The Next Millionaire Next Door

DR. THOMAS J. STANLEY SPENT THE MAJORITY OF HIS PROFESSIONAL CAREER examining how Americans achieved financial success on their own. He studied business owners, executives, teachers, engineers, and a whole host of individuals with average to above-average incomes to answer the question: Why are some individuals better able to transform income into wealth? The works published from this lifetime of research answering that question have sold more than five million books.

Why did this work have such a significant impact? Perhaps it was because the research revealed that wealth could be achieved via our own behaviors; there were no preconditions such as privileged birthright or ethnicity. Despite sensational headlines to the contrary, it is still possible today to build wealth without a lump-sum inheritance or a lucky lottery ticket. So long as the freedoms that we enjoy exist in the United States, there will be individuals who will build wealth, not because of luck or the color of their skin or their parents’ success, but because of the goals they set, the behaviors they employ to reach their goals, and their ability to ignore distractions and naysayers along the way.

The hallmarks of what made a millionaire next door 20 years ago continue to hold true. Living below your means is just another way of expressing a mathematical equation: an equation that works regardless of changing political landscapes, economic environments, and fads. The math always works, but the distractions of the day, whether the “trading up” mentality of the 1990s or early 2000s or the ever-present social media of today, pull many people away from the simple power of saving more than they spend. The increased costs of health care and education also require us to think differently about the way in which we live our lives: The traditional lifestyle or career path that our parents and grandparents followed may not be conducive to building wealth today.

Still some critics have argued that the very concept of the millionaire next door is dead, that the Internet-fueled stock boom of the 1990s led to the success stories my father covered in The Millionaire Next Door, and that survivorship bias was at work in our data set (i.e., the idea that we analyzed only the “winners” and that the economic “losers” may have shared the very same traits). But fortunately for those who are seeking financial independence, our most recent study and resulting data indicate that the behaviors, habits, and lifestyles that are conducive to building wealth haven’t changed in the last 20 years, and they are not dependent on the economic, societal, or technological concerns of the time. We’ve seen that even in nonaffluent populations, the same characteristics separate those who are more successful at transforming income into wealth from those who are less successful.

Identifying Millionaires Next Door

There is a science to finding millionaires, but because they are such a small subset of the American population, obtaining large numbers of them for any survey research effort can be challenging. There are massive data sets and addresses tied to zip codes that allow researchers to sample within presumed high-income and high-net-worth neighborhoods, even though within those neighborhoods not all the residents are millionaires. Traditional survey research and target-market procedures are not necessarily foolproof methods to find millionaires next door, because millionaires often build wealth by not spending a fortune on their primary residence, thus making them less likely to live in affluent neighborhoods. Even though they can be seen in crowdsourcing efforts and financial independence blogs, they typically keep the reality of their financial success to themselves. After all, a willingness to not look rich helped them get there in the first place.

But today there continues to be a group of individuals who build wealth on their own and certainly on their own terms. Many of the millionaires next door featured in this book and in prior works wrote to us to share their stories. While this group doesn’t take pride in broadcasting their success to the world, they do tend to relish in sharing their experiences (often anonymously) with others who are interested in following their lead. Through our research with crowdsourced samples, we also encountered people who are properly labeled as emerging millionaires next door. These are individuals who are not yet millionaires but most certainly on their way.

Identifying those who are adept at transforming income into wealth takes more than an isolated consumer purchase or job title. True, the millionaires next door that my father studied and interviewed in 1996 often worked in what some people might think of as dull or mundane industries, like accounting or scrap metal. Today, just as was the case in 1996, professionals such as engineers and teachers often have the characteristics, personalities, and abilities that allow them to prodigiously transform their incomes into wealth. But it has never been the case that all small-business owners, scrap metal or otherwise, are successful at transforming income into wealth. It’s also never been the case that all owners of older model cars, inexpensive watches, and modest homes have the necessary knowledge, skills, abilities, and competencies to build wealth on their own. These are markers, as my father showed, but not necessarily predictors. No, instead we have to consider a broader pattern of behaviors and experiences versus a single financial decision or lifestyle choice.

Someone Forgot to Tell the Financial Independence Community

Since the publication of The Millionaire Next Door in 1996, an entire community has evolved that focuses its lifestyle and efforts on the ability to retire (or have the option to leave salaried work) at a stage of life that today is mostly unheard of. Thirtysomethings saving up enough to retire? Some of the best evidence that millionaires next door are alive and well is the vibrant online community commonly referred to as “FI/RE” (financial independence/retire early). In 2011, a blogger with the pen name Mr. Money Moustache began documenting his saving and spending habits, his investing practices, and his philosophy on consumer behavior (using colorful language like “Your current middle-class life is an Exploding Volcano of Wastefulness,” which is one of my favorites).¹ While he wasn’t the first to talk about frugality and frugal living online, he was one of the first to be widely read and cited. Mr. Moustache left salaried employment at age 30 with roughly $900,000 in total assets. Through his writings and those similar to his, a cultural movement was born.

Today, more than 1,700 blogs related to FI/RE can be found ranked on Rockstar Finance (a sort of directory for the FI/RE community).² Most involve some variation of a similar theme: a focus on saving money and being able to do what you want with your life as soon as possible. Many bloggers in the community reference The Millionaire Next Door as a transformative work in their journeys. The case studies and personal journeys of these bloggers are more voluminous than could be covered in one book and include a multitude of different approaches, from doctors and attorneys earning high six figures to other professionals with lower salaries. Some writers have multimillions accumulated but have not yet jumped ship from their careers, while some with less than $1 million in net worth have already retired. They preach being purposeful and disciplined in designing a lifestyle that allows you to stop being beholden to a company or organization so you can decide on your own what you want to do with your days. Again, these people are not in their 60s or 70s, but in their 20s, 30s, and 40s.

