Can one really become the 'Millionaire Next Door'?

[W2R]

Quote:

Originally Posted by friar1610 I notice the same thing on both fronts. In addition to the clothes (most of it with logos on the outside) it's the cars! I see lots of Mercedes, BMWs, Audis, Lexuses, etc. around here. All the luxury car dealers seem to be expanding and opening new dealerships or at least rebuilding/enlarging the ones they already have.

In New Orleans it seems like most of the people driving luxury cars are big time drug dealers. Even though I suppose I could afford to buy a car like that, I don't like the image, at least not here, not now.

[Dog]

I read the book about 15 years ago and it resonated with me and validated DH and my lifestyle. It did open my eyes to the possibility that all the people driving expensive cars, buying big homes, shopping at Nordstrom and eating out at the trendy spots weren't necessarily "rich" like I assumed.
I felt the LA Times article missed the main point of the book and was a bit snarky.


Sent from my iPhone using Early Retirement Forum

[ikubak]

One time, while drinking some wine with my next door neighbor and his wife, they told us that in private, they called DW and I the millionaire's next door. We got a chuckle out of that but didn't let it be known that we really were millionaires. We live in a modest neighborhood in a modest home built in the late 50's. We live in a relatively small college town and everyone knows everyone's business, so they knew we paid cash for our house and have spent some money to get it the way we want it.

Regarding the article, I think it is very feasible to become a millionaire next door. We have always lived on about the same amount $ 40K-50K a year. We always contributed a large amount to our retirement accounts and took a few calculated risks when the opportunities presented themselves. It was painless and I don't feel like we missed out on anything.

[Choices]

we have noticed many more Mercedes and Beemers on the roads this year. We attribute it to folks in the "growth industry" of legalized MJ. I drive an 11 yr old Toyota.

[clifp]

I really reject the premise of the article that it is harder to become a millionaire now than it was in 1996. Even putting aside the opportunities to become a millionaire practically overnight working for internet companies, the mere existence of the internet makes frugal living far more plausible.

Pre-internet your low cost entertainment options were limited, TV, radio, libraries, now for very modest cost you have practically the same experience that required going to the movies, concerts/buying CDs, and bookstores.
It is fair easier to get away with not owning cars, since you can work for home,and have many things delivered to you.
You no longer have to live near a big box retailer to get the best prices, which means its a lot easier to live in a lower cost part of the country.
The net makes it much easier to save money on everything.

[Mo Money]

Per Dog:

Quote:

I read the book about 15 years ago and it resonated with me and validated DH and my lifestyle. It did open my eyes to the possibility that all the people driving expensive cars, buying big homes, shopping at Nordstrom and eating out at the trendy spots weren't necessarily "rich" like I assumed. I felt the LA Times article missed the main point of the book and was a bit snarky.

+1

[NW-Bound]

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Originally Posted by travelover ... The hardest part for me was being male, white, tall, middle class and American.

Hey, doesn't smart trump all those attributes? Look at Yoda, for example.



OOPS! Yoda lives in a cave. And look at his robe! Never mind.

Well, at least Yoda retired early, I hope.

Did he?

[Philliefan33]

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Originally Posted by NW-Bound Well, at least Yoda retired early, I hope. Did he?

I think Yoda was 900 years old when he was training Luke Skywalker. Maybe Yoda was retired, but accepted contract work for that? It doesn't sound like ER, but I don't know the typical lifespan for a Yoda.

[Golden sunsets]

"Luck is when preparation meets opportunity".

+1. I agree with this after reflection. DH gets so mad when I (small business owner) say that an angel has always sat on my shoulder.

[Fred123]

Disclaimer: I haven't read the book myself. But, my understanding of the basic premise is that an average earner can become a millionaire by living modestly, saving, and investing the savings.

It turns out that we have the perfect tool to test this: Firecalc! Even though I think it's over-optimistic, let's give it a shot. I ran it in reverse, starting with a 0 portfolio and using negative income, and it turns out that saving $15K/year for 30 years, invested in the default FC portfolio gives a 50% chance of saving about $1.2M. Now, the median household income in the US is $51K, and the taxes (SSI/Medicare + Fed) are about $6K, so that leaves about $45K for everything. So that leaves $30K/year for everything if you are going to become a millionaire in 30 years. And that assumes a 50% chance of "winning." If you want, say, a 75% chance it looks like you'd need to save $20K/year, leaving $25K/year.

No doubt there will be some here that say that they could raise a family on $25K/year, but I think most would agree that that would be pretty unpleasant. And, I think that the vast majority of participants here made much more than $50k/year (in 2014 household) dollars during the course of their career. So I have to disagree with most posters here and say that the article was actually right on. Sure, it helps (a lot) to be frugal, but it also helps to be lucky.

