bunny]

I "finished" this about 5 days ago. I say finished because I actually just skimmed the second half of the book due to it becoming a bit repetitive and data loaded.

A typical book written by a pair of PhD's, its very data laden and builds inexorable proof up to its inevitable points. Some analytical types would have found it pleasing.

The points are very good though. This is from memory, anyone with other takeaways, please add them.

The chief points are:

- The typical millionaire is more likely to be a married couple, never divorced, a couple of kids, F-150 pickup truck and a home in a middle class neighborhood, probably a business owner.

- There are two types of people PAWs and UAW's; prodigious accumulators of wealth and underachieving accumulators of wealth.

- PAW's drive sensible cars, live in sensible homes, and sock their money away for their future.

- UAW's live in expensive neighborhoods, drive expensive cars, have other expensive tastes and have little or no net value along with high debt.

- Demographically, Russian and Scottish immigrants have the higher percent of millionaires than others. Russians have a high tendency to start businesses and Scots are more frugal than immigrants from other nations. Those of English origin, our usual vision of the rich english fellow, have one of the lowest rates of millionaires per capita. Both Russian and Scottish immigrants also tend to imprint their values onto their children better than others; the same value structure tends to penetrate 3 or more generations after immigration.

- UAW's are pre-trained to be UAW's by growing up in a UAW household, having attended an expensive university and being surrounded by UAW's children living a UAW life, or by having their non-UAW parents tell them they want them "to have it better" all their lives. Some careers promote UAW behavior.

- UAW's often have higher incomes than PAW's, but far lower net value.

- The UAW lifestyle is one in which you feel that you have to overconsume to show someone (whoever that is) that you're doing really, really good.

- PAW's dont care what others think or consider some aspects of UAW life restricting or undesirable. Case in point the guy who was getting a Rolls Royce from his friends and family for his birthday asked to not get it. Couldnt drive it down to the fishing hole and throw a mass of bass in the backseat like he could his old american car.

- One needs to grasp and comprehend the need to live the UAW lifestyle. What does it really bring you, who are you trying to impress, and what are the real benefits vs real costs of living it.

- In order to create accumulated wealth, starting or owning a business is how a majority create the income stream, and living a good comfortable by unextravagant life is a good way to hold onto it.

- Much discussion around the surprise by the authors as to what the typical millionaire was like. Anecdote of their first face to face interviews where they set out pate and expensive wine that nobody wanted. "I like two kinds of beer: cheap and free" one millionaire said. Club sandwiches and beer from there on.

Pretty much rinse and repeat from there. Dont get caught up in the rat race, get a good income stream going, put it away in sensible investments, live a comfortable but not ostentatious lifestyle, put the same values into your kids, retire early, live well.

 

[BigMoneyJim]

I don't have any additional recollections from the book. In fact, I don't think I finished it, either.

But I have an observation on why people tend to champion certain books. I think people tend to love the first book they read that helps them realize they don't have to put up with the crap that American society seems to expect from them for a career & life. (This is from an ER-type point of view. I believe there are many who enjoy the rat race and many who enjoy stirring up turmoil among other people, but they probably aren't reading this forum.)

After you've found that book and had the revelation, then the other books that parrot roughly the same thing get boring because we've been there and realized that.

As an example I found The Wealthy Barber incredibly painful to read. At the time I thought it was because it was written completely in conversational style, but now I realize it's because I knew how the conversations would end and was just waiting for something interesting to come along. For others TWB was the book that made them say "a-HA!"

For me it wasn't a book but the REHP MF board and the REHP home page. And I've noticed in myself a certain want to champion intercst and the REHP page. We humans are funny.

 

[John Galt]

Hello BigMoneyJim! Actually I did not "fall in love witb
the first book" that opened my eyes on ER. I read everything, including the label on my cottage cheese!
Terhorst's book did it for me. I already had the ideas
perking in my head and Paul made it a reality.
Would I have ERed without reading his story
(10 times and counting)? I am sure I would, but his
book was a major push. I've read other stuff, but none
of it came close for me. Maybe both of us being accountants was a factor.