Take 30 minutes and peruse through some of these blogs and get to know these individuals. Note the lifestyles they describe and the details of how they got there. You may not like how they live their lives, but it would be hard to argue that their behaviors and choices don’t work for them. It will become clear that the millionaire next door is alive and well in this particular community.

Respect for Money: A Prerequisite for Wealth

Allison Lamar, who grew up in a remote part of the United States, had an alcoholic mother and a father who struggled to make ends meet while taking care of his wife. In the end, it was Allison’s grandparents who served as mentors to help her take control of her financial life. When I interviewed Allison, she shared her unique perspective with these words of advice related to respecting money: “Take care of money responsibly, and it will take care of you later. When people say they don’t care about money, I believe that is an excuse not to deal with it.”

Allison is now 54 years old, the mother of two college-aged children, and a homeowner. She’s happily engaged to be married and has lived in the same town for 20 years. She told me it was her early experiences and corresponding behaviors that allowed her to build wealth and become a millionaire twice over:

Allison shared her thoughts on why so many people are challenged when it comes to building wealth:

• They’re playing the game of comparisons by using social cues to decide what’s important and how they compete with others. “Parents especially can be so competitive,” she says.

• “People need to face the reality of where they are.” In other words, gaining an awareness and appreciation of your financial situation can lead to realistic decisions about how to move forward.

• They think small decisions do not have consequences. Allison learned to appreciate the compounding power of small decisions as she worked in the below-freezing chill of the Midwest to earn money.

Allison’s early influences and experiences helped to shape her financial journey. At many points along the way, she could have given up, or made easier short-term decisions. But by respecting money and taking a long-term view, resulting in part through the influence of her grandparents, her journey is now giving her great freedom:

Allison shared her story not for fame or fortune, not for an Instagram post, but rather to demonstrate to others that regardless of your circumstances, achieving economic success depends not on what has happened in the past but instead on the behaviors you employ today and tomorrow, behaviors that were described in 1996 and still hold true today.

More Millionaires Next Door: Hate the Methods, Love the Outcomes?

No one would argue with the reach and influence of Dave Ramsey in the world of personal finance. According to the Ramsey Group website, 13 million people tune in each week to Mr. Ramsey’s nationally syndicated radio show and more than 4.5 million people have attended his Financial Peace University 12-week classes.

Some aspects of his message have drawn criticism from other purported “experts.” We will leave the discussion of specific financial advice for others to wrestle with and argue over. We’ll focus instead on the the behavioral side of his methodology and its associated outcomes. Mr. Ramsey instructs individuals to pay off their smallest debts first, thereby providing a psychological incentive to continue to pay off debt, ultimately leading to larger debts (e.g., student loans, mortgages) being paid off and placing the household in a position to save and invest. And in his group consensus peer pressure, it appears, can serve as a positive influence in personal finance. The training courses (often multiple weeks of group meetings), associated materials, books, and technologies all provide ample reinforcement for positive financial behaviors.

Many of my father’s readers and fans have referenced Mr. Ramsey and his organization as the means by which they were able to correct their financial behaviors and achieve economic success, many either approaching or having just accomplished the goal of reaching millionaire status when they described their journey. Like the FI/RE community, these individuals are often demonstrating the outcomes associated with behaviors that are conducive to wealth, and becoming millionaires in the process.

Meet the (Very Much Alive) Jacobsons

The Jacobsons are not front-page news, not by any means. They didn’t win the lottery or start a tech firm that was bought by Amazon or Google. Their fortune came from a steady, simple lifestyle and decades of choices that were conducive to building wealth. Their 1,900-square-foot home is more than likely not in any zip code data set that includes America’s top wealth holders. They followed what could be described as a typical millionaire-next-door path. After amassing that wealth, they continue to spend in a way that ensures that their wealth will be sustained and grow, as Mrs. Jacobson described in a letter she sent to my father, which he referenced in the updated preface to The Millionaire Next Door in 2010:³

It’s worth mentioning here that the average single-family home in America is approximately 2,400 square feet (about 500 square feet larger than the Jacobsons’ house). But even though this family is below average in terms of home size, they are in the top 10% in terms of net worth. Statistically speaking, the larger the home, the less the owner has to transform into wealth. Approximately 92% of homeowners are not millionaires, but a whole lot of them live in homes larger than 1,900 square feet.

The Jacobsons don’t have to worry about the $400 trillion shortfall that is expected to hit retirement savings in the next 30 years.⁴ Because Americans now live longer and fewer pension options are available, the burden to ensure financial independence and comfort in retirement is likely to be mostly the responsibility of the individual, and the Jacobsons aren’t taking any chances. Regardless of headlines to the contrary, they are millionaires next door, and they are very much alive and well.

But It’s Not for Me!

Some cannot imagine the early career experiences of Allison Lamar. And the Jacobsons’ lifestyle isn’t for everyone. Some people may not want to order from the value menu. Some people may want a bigger house for any number of reasons. And retiring at 35 but “having” to live a frugal lifestyle isn’t attractive to everyone. It is understandable that not everyone can or wants to live this way.

But consuming today in anticipation of higher levels of future income and trying to keep up with the arms race of gadgets, cars, and accessories are universal problems that derail people from the economic success path and certainly the millionaire-next-door path. Individuals adopting this strategy are easily targeted by marketers, making it even tougher for them to stay focused on a goal of financial independence. The consumer arms race, and the reality that large populations are engaging in such battles, are often neglected in politically charged commentary on the state of wealth accumulation. But, as we’ve seen time and again, behaviors drive wealth.

