Millionaires spend their money smarter than other people and don't buy into luxury brands
BY GREGORY KARP
Posted December 17, 2006
"The Millionaire Next Door," a book that dashed our notions about who America's millionaires really are and how they spend their money, marked its 10th anniversary recently, and nobody noticed. No party. No 10th-anniversary edition. Nothing.
That's shocking for a runaway book that sold out its first printing in three days, held a spot on The New York Times' best-seller list for more than three years and is hailed as a staple for any personal finance book collection.
The book by Thomas J. Stanley and William D. Danko, subtitled "The Surprising Secrets of America's Wealthy," was published Oct. 25, 1996. But the striking and profound findings revealed in that book a decade ago are as true today as they were then--especially when it comes to spending money.
The book showed that millionaires spend their money smarter than other people. They still do.
Most important, the book showed that people with average, steady jobs can become millionaires over their lifetimes--that most millionaires are made, not born. Indeed, 80 percent of millionaires are first-generation rich, the authors found. They are modest. In fact, they might live next door.
The book's fundamental message about spending is this: You can look wealthy or you can be wealthy. For most people, the choices are mutually exclusive.
During a blunt conversation, Stanley talked about common spending traits of millionaires a decade ago and in his current research, which will be explained in his next book, which has the working title "Looking Rich in America."
THE WEALTHY KNOW SPENDING MATTERS. Financial health is about earning and spending. Although earning a lot of money is correlated with wealth, it's not a perfect correlation. "The spending issue is significant," Stanley said. "I believe very strongly that not everybody can play great offense. In other words, not everybody can make $1 million a year or even $100,000. The typical household in the United States makes under $50,000 a year.
"Given that, you have to look at defense. To play great defense, you have to know where all the money is going. And most people don't. So the first thing I would tell people is to account for every dime and nickel they've got and write it all down. You'd be shocked at how much money people waste. It's ridiculous."
THEY ARE THRIFTY. "There is still a wonderfully frugal group of people in America that we don't talk about, but they're out there," Stanley said. "The majority of them don't have a wine collection. They do serve wine to guests, but the median value of a bottle was about $13, not expensive stuff.
"It's not an impressive lifestyle; it's just that they're not confused. The reason they don't have a second home isn't because they can't afford it. It's just a hassle."
Stanley's most recent research for his coming book is about brands that wealthy people use. "There are a lot of millionaires buying stuff at Wal-Mart. They don't have a problem with buying, maybe, socks or underwear there or at a Costco or Sam's Club. Men's Warehouse is selling them a lot of suits, I can tell you that," he said.
"People think, `If I wear a $900 suit, I'm going to look wealthy.' The problem is, if you wear a $900 suit and put the glitz on, you're not going to look wealthy, because wealthy people don't do that.
"What I'm trying to tell people, especially young, impressionable people, is this ain't the way the world works. If you're looking at being happier by having more things, get a life."
THEY ARE NOT DEPRIVED AND MISERABLE. "On a scale of happiness, they're quite happy," Stanley said. "In fact, the more wealth you have, the higher your satisfaction." But their happiness comes not from material things but from achievement and being financially independent. It comes from satisfaction with their family and job.
"There is absolutely no correlation between happiness and the brand of car you drive. It has nothing to do with it. What happens is before you buy the Porsche, you'll think it will make you happy, but it doesn't work that way. The guys wearing a Seiko watch or a Rolex or a Timex have no difference" in happiness.
THEY DON'T DRIVE AWAY WEALTH. The No. 1 make of car owned by millionaires in 1996 was Ford. Today, it's Toyota, according to Stanley's new study. Luxury brands do not top the list, and many millionaires, 37 percent in 1996, bought used cars.
"There's certainly something about buying used cars," Stanley said. "Today, they're a little more likely to buy new cars. But what they'll do is buy a $22,000 Toyota and keep it a long time."
Stanley's research shows high-priced cars seem to be wealth-repellant.
"What's interesting about spending is that everybody thinks all the millionaires in America have BMWs. Even among the highest income levels, about 60 or 70 percent have never owned a BMW," he said. "I think BMW is a great car. I'm a car guy. But I won't buy one because there is a relationship between wealth and how much people spend for cars. There's no doubt about it. It's a significant relationship."
THEY DON'T CARE ABOUT THE JONESES. "In a lot of the surveys we've done, you find people making 200 grand a year, which is in the top 2 percent of American households, and they're not happy," Stanley said. "Those are the people who are living in neighborhoods where the median income is $300,000. That's the problem. I don't think people really understand that. The people who try to keep up with the Joneses and ahead of the Smiths, well, they are the Smiths. They don't get it."
Stanley, who grew up poor in New York City, said the biggest thrill he ever had came a decade ago when "The Millionaire Next Door" approached No. 1 on The New York Times' best-seller list. To celebrate, he went out and bought a Toyota 4Runner.
Where is that vehicle now, 10 years later, when he's a wealthy man? In his garage. "It has 140,000 miles on it," he said. "I'll never own a BMW or Mercedes or Rolex because ... I know how many people who are not wealthy at all but have the glitz. It says nothing about your inspiration, your wealth or anything else."
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Gregory Karp is a personal finance writer for The Morning Call, a Tribune Co. newspaper in Allentown, Pa. E-mail him at yourmoney@tribune.com.
IMO, its not to difficult to make money in America (in fact its very easy compared to the rest of the world). The only problem is keeping as much as possible. IMO, millioairs are those who are frugal and were able to save a lot more than they were able to spend. good reading article.
IMO, its not to difficult to make money in America (in fact its very easy compared to the rest of the world). The only problem is keeping as much as possible. IMO, millioairs are those who are frugal and were able to save a lot more than they were able to spend. good reading article.
Kind of ironic how "cheap" some rich people are, isn't it?
The guy who founded Walmart drove his old truck till the day he died. I don't think it was a Toyota, but he didn't have a new car.
That said, i think diffeernt people think differently. For example, i tell myself that no matter how rich i get i am never gonna buy a car that's more than $50,000. I would rather buy a used one. I don't know why, but the thought of losing $30,000 on the value of a car over a period of four years or so sends chills up my bones. I think it comes from my dad. He made a lot of money in his life and he spent very little of it on cars. Matter of fact he could have easily gotten himself an expensive car, but instead chose to send all of us three kids to a private school. He has a lot of money saved up. I wish i can save half as much as he has at his age.
Nice
If I had a million, it would be simple. Mint 1989 Mr2 Sc, Mint 1987 Ae86 GTS, 2006 Lotus Elise, ~$200 000 home somewhere secluded with twisty mountain roads nearby, ~$50k to play with, invest the rest.
One of my favorite sayings when I was younger was "One way to have a lot, is to not need a lot (of things) Eventually you'll end up with a lot..
In reference to "cheap" above.. how much is owning your on soul and controlling your own life worth? to me a lot! a lot more than blowing it on trinkets!
Very interesting article! I have heard of the book (and seen quotes from it), but have never read it. Raises some excellent points. I've been around awhile, and have always (well, almost always) tried to live on less than I bring home. I would do better were it not for a few vehicles I bought through the years...
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