People invest in real estate, and subscribe to this newsletter, to become millionaires. Actually, my average subscriber already is a millionaire. They must want to become multi-millionaires.

The Millionaire Next Door by Ph.D.s Thomas Stanley and William Danko. These researchers were in the news a few years back when they revealed that many millionaires became so through such mundane businesses as dry cleaning. /They now denounce the press their mention of dry cleaning got and they note that dry cleaning ranked 116th out of 171 industries in profitability in 1992. I think the main character of the efferson’s TV sitcom (Movin’ on up to the East Side to a deeeluxe apartment in the sky) was a dry cleaner because of initial studies done by Stanley and Danko.]

Not who you think

The main thing Stanley and Danko contribute is destruction of a great many myths about wealth and the wealthy. The public image of millionaires is that they graduated from a prestigious college and grad school, make a lot of money, have a lot of money, and spend a lot of money. Wrong, at least on three counts.

They have a net worth of a million or more, by definition. But they are more likely to have no degree or a degree from the local state college than a degree from a prestigious university. They often do not have high annual incomes, and they rarely spend a lot of money.

‘A man like me’

A commercial of a few years back had a wealthy man in a limo doing something that indicated frugality. A young man expressed surprise that “a man like you” would be so thrifty. “How do you think a man like me got to be a man like me?” he responds.

The extensive research of Stanley and Janko reveals the commercial was quite accurate regarding the frugality of millionaires. But it was wrong to suggest that they get limos after they have “arrived.” They become millionaires in large part due to frugality, and they remain frugal after they get rich.

Caviar and vintage Bud

As part of their research, the authors interviewed a group of deca-millionaires—people with a net worth of $10 million or more. To make the decamillionaires at home, they rented a Manhattan penthouse and put on a spread of four pates and three caviars along with expensive vintage wines.

The first decamillionaire to arrive turned down the spread and asked for a Bud if he was paying, or any brand of beer if it was free. All the others did pretty much the same when they arrived. The Ph.D.s had to eat the fancy spread themselves afterward, with the help of some bank trust officers from down the penthouse hall.

One of the main findings in The Millionaire Next Door is that it is far easier and cheaper to impersonate a millionaire than it is to become one—and for most people, impersonation is enough.

How do you impersonate a millionaire? Texans have an expression for it: “All hat and no cattle.”

If you got it, flaunt it. And if you ain’t got it, fake it. Look like those get-rich-quick gurus on TV: expensive resort-area homes (DelDotto on the beach in Hawaii), yachts (Carleton Sheets), expensive new cars (The Milins), expensive clothes and watches, expensive vacations. Will you be rubbing elbows with real millionaires when you are arranging to lease your new Mercedes? Nope. Real millionaires generally do not lease cars, and they generally do not drive expensive foreign cars or new cars of any origin. They buy used cars.

Seven factors

Stanley and Danko identified seven common denominators of real millionaires:

Adult children

The findings are especially interesting regarding adult children, and they reinforce what I said on the subject of helping adult children financially in my 3/97 and 4/97 articles, “Joint parent-child real estate deals.”

The authors make an extremely damning case against helping adult children financially at all. Doing so destroys the adult children’s ability to learn how to became financially self-sufficient. Helping adult children economically is also a financial black hole which drains the parents’ net worth. As a general rule, you will not become a millionaire if your parents helped you financially after you became an adult, and you will not stay a millionaire if you help your own adult children financially.

Not even tuition

All financial help is prohibited. The authors say the most common financial help is down-payment money and tuition for private schooling, both of which seem innocent enough. Wealthy parents who give help have myriad excuses and rationalizations—the public schools stink, the only houses their children can afford without help are in bad neighborhoods, the adult child is attending grad school or trying to get a business off the ground, the law permits a tax-free gift of up to $10,000 per person per year, and so forth. According to the authors, none of these is an adequate reason to help adult children financially. All lead to complete or partial permanent financial dependence.