• With friends or family who do not want to take responsibility for their financial future,

• With little saved for either retirement or other life events (e.g., college), and

People who are stuck in these kinds of scenarios don’t have the freedom to do something outside of the norm, like start a new business, or weather an economic disaster. You may not want the frugal lifestyle described by our millionaires next door above. But if not, you will need a high income to fuel consumption and be prepared for what may come your way in the future.

Income Is Not Wealth

There is great freedom in the United States to choose the kind of life we want to lead and the way we build or maintain wealth. Whatever path we choose, generating income for our household will be of paramount concern at some point in the process. But income isn’t the same as wealth. Income is what you bring home today. Wealth is what you have tomorrow. And the next day. And the next day.

Wealth is how much you accumulate. Net worth is your balance sheet—the net of your assets less your liabilities. Income is what you bring in over a period of time, and you report it on your annual income tax return. Periodic income certainly affects your net worth (balance sheet), but doesn’t define true wealth. Consider an individual who makes $1 million in wages in a year and spends $1.2 million in consumption during that same year. The wealth (balance sheet) impact would be negative $200,000.

The media often portray wealth as income instead of net worth, creating the erroneous perception that simply receiving a big paycheck necessarily leads to wealth. One similarity between the high-income and high-net-worth crowds is that most of these people are economically productive as a result of their own efforts.

And personal wealth in the United States is rising over time. In 2017, there were approximately 11,500,000 millionaire households,⁵ roughly 9% of the of all US households.⁶ By comparison, in 1996, there were 3,500,000 millionaire households, representing 3.5% of all American households at that time. Personal wealth in the United States was $22 trillion in 1996, but nearly one-half of this wealth was owned by 3.5% of households. The distribution is similarly disproportionate today: With personal wealth at approximately $84.9 trillion in 2016, nearly 76% is held by 10% of households.⁷

We are by any definition a very affluent country. But most people in America today are far from wealthy. Don’t be confused when you learn that the average (mean) net worth of an American household is $692,100.⁸ You may think that even if a typical American worker loses his job he will be able to live off his wealth for five, maybe even six years. But there is a problem with this figure. It is very misleading. The presence of high-net-worth households (think billionaires such as Warren Buffett or Bill Gates) skews the average disproportionately.

The median measure of household net worth paints a much more accurate picture of the character of wealth in America. The median is that of the typical household, the midpoint range of the more than 124 million households ranked from bottom to top along the net worth scale. With few exceptions and where noted, we use the median figure when we discuss dollars in this book. For example, the median income in the United States (as of 2013) was $59,039, while the mean or average, was $83,143.⁹ The estimated median net worth of Americans in 2016 was $97,300¹⁰—far from the frothy $692,100 (average) figure—and is just shy of the cost of a one-year stay in a nursing home.¹¹ This means that less than one-half of all households in the United States have enough to pay for such a service even if they sold everything they owned.

Most American households are nowhere near being financially independent, which we define as being able to live for some period of time without a paycheck from an employer or other earned income. Nor will most be able to retire in comfort. And there is more bad news. What if the equity in homes is factored out of the median-net-worth figure? Then the median figure drops to roughly $25,116, or about half of the annual median income generated by a typical American household. Who will care for these people when they are no longer able to support themselves? Don’t bet on the government. In the not so distant future, it is likely that you will only be able to rely on yourself and your loved ones. Survival, like charity, begins at home.

Let’s look at net worth as the indicator of wealth status. We often hear, both directly as well as in the media, the following: “One million dollars? That’s nothing anymore.” So while $1 million is certainly worth less today than 20 years ago ($1.5 million today would equal approximately $1 million in 1996)¹³, it’s still more than 10 times the median net worth in America.

As was the case in 1996, most households are far from millionaire status. And even more so today, millionaire status in retirement may not be enough to perpetuate a lifestyle that includes heavy consumption. If this is your lifestyle, then securing high levels of recurring income is paramount. But earned income can be fleeting. Those who want to be truly financially independent rely instead on savings and passive income that invested capital can generate.

A Portrait of Today’s Millionaire

So who are the millionaires of today? We wanted to determine if there were differences over time in the lifestyles, behaviors, and attitudes of millionaires, the “subject matter experts” of wealth accumulation. Were there key behaviors that would transcend time and lead to building wealth? What does this group of individuals who have amassed a median net worth of $3.5 million (the median net worth in our most recent survey sample) look like today? Below is a portrait of these millionaires:

• We’re mostly 61-year-old men (87%) who are either married (69%) or remarried (25%). More than 80% of us believe our spouses are critical factors in our economic success.

• Our median income in the previous year was $250,000, and our median net worth is $3.5 million. Compared to the average American, we earn four times as much, while our net worth is just about 36 times the average.

• Education has been critical to our success. More than 93% of us have at least a college degree, and nearly 60% of us have a graduate degree. A little more than half of us attended a public college.

• Nearly 20% of us are retired. For the 80% of us who are not yet retired, we work approximately 45 hours per week as business owners, attorneys, engineers, leaders, managers, physicians, and consultants.

• We live off what we’ve made, as more than 86% of us had 0% of our income from trusts and estates in the previous year, and only 10% received any gifts of cash, securities, properties, or vehicles from relatives.

• Nearly 90% of us are satisfied with life, and nearly 80% of us say we’re in general or consistently good shape physically, and we get 7.65 hours of sleep per night on average.

• We are frugal and we budget. A full 70% of us know how much we spend on food, clothing, and shelter each year, and 59% of us have always been frugal. More than 60% of us consider frugality as a critical factor in our success.

• The most we’ve ever spent on jeans is $50, on a pair of sunglasses is $150, and on a watch is $300.