John Galt

 

[Whakamole]

What I loved about TMND was that it wasn't the "invest and some day you can live it up like the rich!" type of book. Instead, the message was "rich people live modestly, maybe more modestly than you." Yes, there is some about business acumen but that's mainly in the second book.

This accomplishes a few things. First, you (presumably as a non-millionaire) feel better living your lifestyle because many wealthy people live a very similar lifestyle. You can both laugh at the Joneses for spending beyond their means. Second, it helps break the "success = materialism" equation because there isn't one at all. Last, it does a good job of explaining why financial security is within everyone's reach.

There's no book like this for everyone, but everyone can relate to one of the many books out there, beit TMND, or the Wealthy Barber, or whatever.

 

[unclemick]

Like watching paint(oil) dry and grass grow - dollar cost averaging to the max into low cost diversified index funds got me to ER. Straight salary - no bonuses, options or brilliant investment coups. Even better would have been REHP intercst's 1929 strategy of individual stocks and totally avoiding mutaul fund fees. Let time do its thing.

I read TMND and YMOYL after ER and enjoyed them. If you're young and a book can get you jump started - that's even better. The fundamentals haven't changed - even though John Jacob Raskob's 1929 advice would have got you only 8% from 29-49 according to Ben Graham and my personal lapses from 1966-82 put me behind - old fashoined DCA 1977-92 and a grunt salary job did the trick. Books are nice but keep doing the fundamentals while you read.

 

[John Galt]

I agree with unclemick about the "fundamentals".
In my case, having done no serious planning until
I was almost 50, and then being retired completely
at 54 required some very unconventioal moves as
well as a lot of luck. I needed mojo as much as I needed
money.

John Galt

 

[Sunrunner4]

This thread reminds me... I wrote a tongue-in-cheek book report for YMOYL for the LbYM* board at the Fool

I'll post the text here, since I really liked the dang post:

http://boards.fool.com/Message.asp?mid=20613196

Book report - Your Money or Your Life

I suggest you all stay away from this propoganda, consumer-hating book. I am only 25ish pages in and can already definitively tell you the tone, message, and suggestions.

The book, however, was not a foolish purchase (on sale, allowing me to buy two books for the price of 1 and 1/2!), as it contains an interesting metric.

The first step to whatever the hell they are preaching (financial freedom, anti-consumerism, socailist internment camps, whathaveyou) is to develop a pair of financial metrics, which I will combine to make the first (that I know) LByYM metric:

1. Add up all the money you have ever made until this point in your life, including under the table funds, cash from walking the dog, etc.

2. create a personal balance sheet. Include all normal assets (houses, cars, horses, purebred dogs, stocks, etc), but also assess the value of everything in your house. Let's state that again: "assess the value of everything in your house". Oh man that's great. It means everything - every book, album, cd, artwork, collectable, sofa, etc. This, of course, is designed to "shock" you into thinking, man, I had all that money and that's all I have to show? but we LByYMers are made of sturner stuff.

3. (SR4 Effective Wealth metric) - compare the:

Total Income
----------------- = Effective Consumer Wealth
Net value of consumer goods

(should not include 'normal' fixed / liquid assets)
(i.e. - designer dog collar, first printing of "The Fountainhead" signed", Viking oven, etc)

so, for example:

$1,000,000
-------------- = 20
$50,000

What I like about this is not only can you track an increase in your score over time, but you can use it to compare the stuff you have to other people, regardless of income!

So if one chump scores a 20, yet you score a 40, you now have definitive proof that you are superior by 100%! In the reverse, if you find someone scoring an 80, you may want to ask him how he accumulates such impressive purchasing habits.

Note that this truly rewards the disciple of LByYMs, as well: one subzero refrigerator should be worth substantially more than two Kenmores after a few years of use. Similarly, the expensive Italian couch should hold a greater percent of net worth (if taken over a long enough time frame) then a garage-sale-if-yer-lucky Ikea special.

