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If you’ve been around on the interwebs and Twitter enough, and if you’ve read enough personal finance books, you’ll know a heck of a lot about The Millionaire Next Door. She or he spends less than you’d think, they don’t drive a Rolls Royce or Jaguar, and they’ve probably made it to millionaire within one generation, using their own hard work and money.
Good for them. I’m glad that there are many millionaires who are not concerned with ostentatious displays of wealth and the superficialities that go along with it.
But I don’t think you should try to be another millionaire next door. And I don’t think you should even care about it. The millionaire next door makes for good reading, and even for a healthier society perhaps, but here’s what I think you should really be thinking about and what you should do instead of trying to copy their act.
Why You Shouldn’t Care About The Millionaire Next Door
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1. It’s just another form of keeping up with the Joneses, except that now you’re aware that some of the Joneses have actually done really well for themselves. I’m not saying don’t do well or succeed, though. I’m saying stop benchmarking yourself to others, or at least, to some broadly defined idea of what “they” are doing. Role modeling is different. It’s more specific and based on intrinsically-determined goals that you may have developed – you seek out someone who has already done what you’d like to do.
2. Focus on cashflow, not networth. A million isn’t a million anymore anyway. I know, I know, you get that. It’s not the ultimate in networth which is going to make a difference in your life. It’s not even necessarily your baseline income (what you make from your primary workplace). You know already: it’s what you keep, it’s what you (re)invest, it’s what you don’t spend. Take a look at how a PhD student in physics was able to retire on a graduate student’s salary. All you need is to find a way to bring in more money than you need – that number might turn out to not be very much. And you don’t want to spend your whole life striving to get up to an income level you don’t even need to be at. What a waste!
3. Focus on ethics and integrity, not some isolated goal like reaching a million dollars. You don’t know what they did to reach their millions. I don’t want to single anyone out, but let’s just say we know more than a handful of people happily wealthy who have arrived via means not very commendable. And I’m not even talking about outright crime or illegal activities. I don’t want to stifle your own imagination or use only extremes as an example, but consider Arnold – who makes 20% ongoing from all royalties from the Terminator series (in addition to the baseline salary, plus bonuses and tie-in fees). It’s hard to say he “earned” something that only depended upon the stroke of a pen of a contract lawyer and the obligations that the producers had to use him or Terminator 3 would fail. But I digress – and there are better, more mundane examples elsewhere.
4. Many of the commendable characteristics of the Millionaire Next Door have nothing to do with networth and everything to do with just making sensible decisions. Should the millionaire really get “brownie points” for doing these? So don’t pay attention to the millionaire next door for that. There’s little you can learn from her/him. Painting your own house, buying a used car – basic frugal choices that you and your friends may already be making.
Lovers of The Millionaire Next Door by Thomas Stanley may misunderstand what I’ve been saying here. The book definitely provides an interesting thought experiment to reevaluate your own concept of millionaire – but I’m not sure that it ultimately adds a new concept to your own personal finance repertoire. Sure it’s great that there are frugal millionaires – but we should all be frugal, right?
If The Millionaire Next Door is the source of your own personal finance motivation, I’m not sure you’ve really escaped from running on the wheel with the Joneses. You could do better living in a van, life on your own terms, completely in touch with your needs and freedom. Get a little more creative – following a generic template won’t do you any good.
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{ 16 comments }
Interesting post. I like # 2 above. While I am working to increase my net worth (I have a recent post about it) I am also focused on passive dividend cash flow. Increasing the latter will help me retire and be financially free.
Like most things in life, great outcomes have everything to do with making great decisions. Financial management is no exception. Cheers!
In other words, by doing better then we will obtain better results also..
Thanks for your information..
Success for you.. :)
I’m all for striving to do better, but I agree that focusing on the abstract goal of achieving $1 million net worth is often the wrong way to go.
Thanks for the link to the retired ex-Physics student, an eye-opener!
Its always nice to read real live stories who had done it like Derek Foster isn’t? Stop Working strategy for everyone in the world :) I am very far from that, but hoping for it kind of nice. A bit like you are saying DF said that we don’t need a million dollar to retire. Myself, as soon as pay off all debts, got 20 000$ in cash (in case of emergencies and stuff) and reach 1 000$ in dividend income, I will quick the workplace.