• But we don’t shop sales in person. Roughly 77% of us haven’t stepped foot inside a store for Black Friday in the past five years.

• Luxury cars? We tend to drive Toyotas, Hondas, or Fords that are at least three years old. On average, our most recent car purchase was $35,000. The most we’ve ever spent on a car? $40,000.

• Approximately 70% of us said our parents were very frugal. Most of our parents were married and remained so until we were at least 18 (86.3%). Nearly 75% of our parents encouraged us to excel, but only 42% of us believe that having attentive parents accounted for our success. Less than one-third of us said our parents were better off than others while growing up.

• We are confident investors: 70% of us say we know more than most people about investing, and only approximately one-third of us say we rely heavily on an investment advisor. More than 70% of us have at least one account at a full-service investment firm.

• But we have made mistakes along the way. More than 60% of us have sold a great stock too early, more than 73% of us sold a bad stock too late, and nearly 40% of us have tried to time the market.

• When it comes to investing, taking risks helped us early on. While 56% of us would call our current investment strategy “balanced,” when we first started working, more than half of us called our investing strategy risky or very risky.

• When we do want professional advice on investing, we don’t pay a lot for it: 56% of us paid 1% of our income from the previous year on fees, while 33% of us paid zero.

• Do we practice economic outpatient care? Yes, a little less than two-thirds of us give gifts to our children and grandchildren. Roughly 34% of us give 1% of our income, and 23% of us give 5% of our income as gifts to relatives.

This portrait of what a millionaire looks like in America today is just a starting point. The real value in studying the wealthy is to understand what they did along the way to achieving financial success, that is, the patterns of behaviors that led to success. It is also critical to highlight case studies shared with us over the past few years of other millionaires who provided detailed accounts of their attitudes, lifestyles, and behaviors.

The Research

Most of the data in this book comes from the survey we conducted of affluent Americans between 2015 and 2016 (see Appendix A). This allowed us to make comparisons across time of the behaviors and habits of millionaires. We also used data collected at various times by the Affluent Market Institute and DataPoints. Much of this information is featured in the tables that appear throughout the book.

In many cases, we describe the findings for millionaires in our latest sample, that is, individuals with a household net worth of $1 million or more. In other cases, and specifically to help guide the review of economic success, we divide the sample into two groups using the expected net worth formula first described in The Millionaire Next Door. We calculate expected net worth by multiplying age by income, and dividing that product by 10, or:

The primary purpose of this approach is to empirically (and numerically) demonstrate how well an individual or group has been able to transform income into wealth.

Some commentators have questioned whether the findings in The Millionaire Next Door and prior works are unduly influenced by survivorship bias: in other words, that the research sample focused on those who have “made it” in terms of their net worth or incomes or careers, and therefore the conclusions about the behaviors that self-made individuals engaged in could have also been present in the remainder of the less-successful population. To this objection we have two counterpoints.

First, in addition to simply reporting averages and percentages related to the characteristics of millionaires, prior works have examined the different habits, behaviors, and attitudes of what we call “prodigious accumulators of wealth” and “under accumulators of wealth.” To examine potential differences in the behaviors and attitudes of these groups in our current study, we divided the affluent sample into quartiles based on the difference between their actual net worth and expected net worth. This difference provides a measure of financial success: those individuals at the bottom quartile are considered to be under accumulators of wealth (UAWs): They tend to have less wealth than they are expected to have given their age and income. Likewise, those in the top quartile were considered to be prodigious accumulators of wealth (PAWs) and tend to have a net worth much higher than expected given their current income level and age. The division into these groups is normative; in other words, it is sample specific based on age, income, and net worth. This allows us to compare groups based on a consistent metric of success looking at both the successful and not-so-successful segments. This same methodology can be used regardless of the population in question.

Second, we have been able to demonstrate the power of patterns of financial behaviors in the prediction of net worth, regardless of someone’s age or income. In other words, there are key behaviors that relate to your net worth whether or not you are young or old, or just starting to work, or are making six figures. During the past several years, I joined my father in his field of research, transitioning from studying how employees would be successful in specific jobs to studying how individuals are successful at building wealth. Using the science of predicting performance on the job for leaders or employees, we see the same habits, behaviors, and attitudes that distinguish those who are adept at transforming income into wealth from those who are not in samples of mass affluent Americans as well—that is, a sample where a significant portion of the participants have not yet “made it.” In other words, the same factors for building wealth relate to net worth across the entire range of the affluence scale (including those who are not affluent). And we also know that many of the same financial-related tasks that are conducted in high-net-worth households are conducted in mass affluent households:¹⁴ The tasks are similar, and the competencies required to conduct those tasks are similar. We note in Chapter 5 that patterns of behaviors, regardless of group membership, relate to wealth accumulation.

In a way, the research and writings over the past 20 years have served as a job analysis,¹⁵ or scientific examination of what it takes to build wealth. Job analysis is used in the world of human resources to study the key tasks and characteristics of individuals who are proficient in their jobs or professions. Those competencies are then put to the test to see if they are valid (or accurate) predictors of future success on that job. This discipline is used to assist employers in selecting applicants who are most likely to succeed in a job or function.

In the job of managing finances we measure success by the difference in actual versus expected net worth. Past behavior and experiences are among the best predictors of future performance when an employer hires a new employee. For those attempting to build wealth—which we argue is one of the critical jobs of anyone running a household—there are clear tasks that comprise the job¹⁶ and clear sets of behaviors that predict how well we will perform at this job.¹⁷

Of course we know that net worth is strongly influenced by income and age: Higher income gives individuals greater potential to build wealth. The older an individual is, the longer he or she has had to build wealth. And a large inheritance helps as well. Despite these factors, behaviors and experiences matter when it comes to building wealth, regardless of whether we’re studying the affluent, as is the case in this book, or studying those in the mass market or mass affluent segments. Patterns of behaviors and experiences matter when building wealth, and the same behavioral patterns—including discipline in spending, saving, and financial management behaviors—differentiate under accumulators of wealth from prodigious accumulators of wealth regardless of age, income, or percentage of inherited wealth.

