The Millionaire Next Door Summary (by Thomas Stanley)

The Millionaire Next Door Summary (by Thomas Stanley)


Who are the millionaires? Is it the people living on the Upper East Side in New York the people living on Strandvägen in Stockholm? Well, yes, and yes, but the typical millionaire doesn’t live there, they live next door. What can we learn from these peoples so that we also one day, may call ourselves, millionaires? Takeaway number 1: The 12 characteristics of a millionaire. Contrary to many people’s beliefs, it’s rarely luck or inheritance that decides whether you will be a millionaire or not. It’s much more a result of hard work, lifestyle decisions, planning and self-discipline. Let’s pretend that we can interview the millionaire population. This is what they would tell us: We live below our means. About 50% of us have lived in the same house for more than 20 years. Our time, energy and money are allocated towards wealth. We spend more than twice the amount of time on financial planning and investing as our non millionaire friends. We think that freedom and financial security are more important than displaying high social status. We never received cash gifts from our parents. We are self-employed. About 2/3 of us have ourselves as our bosses. 75% of us consider ourselves entrepreneurs. Most of us are in our 50s and are males. We have a go-to-h**l-fund, which means that we can keep our lifestyle for 10 years or more, without bringing in additional income. We are well educated. Only 1/5 of us aren’t college graduates. We invest a lot! On average, about 20 percent of our realized income per year, and we make our own investment decisions. We invest in the long run. Over 90 percent of us hold our investments for more than a year. We buy cars by the pound. And screw those environmentalists! Ha ha ha ha! We are cheapskates. In a good way, we would argue. Takeaway number 2: Play defense. Let’s do a quick quiz. Does your household operate on an annual budget? Do you know how much your family spends each year on food, clothing and shelter? Do you have a clearly defined set of daily, weekly, monthly and lifetime goals? Do you spend a lot of time planning your financial future? Did you answer yes to all the above? Millionaires, to a greater extent than others, do. Now you probably think: Hold on a second! Why would someone who’s a millionaire need a budget? To that, the answer is: Because they became millionaires that way and they maintain their affluent status the same way. A parallel could easily be drawn to training. Have you seen all the You Tubers who go to the gym every day? They are the ones who seems not to need it, right? But that’s why they are fit! Becoming and staying financially independent is not much different from that. So how do you play great defense then? For starters, you should buy (or rent) a house in a modest neighborhood, not an upper-class one. The price tag of an apartment or Manhattan for instance even though, I know, it’s stunning, does not factor in all the variables. To live there it’s expected that you have a certain lifestyle. This lifestyle might be even more expensive in the long run than the apartment itself. Live in a modest (but safe) area instead and you will find it easy to keep up with, and even stay ahead of, the Joneses and still accumulate wealth In general, spend as little as possible on consumables and spend smart on possessions that will depreciate in value. To be honest, most millionaires do both. They have a decent offensive as well as quality defense. But only a minority plays such good offensive that they can eat their salary and keep it too. If you don’t belong to that category, which only is 0.1% of us do anyway, learn how to play defense. Takeaway number 3: The true cost of consumption. Let’s disregard all the costs that a certain purchase might result in later, as explained through the apartment on Manhattan example in our last takeaway. The price tag still does not fully represent what you pay when buying something. There are two reasons as to why this is not true. 1: The opportunity cost, the monetary one. An opportunity cost is the loss of other alternatives when one of them is chosen. Let’s pretend that you had an iPhone 6 in November 2017. Now, if you like most people, you upgrade your phone every second year or so. So now you’re thinking about the new iPhone X. Even though the price tag was hard to swallow to begin with (seriously 999 dollars for a phone?) you haven’t yet factored in opportunity costs. If you choose to buy the iPhone X you miss the opportunity to invest your money, for instance, in the stock market. At an annual 10% in returns, the price of your new phone is: $2,591 after 10 years. $6,720 after twenty years. $117,000 after fifty years. Now, do you still want to buy that new phone? Cigarettes (yeah, yeah, it’s a cliche, I know) are an even greater example. At least your iPhone X doesn’t affect your life expectancy negatively. If you, instead of smoking 3 packages of cigarettes every day, invested the money in the tobacco company Philip Morris, during the time period of 1950 to 1996 you would have been a multimillionaire at the end of the period. 