Sunrunner4 - helpful

* Living Beyond Your Means

PS - as an aside, I truly believe that several people I know measure their lifetime success by that exact formula.

 

[Pennhaven]

- There are two types of people PAWs and UAW's; prodigious accumulators of wealth and underachieving accumulators of wealth.

- PAW's drive sensible cars, live in sensible homes, and sock their money away for their future.

- UAW's live in expensive neighborhoods, drive expensive cars, have other expensive tastes and have little or no net value along with high debt.

I haven't read TMND. If I recall correctly I saw a review soon after it came out that included a synopsis similar to yours, and this pursuaded me that my own philosophy was already well in line with the PAW type, and I concluded there wasn't much to be gained from the book for me personally.

But this does remind me of some other things I have read.

15 or 20 years back I saw an article somewhere that stated that Chevrolet was the brand of vehicle most frequently owned by millionaires in the US. (Maybe it is Honda today?) The article went on to explain that the majority of millionaries were actually frugal, non-extravagant, etc., and did not like to advertise their financial status.

Soon after reading this I mentioned the "factoid" about Chevrolets at a party to some business associates of the "UAW" pursuasion. Their reaction was to scoff at the very idea of Chevys being popular with the rich. "Why everyone knows that rich people drive Cadillacs and Mercedes. Why would a rich person want a Chevy, when they could buy a luxury car?" :

Appropo of this topic, I just finished a wonderful book, that I highly recommend to anyone interested in business (Though its lessions are also applicable to other areas in life). Good to Great by Jim Collins. It describes a study of the very few companies that can objectively be described as having transformed themselves into "great" businesses. One of the findings is that the Chief Executives in these companies were what the author termed "Level 5 Leaders". They are invariably not egocentric people driven to impress others with their wealth and "success", rather they are relatively modest, even self-effacing individuals, who are driven by the desire to build a successful organization. I was particularly impressed by this passage on David Packard, the co-founder of Hewlett-Packard.

Shortly before his death, I had the opportunity to meet David Packard. Despite being one of Silicon Valley's first self-made billionaires, he lived in the same small house that he and his wife built for themselves in 1957, overlooking a simple orchard. The tiny kitchen, with its dated linoleum, and the simply furnished living room bespoke a man who needed no material symbols to proclaim "I'm a billionaire. I'm important. I'm successful." "His idea of a good time", said Bill Terry, who worked with Packard for 35 years. "was to get together with some friends and string some barbed wire." Packard bequeathed his $5.6 billion estate to a charitable foundation and, upon his death his family created a eulogy pamphlet, with a photo of him sitting on a tractor in farming clothes. The caption made no reference to his stature as one of the great industrialists of the twentieth century. It simply read: "David Packard, 1912-1996, Rancher, etc." Level 5, indeed.

 

[charlie]

I mean no disrespect to David Packard, but HP is
a basket case today.

BTW, I bet some of those "millionaires" are still driving
the SAME Chevy.

Cheers,

Charlie

 

[Nords]

First Lucent and then HP

Lucent still hasn't recovered from Carly Fiorina. What makes anyone think that HP will do better?

Many years ago spouse & I were volunteer guides at the Monterey Bay Aquarium. David's daughter Julie is one of the founding four (with a little financial assistance from her trust fund). At the time of its opening the MBA was an amazing tech demonstration of ocean engineering. They're one of the first places to grow giant kelp and to raise jellyfish, and their success is based on making the aquarium water move like the "real" ocean. Much of the design & engineering behind that came from Dad and his HP engineering buddies.

I don't know if it's still on display, but David Packard himself designed & build a mechanical model of the earth's tidal system that showed the moon & sun rotating above/below a tank of water. As the heavens aligned themselves, the tank's water level rose & fell on the "beach" to show the tide. It's a model of mechanical/analog computing that's just about disappeared in today's digital virtual-reality systems. He probably designed it on that same kitchen table...

 

[John Galt]

Wasn't Carly Fiorina married to James Taylor?