What conclusions were reinforced by our research? The overarching lessons of financial success are universal and clear. They do not change because of elections, technology, or cultural norms. Nor do they change because of a boom or bust economy. The same skills, abilities, and competencies that are required to become financially independent and successful on your own are timeless. Regardless of your status, age, and income level, you can find your path to wealth and financial independence.

We have a choice in our lifestyles and whether or not we pursue economic independence. We can either play the part of mimicking those around us (and be easy targets for marketers and salespeople), or we can pursue our economic freedom quietly.

What does being financially independent—not being beholden to debt repayments, an employer, or a paycheck—allow you to do? It grants you freedom. You are free to solve problems the way you see fit; free to volunteer or spend time with family; free to take a job that perhaps pays less but gives you more satisfaction; free to create your own economic opportunities. And add to this list: free to leave behind the cubicle and regular paycheck at age 35 or 40, as many in the FI/RE community discuss in their stories of economic freedom.

Still the Land of the Free

My father often reminded us that we have great freedoms in our country to, put bluntly, do what we want. He often talked about his grandmother, who immigrated to America from Hungary with little more than a sack in the early 1900s. He wrote this piece in 2013, focusing on the nature of freedom and finance:

In the Declaration of Independence, Thomas Jefferson succinctly specifies the rights of individuals: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

We as Americans have been given the opportunity to grow, to achieve, to prosper, and to build financial independence. Given this blueprint, it is no wonder that so many people in countries all over the world have lined up to immigrate to America throughout her history.

Professor Denise Spellberg’s research about Jefferson was highlighted in The Chronicle of Higher Education.¹⁸ Jefferson was a strong advocate for religious liberty having been strongly influenced by John Locke. In 1689, Locke wrote “A Letter Concerning Toleration.” Professor Spellberg quotes Locke: “neither Pagan, nor Mahometan, nor Jew ought to be excluded from the Civil Rights of the Commonwealth, because of his Religion.” But that is not all that Jefferson read in preparation for writing the Declaration of Independence. He read the Qur’an which is still in his library today.

Jefferson’s blueprint for freedom provided a base for the development of our great nation. For it is the many opportunities to achieve that result in our society’s millions of success stories. Some countries may call themselves democracies, but a real democracy is evidenced by its peoples’ behaviors and outcomes. It’s interesting that countless immigrants and their children have prospered in our country while they barely eked out a living in their homelands.

Economic freedom, like the freedom we experience in the United States, has a cost: the discipline and work it takes to get there and then to maintain it. Not everyone is willing to pay this price.

Opportunities to Prosper

Financial success in this country is not commonly the result of being handed money, despite the increasing number of large-scale wealth transfers from the baby-boomer generation to their offspring, lottery winners, and celebrities who capture the public imagination. And there will always be stories of people who have squandered their riches. In fact, the likelihood that even self-made millionaires’ children will have the same level of economic success is low.

As our research has shown, the path to becoming economically successful requires thinking differently about life and money, as illustrated for example by those in the FI/RE community. It requires discipline and hard work. It requires knowing one’s own strengths and weaknesses, environment, and markets. It takes great skill in allocating resources—financial, emotional, cognitive, and time, to name a few.

For many this means being frugal while building wealth, not being susceptible to fads, and not buying into myths about how to “act rich.” In other cases, it’s managing a high income now in a way that allows for freedom later. In other words, not buying a house that requires a continued six- or seven-figure salary and generally living in a manner that allows above-average saving and investing. For others, it is spending one’s emotional and cognitive resources to create a working life that allows for financial independence and freedom. All of these paths require courage and perseverance.

Sadly, because only 28% of Americans feel “extremely or very prepared” for retirement¹⁹, and only 54% of Americans could manage a $400 emergency expense²⁰, the experiences of Allison Lamar or families like the Jacobsons seem extremely out of the ordinary. Despite the proliferation of self-help books, personal finance blogs, and so-called experts who typically have something to sell, Americans are still behind the 8-ball in terms of their financial well-being. Maybe this is because adopting a simple lifestyle and building wealth over time are too simplistic to sell advertising and apparently too difficult for most Americans to do. The expense side of the ledger is typically the challenge, particularly for those with higher-than-average incomes.

Paths to Wealth

Despite this somewhat dreary national outlook, there are many roads to economic success. What paths to wealth are available in America? Consider the latest survey we conducted, targeting some of the wealthy zip codes in the United States. As we discussed earlier, the ability of simple geocoding to find millionaires next door is limited. The moonlighter or the millionaire who is living in the original house he purchased when he first started working is not represented here. Though in this sample of high- and ultra-high-net-worth Americans we are able to discern distinct paths to economic success, the truth of the matter is:

If there were, the cottage industry of personal finance blogs, books, publications, podcasts, and financial planning in general surely would not exist. This industry, founded in part on the idea that wealth was something that could be created versus inherited or gifted—essentially the key premise of The Millionaire Next Door—now has its own conferences, critics, and informal leaders.

But even The Millionaire Next Door described only a few paths to wealth in detail, typically defined by disciplined spending, focused savings, and a diligence in money management. In reality, achieving economic success is an individual endeavor, but commonalities have emerged from the more than 16,000 case studies, interviews, and surveys we have conducted and letters we’ve received. In this book we highlight those commonalities while also demonstrating how, in more than 20 years since the first publication of The Millionaire Next Door, many of the same behaviors and success factors that led to independence and wealth endure today.