2: The opportunity cost of time. To acquire and maintain large inventories of luxury goods such as fancy cars, expensive clothing and so on, does not only require money, but also a lot of time. You don’t buy a Ferrari without first studying the market. Neither can you keep a high profile wardrobe without investing a lot of time in understanding the latest trends, the greatest brands, and so on. This is time that could have been used to increase your financial intelligence, to improve your business or to set up a proper budget for your household instead. Time and energy of finite resources, even for high-income producers. Or perhaps especially for high-income producers. Why would you spend 60 to 80 hours a week at a job trying to become wealthy and then spend the remaining few hours of the week, ruining this same wealth? It’s like trying to build a house during weekdays, but then bringing in the wrecking ball on the weekends. Do you think that you’ll ever be able to raise a house with that strategy? Takeaway number 4: Cash gifts are bear favors. A bear favor is a Swedish expression of someone doing another person a service that they think will have a positive impact but which ends up being a disservice instead. Well, I guess the English expression for it is just disservice… Takeaway number 4: Cash gifts are disservices? Nah! Every wealthy parent, or actually every parent, wants their children to be prosperous and successful in life. How do wealthy parents make sure that their kids get a head start? Well, they provide them with extra money of course! This proves to be counterproductive though. In fact, in general, the more dollars adults children receive the fewer they accumulate. Adults who sit around waiting for the next injection of father and mother’s money are much less productive than their counterpart. Cash gifts teach children to live above their means. Gift receivers have in 80% of the instances a lower net worth than their peers. Adults who get money from their parents have a hard time to distinguish between their parents wallets and their own. In fact, more often than not, they think that they belong to the “I did it on my own club”. It’s much easier to spend other people’s money than dollars that are self generated. So, in case you’re wondering, what can you give your kids that will increase their likelihood of becoming prosperous and successful? The single most common gift millionaires received from their parents is tuition. Apart from that try to create an environment where independent thoughts are cherished and where achievements, responsibility and leadership are rewarded. Yes, the best things in life are often free. Takeaway number 5: How to decide if you are on the right track. Now, are you on your way to become financially independent, or are you actually going in the opposite direction, towards a life of credit cards and Spotify Freemium accounts? Your expected net worth can be estimated using the following formula: Age x realized yearly pre-tax income / 10=net worth. Exclude any inherited wealth both on the yearly pre-tax income and your net worth. Let’s take a few examples: The Swedish Prime Minister, Stefan Löfven, earned approximately $220,000 last year at an age of 61. This means that his net worth should be 61 x 220,000 / 10 which is … $1,342,000. An engineer at Volvo who recently was promoted to the rank of middle manager is earning $70,000 at the age of 30. His net worth should be 30 x 70,000 / 10. $210,000. A student at Stockholm School of Economics is in his last Bachelor year of study. He’s 23 years of age, but earns nothing. This means that his net worth should be 23 x 0 / 10 …. Oh, well, I guess that the formula doesn’t apply to students, HORAY! Student’s can just keep on partying every night. Now, this is just your expected net worth. But you guys aren’t here to be average. Am I right? Above the ranks of the “Average Accumulators of Wealth” are the “Prodigious Accumulates of Wealth” if you want to be a part of that exclusive club you must gather a fortune that is twice the amount of what the formula suggests. But it doesn’t end here. Above this exclusive group are the “Super Prodigious Accumulators of Wealth” To join this club of glorious elites, you must have a wealth that is 10 times higher than the formula explained before. Now that requires dedication! If you are, on the other hand, only worth half of what the formula says that you should be worth, you belong to the “Under Accumulators of Wealth”. Calling out to the competitive person inside you, I have one thing to tell you: Friend it’s time for us to get you on the right track. Here’s a quick recap: First, becoming a millionaire is the result of hard work, lifestyle decisions, planning and self-discipline not inheritance or luck. The second takeaway is that you must play great defense to accumulate wealth. Takeaway number 3 is that opportunity costs, both in terms of money and time, should be added to estimate the true cost of a purchase. Number 4 is that cash gifts are counterproductive to accumulate wealth, and last but not least, number 5 is that you can decide if you are on the right track towards becoming a millionaire by taking your age x yearly income / 10 and then comparing it to your net worth. Guys, if you’ve been watching this far, I must first say that I appreciate it a lot! Also, you are probably on the right track toward financial independence, no matter what the wealth formula says, as you must have an interest in the subject and a desire to improve. In takeaway number 2, I stated that financial planning, and more importantly, financial goals, are key ingredients in succeeding with money. A study from 2015 shows that you are a staggering 42% more likely to achieve your goals, simply by writing them down at a regular basis. Today, I want to challenge you to write down your financial goals for the future 5, 10 and 20 years. Note that it’s not about where you are today, but where you want to be tomorrow. You can write down anything, even things such as expensive cars, as long as it keeps you motivated. Here’s one example of what you could write: In five years I should have built a stock portfolio, which increased by at least 100%. The portfolio should be worth at least $30,000. In 10 years. I should own my own apartment, meaning that I have no mortgages left to pay. In 20 years, I should have paid off all my college debt and be able to live on the dividend that my portfolio produces. Just remember that your goals should be reasonable for this exercise to serve its purpose. I wish all of you out there, good luck!