John Galt

 

[Pennhaven]

I mean no disrespect to David Packard, but HP is
a basket case today.

BTW, I bet some of those "millionaires" are still driving
the SAME Chevy.

FWIW HP is not one of the 11 "great" companies studied for the book. However, both Hewlett and Packard are mentioned as examples of "Level 5" leaders. I'm sure the author would point to many examples of HP not sticking with the necessary practices identified in the study as the reason it is not a great company today. These would include its lack of focus on necessary core principles, the hiring of a high profile chief executive from outside the company, and the merger with Compaq.

 

[cute fuzzy bunny]

I believe the most owned vehicles for the average millionaire today is the Ford pickup. Might be a Chevy pickup now, I havent seen anything recent.

TMND actually included an entire chapter on cars by price per pound and suggested that as a good purchasing metric.

American iron might be cheaper, and better than it used to be, but my brief recent flirtation with a Ford left me feeling like I wont be buying anything except toyotas and hondas in the future.

David Packards house may have been simple, but if it had 'pastures' out back and was in the bay area, it was still a million dollar+ house!

Carly Fiorina has definitely not improved HP. I used to like to buy their PC's. The last one I bought was a piece of crap. The company used to stand for solid engineering and good value. I have no idea what the heck it stands for now.

Saw a fun article about one of the 49ers newer quarterbacks, Ken Dorsey. He drives a dented old honda with broken air conditioning, broken power windows, and his girlfriend doesnt even want to ride in it. The players wont let him park it in the players lot near their Escalades and Mercedes. He has no plans to replace it anytime soon.

I hope he wins the QB job over Tim Rattay. Tim is currently nursing a pulled groin muscle and a sprained right forearm. Insert your own joke here.

 

[unclemick]

I drive a 99 Chevy Silverado - a good rolling advertistment for Toyota trucks.

 

[KB]

THe same author just released 'The Millionaire Women next door'. I haven't read it yet, the waiting list at the library is too long. It probably has similar info as TMND but I'm still going to read it.

 

[flipstress]

Wasn't Carly Fiorina married to James Taylor?

I think it's Carly Simon that you're thinking of.

 

[Nords]

TMWND is a great read but...

... I was surprised/disappointed that it didn't include any names, addresses, or even phone numbers...

 

[Jane]

THe same author just released 'The Millionaire Women next door'.

I read it. And I have also read TMND. Content-wise, the 2 books are about the same: self-made millionaires who live modestly. The book mentioned the difference between male and female millionaires is that female millionaires tend to be more generous in term of charitable giving or more generous in sharing their wealth with their friends/family. One example was a woman who provided education and trust funds for her sister's children when her sister passed away.

The book also concluded that there are 2 types of millionaire women: alpha and beta women (a concept not fount in TMND - I think). Alphas are those who grew up with supportive environment with supportive parents who taught them all the right concepts (self-worth, confidence etc). Betas are those who grew up in less supportive environment, often with abusive parents. There are more alphas than betas among the rank of millionaires of course, but the book praised the betas, concluding that they are more persistent and tenacious as they have to work with more disadvantages than the alphas.

To me, this concept of alphas and betas says one thing: you can be succesfull no matter what your upbringing was if you really want it. Lots of people I know gave tons of excuse on why they are financial basketcase: oh because my parents didn't pay for my schooling, oh because I am a minority and no one wants to promote me, oh blah, blah, blah. The book basically says: no excuses. Some of these women came from less-than-pefect background but they "made it".

The book then closed with professions these women millionaires have: most are business owners, some are proffesionals (doctors, denstist etc), some educators and some sales proffesionals, etc, etc.

Most concepts are recycled but still an enjoyable reading.

Jane

 

[Pennhaven]

Interview with author re. Millionaire Women Next Door: http://myfidelity.members.fidelity.com/investorsWeekly/cms/FEAstanley040816.dyn

 

[ESRBob]

In case anyone else was struck by the number of 'russian' background millionaires (Scottish ancestry -- that's me, and Russian ancestry were the two leading groups), I have done a bit of pondering on the topic and spoken with some friends, and it appears that these are not lots of ex-KGB agents who have come to the US and made good... these are rather Jewish Americans who list Russian as the closest fit to describe their eastern european/Russian roots.