Here we look at how specific decisions and behaviors relating to consumption, budgeting, careers, investing, and financial management in general can affect wealth-building. We focus on how the areas of technology, media, and consumerism have changed between the 1990s and 2000s when we conducted research for the previous books and today. For example, we were interested in how the very same technologies that give freedom to those wanting to manage their own finances, create their own businesses, and educate themselves can also serve as a distraction from financial (and other) goals. We wanted to understand how rising costs, such as in education and health care, would impact individuals who were frugal in nature. How would the behavioral-finance biases in investing, which have captured the attention of many in the financial services industry, impact prodigious accumulators of wealth? Would they make the same mistakes?

While The Millionaire Next Door included other examples of self-made, economically successful Americans, the prototypical millionaire next door in this book is an individual in a somewhat “boring” occupation with an above-average income, who is frugal and unaffected by trends and social norms. But this is a path that may ultimately not suit everyone. The strategy is good defense, and the lifestyle is typically simple and unassuming. Seventy percent of millionaires state they have always been frugal. This behavior transcends job types and income levels.

The often-prone-to-being-Income-Statement-Affluent group (or “IA” group, referring to those with big incomes but low net worth) typically includes the executive leadership of larger organizations as well as professionals such as investment managers, doctors, dentists, and the like. If surrounded by exuberant consumption, this group is often tempted to look the part of their cohorts by buying big houses, luxury automobiles, and other expensive consumer goods. To build wealth with a high income takes considerable discipline in the consumption arena. To have economically self-sufficient children, this group must apply and teach a steady dose of frugality.

Assuming they have creativity, courage, and determination, along with a clear ability to target market opportunities, small business owners tend to have a higher net worth than those who work for others. For the small business owner, his source of revenue is derived from a business he created which funds all of his other investments. But self-employment does not automatically translate into big income and wealth. Consider that of the more than 25 million Americans who were self-employed sole proprietors in 2015, their average annual net income was only $13,154.²¹

Nearly one-third of all working Americans are moonlighters, which means they generate revenue in addition to and outside of their regular full- or part-time employment. Looking for multiple sources of revenue is a prototypical millionaire-next-door kind of behavior. It is much easier to have multiple sources of income than it was a decade ago. With technological resources at your fingertips, you can create multiple businesses in a matter of minutes. Typically, the most successful moonlighters have experience or access to potential customers to identify their needs and test the market.

Many of these moonlighters and gig workers are what we might call the “stealth wealthy”—in other words, they cannot be “found” in a sampling of affluent neighborhoods or through traditional means. But in our surveys we were able to find several emerging and actual millionaire-next-door types who use crowd-sourcing²² as a means to supplement their incomes. They represent developers, administrative staff members, teachers, professors, lawyers, marketing professionals, retail sales clerks, nurses—the full range of job types, interests, and levels. This group often values their family’s economic success and financial freedom over the consumption of goods.

Favorite Chapters from The Millionaire Next Door

Millionaires often reached out to my father to share their experiences and feedback about The Millionaire Next Door and his other books. He would invariably ask them what they liked about the book, and their collective feedback was captured in this piece he wrote in 2014:

I like to ask millionaires who have read The Millionaire Next Door what their favorite chapter is. You may be surprised to learn that it is not Chapter 2 (“Frugal, Frugal, Frugal”). This chapter details the frugal lifestyle of millionaires in terms of the modest prices paid for clothing, shoes, watches, motor vehicles, etc. This is merely a review for millionaires, affirming who they are. However, this chapter (which ranks third) is the one they most often tell their children to read!

Chapter 5 (“Economic Outpatient Care”) ranks second. Often after a millionaire reaches the financially independent threshold, a new set of issues develop. The typical millionaire next door has three children and around six to eight grandchildren. How millionaires interface with these offspring in financial terms can be the cause of much worry and unpleasantness. Of course, not all children of millionaires are under-achievers. But as mentioned in The Millionaire Next Door, “in eight of the ten occupational categories, gift receivers [those who receive economic outpatient care] have smaller levels of net worth (wealth) than those who do not receive gifts.” These occupations include accountant, attorney, marketing professional, entrepreneur, senior manager, engineer, physician, and middle manager. Of course, these data do not account for economic “inpatient care.” Keep in mind that one in four sons (ages 25–34) of high-income parents live with them.

Chapter 6 (“Affirmative Action Family Style”) ranks first in popularity. The subtitle of this chapter, “Their Adult Children are Economically Self Sufficient,” succinctly summarizes the chapter. Yet parents often distribute their wealth in ways that instigate friction among their adult children. Those children who are the least productive in economic terms often receive the lion’s share of their parents’ capital. The results of this inequity of distribution are predictable. It further weakens the weakest child and strengthens the strongest child. Or as a millionaire told me, “The [children] who achieve do so by conquering obstacles . . . [they] were never denied their right to face some adversity. Others were in reality cheated . . . sheltered . . . [and] never really inoculated from fear, worry, and the feeling of dependency.”

Another Visit with Ken

Those who are economically successful often have a guide, a North Star, and a plan to build wealth over time. They make decisions that are conducive to their financial goals, versus what might seem easier paths. Pursuing economic independence can begin at any time, but the earlier the better, as in the case of Ken, whom my father first interviewed and profiled more than a decade ago in The Millionaire Next Door. To be sure, Ken’s father was an economic success story, but Ken and the rest of his family didn’t know this until after his death. So with no knowledge of or benefit from his family’s wealth, Ken started on his financial path. We present Ken’s experience as a good template of wise yet tough decision making related to lifestyle and wealth. Consider his case as you contemplate how you and your household are planning for economic success.

