The Millionaire Next Door

By Engr. Carlos V. Cornejo

Many of our beliefs about millionaires are busted by the book “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy” by Thomas Stanley and William Danko. Although this book is based on extensive research on millionaires in America, its ideas can very well be applied here in the Philippines. Some surprising facts from the book about millionaires are as follows: (1) Most Americans with over USD 1 million in net worth rarely purchase fancy cars or homes. The typical millionaire lives in a neighborhood where they are outnumbered by non-millionaires three-to-one, and half of millionaires live in the same house for at least 20 years. (2) Most Americans with over USD 1 million in net worth live way below their means. The median (50th percentile) net worth of a millionaire is USD 3.1 million, with an annual household income of USD 250,000, but they spend like someone who makes only USD 85,000 a year (numbers are inflation-adjusted for 2023). (3) And lastly, most Americans with over USD 1 million in net worth are not privileged people who inherited money. Fifty percent of millionaires didn’t inherit a cent from their parents. They were self-made and self-employed.

Here is a closer look at these three surprising findings and specific steps you can take to become an unassuming millionaire:

Most Millionaires Don’t Care About Looking Rich

More than one-third of millionaires buy used vehicles, and more than half drive a vehicle that is more than two years old. The average price they pay for a vehicle is just USD 4,000 more than the average American spends. When you see a luxury car or SUV on the road, it’s probably not driven by a millionaire. Stanley and Danko found that “many people who live in expensive homes and drive luxury cars do not actually have much wealth.” Just as people act confident when they’re insecure, many people look rich when they have little in the bank or invested in appreciating assets. The truly wealthy know that the thrill of buying a luxury car, a suit, a watch, or any other high-status artifact lasts about a month, but the pride of buying assets and increasing financial independence lasts a lifetime.

Whenever you’re tempted to buy nice things to keep up with your friends and neighbors, recall the words of one millionaire doctor in the book: “I’m not impressed with what you own. I’m impressed with what you achieve.” Forget accumulating nice things and focus on your craft.

Most Millionaires Live Well Below Their Means

The authors say, “Millionaires play both quality offense (earning well) and quality defense (budgeting). And quite often their great defense helps them outscore or out-accumulate those who out-earn or have superior offenses. The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.”

Nearly every millionaire in Stanley and Danko’s study saved a minimum of 15% of their annual income. If 15% seems impossible, upload your credit and debit card spending into a budgeting app that breaks out your discretionary spending, and you’ll quickly see opportunities to spend less while maintaining your quality of life. Whatever area of discretionary spending you see as an opportunity for saving money (eating out, entertainment, travel, hobbies, gadgets, home decor, and anything else beyond your basic needs), make a budget for it and stick to it.

One significant difference between the wealthy and non-wealthy is that wealthy families spend twice as much time analyzing and planning their spending as non-wealthy families do. Review your spending for at least one hour each month to continually find ways to save at least 15% of your annual income. Then, as you earn more, keep your spending the same to gradually increase your savings rate from 15% to 20% — which is the average savings rate of millionaires in the wealth study.

Most Millionaires Are Self-Made and Self-Employed

The book says, “Self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires… Three out of four self-employed millionaires consider themselves to be entrepreneurs, and most others are self-employed professionals, such as doctors and accountants.”

Being self-employed requires hard work, persistence, diligent planning, and incredible self-discipline, all of which are traits of most self-made millionaires. “Much of a (self-employed millionaire’s) success depends on living a frugal existence while building their business,” which becomes a fixed attitude they acquire even if they become very wealthy.

When the authors looked at the types of businesses self-employed millionaires start, they found that most could be classified as “dull” businesses that few people at a cocktail party would be interested in discussing. Having a “dull” business (like a paving contracting service or a pest control service) is great because it doesn’t attract much competition, and the demand for their offerings stays elevated during downturns and recessions.

One other common characteristic of self-employed millionaires is that they find opportunities to serve other wealthy people in one of three ways: create service companies for expensive products, create professional practices that help people manage their wealth, and simplify and sell products that wealthy people will pay a premium for. And here is a quote to remember from the authors: “Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement. What are three words that profile the affluent? FRUGAL, FRUGAL, FRUGAL” — Thomas Stanley and William Danko.