Success formula

The success formula of real millionaires is scrimping, saving, investing, and hustling. When you think about it, the formula for becoming a millionaire is simple arithmetic. Subtract your current net worth from $1,000,000 then divide by the number of years until the deadline you set for yourself to find the annual increase necessary. Actually, the progression is geometric because of compounding (if you invest), but it boils down to the amount you save each year plus the amount you earn on that investment.

Nickerson’s approach

The first real estate guru, William Nickerson, wrote the book, How I Turned $1,000 into $5,000,000 in Real Estate in my Spare Time. Nickerson was the real thing, a real estate millionaire who only wrote a couple of books on the side.

He never made his living from guruing. He was also frugal. My wife and I visited his home to interview him and his first wife, Lucille, in the late seventies. We said, “This can’t be it,” when we got to his door. The house seemed too ordinary to be the home of a famous millionaire. It was on the beach in Aptos, CA, which is no low-income community, but, still, it was not regal.

As far as I know, Nickerson is the first, and last, guru to tell people how to save money to invest. His second book, How to Make a Fortune Today Starting From Scratch, lists the questions he got from readers of his first book, and his answers. Three whole chapters cover saving and budgeting. The words “saving” and “budgeting” also appear frequently in The Millionaire Next Door’s descriptions of real millionaires.

Something for Nothing Down

I looked up the word “savings” in Robert Allen’s Nothing Down. In his book, savings is something to be put down (“the odds and inflation are against you”), an impossibility (“the majority of us barely have enough money in savings to buy a new lawnmower”), or “the hard way.” The word “budget” does not appear in Nothing Down, or its sequel, Creating Wealth, at all.

Robert Allen declared bankruptcy in 1996 after twelve years of financial difficulties. William Nickerson became a millionaire in the 1950s and a multimillionaire thereafter.


‘Offense and defense’

Readers who are familiar with my involvement in football coaching may think it’s my idea to use the words “offense” and “defense” in discussing millionaires. Nope. Stanley and Danko use those words.

The popular image of millionaires is that they are so good at “offense,” making money, that they care little about “defense,” holding down expenses. In fact, the opposite is more true according to The Millionaire Next Door. Many millionaires actually have modest incomes their whole lives, but they are world class at saving.

The popular image all-offense millionaire is, according to the authors, seen only in heirs, entertainers, pro athletes, and lottery winners.

Living beneath your means

The authors say that one of the most important factors in becoming a millionaire is living beneath your means. Thinking back, I can see that in my own life.

As a former real estate agent, I was used to explaining to people what the largest home they could qualify for was. Most people are barely satisfied with that home.

In 1980, my wife and I bought our first California home. We felt as if we were stretching a bit to buy it. But our incomes subsequently increased rapidly and we were soon living beneath our means. One manifestation of that was that our bank accounts quickly grew to over $100,000.

But, again thinking like a former real estate agent, I told my wife we could afford a bigger house. Plus, our first son arrived in 1981 and we planned to have at least one more child. So in 1983, we moved into our current, much more expensive home. That permanently cured the swollen bank account problem.

To save, your outgo must be less than your income. But if you buy the biggest house you can afford, you will generally not be able to save, almost by definition.

On the other hand, I don’t want to beat myself up too much. Our first California home had three bedrooms, two baths, and a two-car garage. That would be too small with our current family configuration: three sons, three drivers, three cars. Man does not live by savings alone.

We could have found a cheaper five-bedroom, three-bath, three-car garage house than 342 Bryan Drive in Alamo. But we live in a very nice neighborhood which we enjoy every day. Being of sound mind, my wife and I spend our money on ourselves and our family while we are alive.


The typical real millionaire has lived in the same town his whole adult life and in the same house for more than twenty years, owns his own business, and is still married to his first wife. The typical millionaire couple derives the vast majority of their income from the husband. Most millionaire wives do not work outside the home. Of those who do, teacher is the most common occupation. Moving and changing spouses are expensive.

Does not run in the family

The typical millionaire’s parents were not rich, and his children probably won’t be either. To be a millionaire, you must be a special type of person and you must not be messed up by your well-meaning, but inept parents or by your darling, but permanently dependent children.