Ken was raised in a frugal environment, though his father was a high-income-producing surgeon. Although achievement was emphasized, conspicuous consumption was frowned upon. Ken was also encouraged to stay physically fit by playing golf and running. When Ken’s dad passed away he left his mother an estate worth more than $10 million. How does Ken explain his family’s success in accumulating wealth?

Now in his early 60s, Ken is on track to exceed the considerable wealth accumulated by his father. Ken’s dad often told him, “I am not impressed with what people own. I am impressed with what they achieve . . . always strive to be the best in your field . . . don’t chase money. If you are the best in your field, money will find you.” (In Chapter 3, we’ll talk about the influences on how we build wealth, including early experiences.)

Initially Ken and his wife lived in a nice part of Manhattan within walking distance of his job. But when the couple began putting together a 30-year financial plan (yes, a 30-year plan!), they quickly realized that it would be difficult to accumulate wealth in one of the most expensive cities in the world. Ken then proposed to his boss that he be allowed to work out of a southern city. When his boss agreed, Ken and his wife purchased a house in suburban Atlanta for about $300,000, which they still live in 30 years later. A similar home would have cost them $1 million in the suburbs of New York City. (In Chapters 3 and 4, we discuss homes and other consumption factors in building wealth.)

Ken used his skills in working with others to network at the state university where he got his MBA. He sought out a faculty member to sponsor a field project related to his chosen field of interest, which was sports broadcasting. After graduate school, Ken landed a job in sports television broadcasting primarily because he had the experience of a field project. His starting salary was around $100,000. In this job, he was responsible for one of four regions in the country. The three other managers were all Ivy League grads. So why was Ken hired at the same level? Ultimately it was because he had experience through his field project in his MBA program. (In Chapter 5, we’ll talk about the factors that play into the success of millionaires and highlight how the same factors are related to success in other facets of work life. We then talk about early career experiences in Chapter 6.)

For transportation, Ken and his wife bought several new minivans that they kept for 8 to 10 years each. (In Chapter 4, we’ll cover consumption and frugality, the continued hallmarks of self-made, economically successful Americans. In Chapter 7, we’ll discuss how affluent Americans approach the allocation of their resources, including how they invest.)

Ken ignored the myth that to succeed he needed to spend lavishly on his education. He attended public schools and universities. So did his kids. Ken and his wife deliberately selected their neighborhood in part because it had the top-rated public schools in the state. Today the total cost of private school tuition in Ken’s area for grades 1 through 12 is between $110,000 and $264,000 per student for 12 years of education. Imagine how many pretax dollars one would have to earn to pay this tuition. Not surprisingly, 72% of the millionaires we surveyed report that when purchasing a home, they sought a neighborhood that had excellent public schools. Ken and his wife saved more than $300,000 this way. This one decision alone earned Ken and his family a small fortune when considering that this avoided annual expense was able to grow in the form of invested monies over the decades. (We’ll talk more about the myths of wealth, and the myths surrounding education, in Chapters 2 and 5.)

Requirements for Self-Made Economic Success

What about those with average to better-than-average incomes seeking financial independence today? If you were to simply explain how an individual can build wealth over time, and you believed it was still possible, how would you do it? You might explain that the way to do it is to spend less than you earn, and then save and invest the remaining money in a way that allows it to grow on its own. It’s simple, but not easy. The real difficulty lies in the external pressures that are telling us not to take these simple steps.

In conjunction with the most recent survey research, this book attempts to focus on the key habits, traits, and behaviors of self-made Americans based on data spanning 40 years to see if these patterns have changed over the decades. What we see is that they have been constant regardless of a dot-com boom or a housing bubble crash. The behavioral components of economic success have even been consistent regardless of who’s in the White House. Whether it’s the Jacobsons’ value meal perspective or Ken’s 30-year financial plan, there are key factors that separate those who are able to transform income into wealth from those who are not.

Do Environmental Changes Impact Wealth-Building?

Much has changed since The Millionaire Next Door was first published in 1996. Undoubtedly the biggest change is the proliferation of personal technology. These advancements gave us social media, which allows us to easily establish or keep relationships with an almost infinite number of family members or friends. On the positive side, social media provides a way to stay connected with others virtually. On the negative side, it is also a way for marketers to constantly remind us of the consumer goods we “need” and consumer-related experiences that our friends and family members are having: purchases, parties, events, entertainment, and even high-priced educations. Even if you can somehow avoid the marketing side of social media, you may find it hard to avoid being influenced by the behaviors of your friends and family, as nearly 70% of Americans are on social media.²³ This steady inundation of what other people are doing, driving, and buying has made it increasingly more important to be disciplined in deflecting the influence of the proverbial Joneses.

Next, an individual investor’s ability to make his own securities trades was in its infancy in the 1990s, but today the tools are available to anyone. This has pushed down the costs of hiring financial advisors, and it’s changing the nature of investing and financial planning, both for average Americans and for those with a significant amount of wealth. We’ll discuss this more in Chapter 7 as our focus shifts to investing.

Finally, the boom economy of the 1990s had some critics and people in the academic world assuming there were more chances for increasing wealth on one’s own than there are today. Living expenses in general have increased since 1996, of course, but nowhere more so than in health care and education. The cost of higher education, in particular, has been rising well above inflation, and recent articles and books question what value a four- or five- or six-year degree has today.²⁴ Do these costs mean that building wealth by following the behaviors and habits of self-made individuals is out of reach for most? We cannot argue that these rising costs have no impact on your ability to become wealthy on your own. Instead, based on our research, we simply see that the very characteristics that made the original millionaires next door that way in the 1980s and 1990s can be applied to the changes: frugality, discipline, and thinking differently continue to allow those with the desire and drive to build wealth to do so.