Like you blog as always put I don’t like it when you write about Greece and write the world PIGS. I know its been described like that in the press, but repeating the world…… just don’t like it. There’s poor people in Europe and its more difficult for there, the workplace. There’s why there so much Europeans in Canada. They are all welcome of course. And if I may say, if you want my opinion, the real PIGS are Quebec leaders. Just watch the news and see what’s going on here in Quebec – unfortunately where I am right now – Bellmare, ect, etc, etc. The PIGS are the Quebeckers, not Greeks or Europeans.
1 000$ in dividend income per month or equivalent of course. Sorry for my bad comment about PIGS.
@Sunny – I agree, I don’t like the term “PIGS” either – why I hedged it with “so-called” PIIGS. But of course we all acknowledge that the unfortunate acronym was never intended as any kind of value judgement about those countries.
I disagree with your comments about Quebec, it’s unfortunate that you feel that way. However, I like your financial goals – $1000 in dividends a month would be a great accomplishment! Could you still live off just $1000/month?
Hmm, I think it really comes down to if you like feedback or not. If you don’t need feedback to succeed, sweet… But for someone like me that loves feedback, I prefer the stats…
Actually, I don’t think “The Millionaire Next Door” authors stopped at 1 million. In fact, I think they say the median millionaire in the study was 1.6 million and I believe the average was over 3 million (it’s been a while since I read it?), and that was what? 20 years ago? The book’s really goal is financial independence, not a set number…
Personally, what I learned from TMND was that you can achieve financial independence on a middle class salary. So basically, it gave me hope and made me want to try…
To each his own… :)
@Money Reasons – that’s great – I’m not really attacking the book itself – after all, I gained a lot from the Rich Dad books that everyone else hates. I’m not sure what you’re referring to re: stats and feedback. But I agree that inspiration is good wherever it comes from. Sometimes inspiration alone isn’t enough, though.
Great spin on the millionaire next door, though you lost me at Arnold ;-)
Seriously, you touched on something I have plans to dig deeper into, that being envy (your first point). I’ve noticed since I started lurking on financial sites, that many looking to get ahead are blinded by unhealthy envy. Some people are seriously troubled by it. If you have more to add here, that would be great!
Great list overall, I’m a huge fan of #2 (on your list and in the Terminator series).
@Ryan – re: #1, people should go see the film actually called “The Joneses.” Envy might be a misplaced form of ambition. In the absence of one’s own intrinsic motivators and vision, envy might kick in as recognizing this ambition and/or status in others, and one might become attached to it as something outside oneself that one does not possess oneself. So it’s really important to get in touch with your own long-term plan and vision so that you don’t fall into the romance of other people’s visions. Easier said than done, perhaps.
I agree with not comparing yourself with your neighbour. What the guy next door has is irrelevant.
Very excellent points. We need to stop placing a dollar amount on success and financial stability. Instead we need to focus on making smart financial decisions.
I like this article! I read Dr. Stanley’s blog (link posted for you), and while I agree with your sensible logic, I wonder if the average Joe thinks this way or needs to have these concepts mass marketed to them? It seems our medium American demographic is wildly susceptible to marketing and peer pressure– I feel for them. I’m not keeping up with my Joneses, but I watch them pop out kids and buy new cars like crazy! They could use some of this common sense.
What I take from this, is that a million dollars isn’t that much money any more. Thats one of the reasons that millionaires don’t live the millionaire lifestyle – they’re just not that rich. I expect to be a millionaire eventually, but only through the power of inflation.
@Yadgyu – interesting point. But wouldn’t a million still drastically change your current lifestyle? At the very least, you could buy a new house and car outright, get rid of all your debts, and take a nice one-year vacation – and still have a nice chunk of savings!
@MoneyEnergy,
Yes, a million dollars earned in one lump sum would be great. But people usually talk about earning a million dollars over the course of 30 or more years. It just seems like too much work for too little money.
None of the top 100 richest people in the world are millionaires. They aren’t even multi- millionaires. Those people are all billionaires. Most if not all of them are 1st generation billionaires at that. There is no bank account or budget or savings plan that is going to help anyone make a billion dollars.
I say that if you truly want to be rich, you need to get out of the mindset of working hard and saving money for decades. It really is a waste of time to do otherwise. While you work hard on getting to a million dollars, someone is spending a million on a car. I know that everyone cannot be a billionaire, but working hard to have a million dollars is foolish. A lump sum of million dollars does not afford a luxury lifestyle. You still would need a large income to support a millionaire’s lifestyle.
Think BIGGER!
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