The twenty year study carried out by Thomas J. Stanley and William D. Danko, on the wealthy American population, brings to light two surprising facts. The first, is that many people who live in ‘rich’ areas and drive expensive cars are not particularly wealthy; the second is that many families with millionaire assets live a life which is very similar to normal people, staying in the same house for over thirty years and driving a second hand car. Hence, these are the people whom the authors have aptly named, the millionaires next door.
To fully understand this data, the first thing we need to do, is to let go of the preconceptions that we have about millionaires, or the stereotype created by the media, of the big spender, surrounded by luxury goods: contrary to what we have been taught, wealth is not synonymous with high incomes and crazy expenses but with the accumulation of assets. It therefore follows, that even with a high income, if you maintain a very expensive lifestyle, you may not be rich at all; on the contrary, research highlights how wealth is often the result of a lifetime of work and savings and not an unchecked lifestyle. In keeping with this truth, the profile of a millionaire is generally that of a middle-aged person living a normal lifestyle, without spending to show off and having worked as a small business owner all their life. These are often first generation Americans, who have lived in the same city all their lives and only married once. The millionaire next door lives in the same neighbourhood as the average person and is a compulsive saver.
Of significant interest is that the millionaires next door show little contrast between their lives and those of people with average incomes and assets, and even more interesting, is the fact that the wealth of this segment of the population can be achieved by many people in just one, single generation, by following their example and observing a few rules and a little advice.
In particular, the research brought to light some interesting common denominators in the habits and characteristics of millionaires next door, among the principles for which, are:
- a lifestyle below their actual means;
- efficient management of money and energy to generate further wealth;
- conviction that financial independence is more important than displaying one’s wealth;
- no financial help from the family of origin;
- adult children who are also financially independent.
By following these rules and sticking closely to these characteristics, each of us can guarantee ourselves financial freedom and an easy, worry free old age, at least from an economic standpoint.