The Wealth Discipline

Throughout the course of our study of the affluent, there is a common theme that is celebrated by some and reviled by others: discipline. Our millionaire sample rates this as the top success factor. In 2000, 95% of millionaires agreed it was critical to their success, and in 2016, 91% of millionaires rated being disciplined as an important success factor.

Specifically, discipline is required to take income and transform it into wealth. This discipline includes knowing (a) how much you bring in, (b) how much you spend, and (c) creating a budget, or spending plan, to ensure the difference is in the positive camp. The mathematical equation involves basic addition and subtraction. Discipline is the component of building wealth that allows for the math to work.

The more you save, presumably, the more opportunity there is to invest. Then we can apply another mathematical equation: compound interest. Here, too, discipline comes into play. The “magic” of this math cannot be seen in frequent trading, market timing, or exotic investments, unless you are in the vanishingly small population of investors who can reliably and consistently “beat the market.”

Discipline is the factor that riles those who are looking for excuses why they cannot amass wealth, particularly among the hyper-consuming, high-income crowds. These people perhaps live in expensive urban areas and have amassed high college debt because they thought they had to.

Does the “d” word trip some of us up because it requires us to make choices and not have everything we desire? Discipline often requires going against the tide, including the tide of your social influences, and perhaps even how you were raised or your long-held beliefs about what you are entitled to today.

The millionaires in our latest study, similar to those we’ve studied previously, tend to be attuned to their financial health. They are keenly aware of the small, perhaps mundane aspects of their financial lives even though they have both income and net worth levels much higher than the average American. In our latest study, 70% of millionaires know how much they spend on food, clothing, and shelter each year. More than 65% of them, despite their high net worth, continue to operate their households on a budget. They engage in activities that align with building and sustaining wealth such as studying investments, reading trade magazines, and working.

Most economically successful Americans have or gain an awareness of their own abilities, skills, and competencies and how those can be transformed into careers, jobs, and businesses. They have the ability and foresight to examine trends in the environment, the market, and their communities and target future or growing needs with their services or products. Typically, this awareness is gained through parental guidance, early career experiences, and trial and error.

Awareness is required to make choices that are congruent with your own strengths, interests, family goals, and what is happening within your chosen playing field, including your neighborhood, social circles, job market, or industry.

Critical to all goals, financial or otherwise, is the allocation of time, energy, and money in an intentional, disciplined manner. As discussed in Chapter 3 of The Millionaire Next Door and Chapter 9 of The Millionaire Mind, those who are or who become economically successful have the ability to allocate their resources effectively to meet their goals and do not become distracted from reaching them. Prodigious accumulators of wealth spend more time planning for future investments than under accumulators of wealth. The same is true today. Millionaires next door still spend time on activities that are conducive to building wealth or to “building wealth” in the areas of health and wellness. (As we’ll see in Chapter 5, millionaires spend about half the time as the average American playing video games yet twice as much time exercising and reading for pleasure.)

Economic independence belongs to those with the willingness to allocate time, money, energy, and cognitive resources to achieve financial goals.

Assume for a moment that everything you’ve read in the popular or social media press with regard to wealth accumulation in the United States is true: that with the rise in costs related to health care and education, the lack of pensions and retirement funds from employers, and the increased mechanisms by which companies can influence your consumer behavior, few people can build wealth on their own. What if you buy into the idea that only the top 1% or 10% (or some percent) will continue to stay there?

And, what if you decide you want to buck the trend, to try on your own to do what some are saying is essentially impossible today? My hope is that you will read the following chapters with some glimmer of hope in a world where many say doing anything on your own isn’t possible without the help of government, handouts, or incredible good luck. What might it take for you? It will certainly take some self-reflection and, more importantly, some critical changes in attitude and behavior related to wealth such as:

• You have to understand and dispel many of the myths related to what wealth is and how it is accumulated. You will have to stop blaming those who have achieved economic success and instead examine how you can succeed based on your own unique background and talents.

• You will need to examine how everyone around you today, and those who were around you while growing up, faced financial matters. You will need to recognize that the errors of your parents and caregivers don’t have to be yours. Perhaps more importantly, you will need to recognize the level of influence those around you are having on your financial behaviors and make conscious decisions as to whether or not you will allow those influences to persist.

• You will need to consider your consumer behavior, starting with major purchases including your home and car, as well as smaller purchases. Where you “plant” yourself or your household will have considerable influence on other major financial decisions. You will have to determine if those purchase decisions are conducive to your overall financial goals, or if they are being made to emulate those who are either glittering rich or, as is more often the case, those who pretend to have great wealth.

• Part of your self-reflection must include a self-assessment of your strengths and weaknesses when it comes to all things financial. Where do your unique characteristics help you in creating and meeting financial goals? You will have to add to your list of self-improvement goals those related to financial matters: becoming more focused, more confident in financial decisions, and more frugal.

• It will take generating revenue on your own and thus must include a reflection on what work means to you, where and how and for how long you want to spend 40+ hours a week toiling for some entity, or if you can create a business on your own, with its requisite ups and downs, to generate income. Perhaps, instead, you make the decision to pursue early retirement on your own terms, saving money aggressively during your early working years, and leaving the 30-plus years of 9 to 5 (or now 8 to 6) to others.

• Finally, that revenue must be invested to grow, and you will have to decide, after reflection, how to invest it and where to get financial advice. You will have to make intentional decisions about how to spend cognitive resources as well. These resources, our attention and time, are non-renewable and either increase our opportunities for economic freedom or keep us enslaved to the income-spend-income-spend cycle.

Chapter 1 The Millionaire Next Door Is Alive and Well