[harley]

Quote:

Originally Posted by Fred123 Disclaimer: I haven't read the book myself. But, my understanding of the basic premise is that an average earner can become a millionaire by living modestly, saving, and investing the savings. It turns out that we have the perfect tool to test this: Firecalc! Even though I think it's over-optimistic, let's give it a shot. I ran it in reverse, starting with a 0 portfolio and using negative income, and it turns out that saving $15K/year for 30 years, invested in the default FC portfolio gives a 50% chance of saving about $1.2M. Now, the median household income in the US is $51K, and the taxes (SSI/Medicare + Fed) are about $6K, so that leaves about $45K for everything. So that leaves $30K/year for everything if you are going to become a millionaire in 30 years. And that assumes a 50% chance of "winning." If you want, say, a 75% chance it looks like you'd need to save $20K/year, leaving $25K/year. No doubt there will be some here that say that they could raise a family on $25K/year, but I think most would agree that that would be pretty unpleasant. And, I think that the vast majority of participants here made much more than $50k/year (in 2014 household) dollars during the course of their career. So I have to disagree with most posters here and say that the article was actually right on. Sure, it helps (a lot) to be frugal, but it also helps to be lucky.

Except that's not what the book says, and that's where the author of the article goes astray. Stanley never said anyone can become a millionaire. He was just saying that most millionaires didn't inherit their money, they made it/saved it/invested their way to it. And that can still be done by many. Not everyone, but more than you might think. The article author implies that there's no reason to try, since not everyone can do it. The basic premise of the article is based on a misrepresentation of what the book is about.

[Fred123]

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Originally Posted by harley Except that's not what the book says, and that's where the author of the article goes astray. Stanley never said anyone can become a millionaire. He was just saying that most millionaires didn't inherit their money, they made it/saved it/invested their way to it. And that can still be done by many. Not everyone, but more than you might think. The article author implies that there's no reason to try, since not everyone can do it. The basic premise of the article is based on a misrepresentation of what the book is about.

So, the "typical" millionaire described in the book (which I downloaded for free; something that Mr. Stanley might or might not have appreciated) had an income of, in inflation adjusted dollars, close to $200K/year. That would put her in the 95% income bracket. So I guess the take home on this would be that you really can be a "millionaire", as long as you make more money than 95% of the people in the US and don't blow it on fancy cars and houses. Fair enough. But hardly sage advice.

[daylatedollarshort]

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Originally Posted by Fred123 So, the "typical" millionaire described in the book (which I downloaded for free; something that Mr. Stanley might or might not have appreciated) had an income of, in inflation adjusted dollars, close to $200K/year. That would put her in the 95% income bracket. So I guess the take home on this would be that you really can be a "millionaire", as long as you make more money than 95% of the people in the US and don't blow it on fancy cars and houses. Fair enough. But hardly sage advice.

The purpose of the book and follow up books was to research the habits of people who already were millionaires and examine their backgrounds, education levels and spending habits, not to provide a self help manual or how to guide.

The most common professions were, not surprisingly, relatively high paying. But that wasn't enough. People had to have a good income and save money, too. Otherwise they were income but not balance sheet affluent.

[Fred123]

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Originally Posted by daylatedollarshort The purpose of the book and follow up books was to research the habits of people who already were millionaires and examine their backgrounds, education levels and spending habits, not to provide a self help manual or how to guide.

That's certainly not what the introduction to the book states:

"Why are so many people interested in what we have to say? Because we have discovered who the wealthy really are and who they are not. And, most important, we have determined how ordinary people can become wealthy. "

Also, lots of the book appears anecdotal, the self-employment mantra suffers from confirmation bias, etc. But, I guess I should back off since I'm treading on sacred ground here..

[daylatedollarshort]

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Originally Posted by Fred123 That's certainly not what the introduction to the book states: "Why are so many people interested in what we have to say? Because we have discovered who the wealthy really are and who they are not. And, most important, we have determined how ordinary people can become wealthy. " Also, lots of the book appears anecdotal, the self-employment mantra suffers from confirmation bias, etc. But, I guess I should back off since I'm treading on sacred ground here..

The first and follow up books have lists of occupations and types of dull normal businesses all owned by millionaires. I am not sure what your point is. The books never claimed to be how to books on how retail workers at Walmart and Starbucks could become millionaires just with thrifty habits alone or super smart investing strategies.

The first book was written by authors with PhDs and based on actual research of millionaires. The research part is what made it unique at the time.

[Regulator]

The book is one of my all time favorites, and has provided me nothing but value.

Nothing like a reporter that trashes good people after they pass...

[Sunset]

Haven't read the book, but in my late 30's I became homeless, I had an old car, clothes on my back, a job meant for students, and facing lots of bills.