Genetically, most millionaires would probably have a kid or two with the right genes. But the typical millionaire kills his own children’s ability to become millionaires by steering them toward a prestige education and prestige profession and by giving them too much money and therefore too little independence.

This was the most surprising thing in the book to me. If millionaires encouraged their children to follow in their own footsteps, both in terms of frugality and in terms of occupation, many of their children would do equally well.

But the rich seem to want a “better” life for their kids and they define that as private school, professional degrees, nicer first homes, fewer worries about money, and so forth. That is, they send their kids off to hang with the Astors and thereby learn how to be spendthrifts, encourage them to be spendthrifts by giving them free money, and discourage them from playing good “offense” by steering them away from entrepreneurship. In other words, the rich seem to want equal success for their kids, but they are blind to the key ingredients in their own success formula.

Keeping up with the Astors

One of the big problems with prestige educations and professions is that there is peer pressure to live an affluent lifestyle. I saw that first hand at Harvard. My wife and I both come from frugal families. But at Harvard, my wife was impressed by the way a classmate, who was the daughter of a Fortune 500 executive, dressed and thereby learned about such things as Ferragamo shoes (if you have to ask, you can’t afford them).

After Harvard, one of her banking colleagues once blurted out, “Do you spend all your money on clothes?” After Harvard, she won an impromptu contest on an airline flight. They had an extra bottle of wine and awarded it to the person with the most active credit cards on their person. Eighteen.

I, too, got this “training” at Harvard. I was taken aside by a classmate and told that my John Wannamakers suit was not up to snuff. I should buy at Brooks Brothers. So I did, in 1977, and if that suit ever wears out, I’ll go back to Brooks Brothers for another.

Actually, I bought five “Dress-for-Success” wool suits in 1977. Does the fact that my 16-year old son wore one last year as part of his Halloween gangster outfit suggest it’s out of style?


The authors found some interesting ratios. The average millionaire spends less than 7% of his wealth each year to live. They have more than six and one half times the average net worth of the people in the neighborhood where they live. Only 17% of millionaires ever attended a private school, although more than half send their children to private schools.

Most work 45 to 55 hours a week. On average, they save and invest about 20% of their annual income. Twenty percent of their net worth is in securities, 21% in their business. The rest is in pension plans, real estate, and household goods.

Are you at par?

The authors came up with a formula for determining if your net worth (not counting inheritance income or assets) is what it should be.

age x annual before-tax income/10

So a 41-year old with annual income of $155,000 should have a net worth of (41 x 155,000)/10 = $635,500.

They further define three levels. If your net worth is twice what it should be or more, you are a “prodigious accumulator of wealth” or PAW. If it is half what it should be or less, you are an “under accumulator of wealth” or UAW. In between those extremes are the “average accumulators of wealth” or AAWs.

Been there, done that

I was a PAW until the late ’80s, when I got run over by the Tax Reform Act of 1986 and the S&L overbuilding binge in Texas. One of the things you hear about PAWs is that if they lost all their money they would make it right back.

In my case, I dreamed of being a millionaire for decades and achieved my dream. But I was not very impressed with being a millionaire when I was one, so I had no burning desire to reachieve it when I became a former millionaire. You can spend only so much money wisely and I was surprised to find that you hit the limit much sooner than I expected. One of the paradoxes of millionaire status is that those of us who are frugal enough to achieve it are too frugal to enjoy it.

My wife and I became multimillionaires subsequent to becoming former millionaires, but it was just a byproduct of going about our lives, not a push to get back to that status.

Stanley and Danko have finally answered a question I have long asked myself.” If I’m so smart , why aren’t I rich?” But they have also unleashed a new, unanswered question: “If I’m so cheap, why aren’t I rich?”

Apparently, Millionaire Next Door is disliked and disprespected by many academics. I don’t think it’s te be all and end all of resarch on the rich. All the Money in the World is a very informative book on the superrich. There was also a new book in 2008 by a journalist who went door to door asking people in rich neighborhoods how they made their money.