47 Comments

  1. BF2abc says:

    Great videos man, subscribed

  2. Escape 9-5 says:

    In 20 years: I will buy my own island

  3. SamT says:

    Nice content.

  4. Alan CA says:

    yes fantastic saved lot of money sacrificing your lifestyle eg not buying an iphone for 50 years $117k but you already around 70 years old (most of your friends either death or in a nursing home) you may wish to burry yourself with money when u die

  5. The Swedish Investor says:

    What are your financial goals for the next 5, 10 and 20 years? 💰 No goal is too small to be mentioned! Share your thoughts in the comments below to inspire and help each other! ⏬

    💪 Take control over your financial situation TODAY 💪
    – Top 5 Takeaways from The Richest Man in Babylon: https://bit.ly/2TTvo7n

    – Top 5 Takeaways from Your Money or Your Life: https://bit.ly/2TNe8kU

  6. Sudip Rai says:

    Great! Thank you for the content. Subscribed instantly after landing in from ad link. Just what I have been looking for couple months. Great job! Thank god your ad popped up and not that Mentor box's guy one. 🙂

  7. Minion Koto says:

    Receive not recieve

  8. Ahsan Ahad says:

    Amazing video

  9. Terry O'Keeffe says:

    Love your summaries. Could you please do one on ‘The Subtle Art of Not Giving A Fu*k’.

  10. Mario Perez says:

    Nobody gets rich working for somebody else

  11. Eddie Fesyuk says:

    4:38. Thought my phone screen had a hairline crack in it

  12. Radio Adikz says:

    Thumb down for ear rape on 7th point in table. Some people listen with headset on >:'(

  13. Grant Schwartz says:

    J

  14. Snow Ball says:

    Please do not use beeps on 'bad words'(it is very loud) or at least put it a little down the volume. Amazing videos man. Good job!

  15. Victor Funk says:

    This talk was good as usual until you repeated a much debated and I think erroneous idea that luck is not a factor in wealth accumulation. Luck is when circumstances out of your control work in your favour. No one in history has been in complete control of their life and so it stands to reason that hard work, smarts, discipline and time are key factors in ones success, but so is "luck".

  16. Pumba says:

    5 years: Become debt free, Accumulate a stock portfolio of around $200k AUD.

    10 years: Continue to compound dividends from the stocks while living below our means.

    20 years: Paid for Apartelle business in the Philippines and living off the dividend from stock leftovers.

  17. James J says:

    10% percent return. Which planet are you on? If you want to have assets to make money you need money to begin with.

  18. CloverPickingHarp says:

    Wow bro…. you have a fantastic channel…. your way undervalued!!!!