Now late 50's I'm one of those M's next door.

I didn't aim for it, but being homeless taught me not to waste $$$. I see lots of folks who feel _entitled_ to X, even if they have to pay with Credit card for it because they cannot afford it.

[Fred123]

Quote:

Originally Posted by daylatedollarshort The first and follow up books have lists of occupations and types of dull normal businesses all owned by millionaires. I am not sure what your point is. The books never claimed to be how to books on how retail workers at Walmart and Starbucks could become millionaires just with thrifty habits alone or super smart investing strategies. The first book was written by authors with PhDs and based on actual research of millionaires. The research part is what made it unique at the time.

My point is that if you are claiming that if you have "determined how ordinary people can become wealthy," you aren't talking about the segment of the population that makes more money than 95% of all other households (as the book does). You are talking about those at the median, and, at $50K/year, they aren't ever going to be wealthy. Unless they get very lucky.

I'm financially independent. Part of it was hard work, frugality, and good investment choices. But a large part was also luck. And I'm sure that's true for a majority of people on this board. I find, especially in my ER, that the self-congratulatory nature of some people I've met who have retired early makes me very cranky.

[harley]

Quote:

Originally Posted by Fred123 My point is that if you are claiming that if you have "determined how ordinary people can become wealthy," you aren't talking about the segment of the population that makes more money than 95% of all other households (as the book does). You are talking about those at the median, and, at $50K/year, they aren't ever going to be wealthy. Unless they get very lucky.

Or, unless you start a business and become one of the minority that succeeds at it. I've known a number of small business people (and am one, very small), and very few of them started out taking home $200K/year. Most of them weren't taking anything more than grocery money home, plowing it all back into the business. Starting and building a business is very hard work, and is the reason so many of the millionaires in the study lived very normal appearing lives.

Again, the basis of the study, and the reason for the book, isn't to show everyone how to become millionaires. It's to show that most millionaires didn't inherit their money, they made it. And by living below their (later life) means they built it up beyond the millionaire level.

If you are basing your interpretation of the book off of a back page blurb written by someone other than the author, you are missing the point. Here's a quote from Amazon that sounds a lot closer to what I remember of the book than what you've been saying. Pay close attention to the last rule. It pretty much is the opposite of what you are saying the book is about.

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Stanley and Danko, who have spent the last 20 years interviewing members of this elite club: you just have to follow seven simple rules. The first rule is, always live well below your means. The last rule is, choose your occupation wisely. You'll have to buy the book to find out the other five. It's only fair. The authors' conclusions are commonsensical. But, as they point out, their prescription often flies in the face of what we think wealthy people should do. There are no pop stars or athletes in this book, but plenty of wall-board manufacturers--particularly ones who take cheap, infrequent vacations! Stanley and Danko mercilessly show how wealth takes sacrifice, discipline, and hard work, qualities that are positively discouraged by our high-consumption society. "You aren't what you drive," admonish the authors. Somewhere, Benjamin Franklin is smiling.

[Fred123]

Quote:

Originally Posted by harley Or, unless you start a business and become one of the minority that succeeds at it. I've known a number of small business people (and am one, very small), and very few of them started out taking home $200K/year. Most of them weren't taking anything more than grocery money home, plowing it all back into the business. Starting and building a business is very hard work, and is the reason so many of the millionaires in the study lived very normal appearing lives. Again, the basis of the study, and the reason for the book, isn't to show everyone how to become millionaires. It's to show that most millionaires didn't inherit their money, they made it. And by living below their (later life) means they built it up beyond the millionaire level. If you are basing your interpretation of the book off of a back page blurb written by someone other than the author, you are missing the point. Here's a quote from Amazon that sounds a lot closer to what I remember of the book than what you've been saying. Pay close attention to the last rule. It pretty much is the opposite of what you are saying the book is about.

This book is interesting because, despite what's actually in the book, everyone seems to be selecting passages that fit with their own beliefs, despite other passages that contradict those beliefs. For instance, it really does say (p. 1, Introduction) that they have "determined how ordinary people can be wealthy." Sure sounds like a how-to book to me.

And he actually recommends *against* starting a business unless it's for a self-employed professional:

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Many people ask us, "Should I go into business for myself?" Most people have no business ever working for themselves. The average net income for the more than fifteen million sole proprietorships in America is only $6,200! About 25 percent of sale proprietorships do not make one cent of profit during a typical year.

and later says:

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So what do these millionaires advise their children to do? They encourage their children to become self-employed professionals, such as physicians, attorneys, engineers, architects, accountants, and dentists.

This hardly seems a route to wealth for "ordinary people", unless you consider ordinary people those who get advanced degrees.