If I am wrong, please let me know, but this makes a huge amount more sense to me now.

ESRBob

 

[wabmester]

... but this makes a huge amount more sense to me now.

I think I missed the logic that caused your lightbulb to glow. Could you elaborate?

In any case, I don't find it surprising that immigrants of all stripes are more entrepreneurial than non-immigrants. Consider what it takes to be a successful entrepreneur: risk-taking, vision, perserverence. Essentially the same qualities needed to pull up your roots and look for a better life in another country.

There were several waves of immigration into this country, including lots of eastern european jews escaping persecution in the early 1900s and around WW-II. But also including a newer wave after the USSR broke up.

My guess is that most of them will end up millionaires, but the newest wave is probably still ramping up to that status.

 

[azanon]

Their reaction was to scoff at the very idea of Chevys being popular with the rich.

Depending on the point of view of what one means by "rich", they could be right. I read TMND myself, and i certainly acknowledge that "millionairres" are often the frugal ones as that book states. I "might" call these people moderately wealthy today, but if anyone today is past 50 years old and only worth 1 mil, i'd hardly call them "rich" and i'd hesitantly refer to them as wealthy.

IMHO, a "rich" people have so much money, they can afford to both live lavishly as well as amass capital. In contrast, someone's who's middle class but has managed to get 1mil+ in net worth by age 50 today is better characterized as simply a miser (or frugal) unless they inherited the money by some means. AFAIK, if you cant "afford" to spend lavishly, you ain't rich

Granted, even this wont be true 10-20 years from now as, by then, 1 mil really wont be that impressive at all, nor hard to obtain. A standard 10% savings as a middle class should get you a mil in 30 years or so.

 

[ESRBob]

I think azanon raises a good point: is the whole TMND premise really a straw man talking not about anyone actually rich, but just about frugal business owners and professionals who keep living style more or less the same even as their economic fortunes increase?

Still there is value imho, since even if not 'rich', they (we) do still represent the top 5% or so of families on a wealth basis, which is still meaningful. There are lots of people worse off financially (pretty much everybody in the world on a percentage basis).

So even if a few super-rich do have real wealth and also buy flashy consumer items, the realization that plenty of people live below their means is a bit of an eye-opener in our hyper-consumptive society, and validation for those of us seeking or living FIRE and living the way we do on this board.

Wab, re: the number of russian heritage millionaires being up there with the scottish... and then my hearing from someone (one of my israeli friends, I think) that this was probably shorthand for Jewish people in the US -- what made sense is that I do know plenty of successful wealthy jewish people, but know almost no "Russians", successful or not, which had puzzled me when I first read the book. I think this is just one of those artifacts of how questionnaires get put together -- and efforts to distribute people based on geographic heritage . (Though we probably won't see broad uptake on beginning to speak of jewish people as "Russian-Americans" akin to Italian-Americans or African-Americans)

ESRBob

 

[Nords]

Yeah, but it's fun to read about that stuff...

... when your spouse is a Russian Jew and your ancestors include Scots.

 

[Pennhaven]

I think azanon raises a good point: is the whole TMND premise really a straw man talking not about anyone actually rich, but just about frugal business owners and professionals who keep living style more or less the same even as their economic fortunes increase?

Still there is value imho, since even if not 'rich', they (we) do still represent the top 5% or so of families on a wealth basis, which is still meaningful. There are lots of people worse off financially (pretty much everybody in the world on a percentage basis)...

Certainly "rich" is a relative term. But just ask anyone with the mean US household income (~$41K) if someone with $1-2M net worth is rich, and I am pretty certain I know what the answer will be.

My point in the earlier post was that some folks are just not wired to even consider the possibility that lots of people who can afford to buy luxury "status" items choose not to, and that they end up a lot better off due to that choice.