  19. Tarz Thomas says:

    I dont doubt that this Stuff would work, but if you are going to Keep the same lifestyle and live cheap WTF is the point ?
    I think the 4 hour work week is Much much better, and so is Grant Cardone. Spend the Money and Make More, cheap asses!

  20. abdullah abdulaziz says:

    All of this is absolutely baloney
    These books forget to mention that there is something called loss in investing and businesses as well
    So even if you followed all if this there is a great chance of you being broke
    999 iPhone example is good but I don't think anyone who have not been in stocks would save money and start investing in stocks because a book told him to
    And I lm pretty sure no one just goes out and invest money all the time

  21. Chris H. Lan says:

    Lol if I make 140k a year and I’m 25, I’m supposed to have a net worth of 350k? Yeah keep dreaming lol

  22. Han Bulban says:

    All these guides base they returns on magical 10% :/ when after tax and fees even best funds or index funds make no more than 6.5% annual return (after taxes and fees)

  23. Umar Sebyala says:

    Always enjoy watching your videos! Thanks a bunch… ama write down them goals regularly!

  24. Ahmet Ali says:

    For those thinking luck is a major factor: Tiger Woods "The more I practice, the luckier I get"

  25. Olivia P says:

    4:00 lol I saw the iphone x price and was like fuck that, waited for a sale, and bought some 2018 android (don't know its name) from best buy for $200 instead.

  26. nightterror007 says:

    Can we please stop using the fake hand drawing words and pictures across the screen?….

  27. B.Q A says:

    What software do you use to make these vids?

  28. Harry Roberts says:

    How did no one notice lord dom

  29. CAChintan says:

    Thanks a lot! Would take a world tour!!

  30. John the surfer says:

    Such a stupid video. One life – ENJOY IT and enjoy youth is most important. Almost at 45 plus have many health issues. Enjoy the youth

  31. John the surfer says:

    Also 60% of wealth is INHERITED. So Themis video is a lie.

  32. Murari Kaushik says:

    SLOWWWWW….. DOWWWWWNNNNN!

  33. Kevin Rasmusson says:

    Ahahaha Dom Mazetti i videon. Helt underbart <3

  34. Kene O. says:

    What the fuck happened at 1:09 at point number 7? Why on Earth is there some obnoxiously loud beep?

  35. Stephan Slydign John says:

    This channel is gold🔥

  36. Lakshmi choudhary says:

    You're voiceover is great! It would really be helpful if the volume of video was little high

  37. Mehdy Faik says:

    “Recieve” should be spelled as “receive” – 6:03

    good vid (:

  38. Andrew Prang says:

    This is great stuff. This saves us so much time! Thank you!

  39. Investing Engineered says:

    Just made a video about Rich Dad Poor Dad!

    This was good to hear too 🙂

  40. Ida Dreier says:

    5 – have our second child and a dog. getting to pay for services like cleaning the house, and things i despise.

    10 – be free to quit my job. Live from investments.

    20- support friends and family when they need it. Travel the world, own condo in Japan. Spend my time being creative with art .

  41. 100 dreams. com says:

    He is so fast , hard to understand plz fix this issue or else we will loose your value

  42. 100 dreams. com says:

    I will make 1million dollars till 30 age in stock markets

  43. Aba Gada says:

    In 20 years I will be multi million dollar real estate developer.
    This vedio is impressive. Please make it with your normal sound ..I can't get the take away 1 because you sound joking.
    Otherwise keep it coming
    You are changing lives

  44. William Shatner says:

    As a person who just became a Millionaire, I concur with these 12 characteristics of Millionaire which instill within my own character except I am younger than 50 and not self-employed. 99% of self-employed are poor broke people. You almost have to consider the idea that Millionaires are already born as a Millionaire because these natural characters they are born with no other 90% non-millionaire people will NEVER be able to acquire them in their life

  45. Cabby J says:

    The last place I'd ever expect to see Broscience show up.

  46. nayanmalig says:

    In a rigged system this is irrelevant – Warren Buffet is one of the largest recipients of bailouts AKA free money

  47. Craig Buckley says:

    Really hate a lot of this personal financial books they all kinda suck but good video

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