by Wes Moss
When you think of a millionaire, what do you see? A butler selecting from an identical lineup of tuxedos parading along a conveyor belt in a closet that smells of rich mahogany? A personal assistant slipping diamond-laced Louboutins over the freshly exfoliated heels of an elegant woman?
If these descriptions match your imagination, you’re not alone. But you might not be right, either.
Our perception of “millionairedom” is highly skewed. The Millionaire Next Door, written by Thomas Stanley and Bill Danko, helps bring us back to reality, demonstrating how people with two-comma net worth live. In short, their lives look far less like Daddy Warbucks and far more like one you might recognize.
The book was groundbreaking when it was published in 1996, and its themes and research still ring true today. The Millionaire Next Door is full of information and statistics about millionaires who weren’t born with a trust fund, rarely came into money through inheritance, and don’t see the world through the prism of venture capital firms.
What’s most powerful about Stanley and Danko’s book is that it demonstrates how becoming a member of the millionaire club can be a reasonable goal for everyday Americans. From my professional experience, I believe it very much is. Believe it or not, you might be closer to membership than you think.
Let’s look closer at the low-key millionaires living amongst us. The MNDs (millionaires next door) earn solid incomes—nothing outrageous, but between $150,000 and $250,000. Over 90 percent of these folks report owning stocks directly or through retirement accounts, and 87 percent own their home. They took advantage of low-interest rates that were par for the course until late 2021. Ah, low interest rates. They feel almost quaint now, don’t they?
This data comes from the Survey of Consumer Finances, so we can be confident in the data set collected on household wealth. 4,602 complete detailed questionnaires enumerating all assets, including real estate, stocks, bonds, bank accounts, retirement accounts, and cryptocurrencies. It also incorporates all liabilities, such as mortgages, auto loans, credit card debt, and student loans. As a reminder, net worth is defined as all assets minus all liabilities.
Is time a factor? Absolutely. Not surprisingly, the older the sample set, the higher the percentage of million-dollar net-worth individuals. If you’ve listened to my Retire Sooner podcast or Money Matters radio show, you’ve undoubtedly heard me say that time in the market is one of the most effective ways to help achieve meaningful returns. For example, only 1 percent of families under thirty-five are millionaires, but by ages fifty-five to sixty-four, 21 percent of families cross that threshold.
What about college? Is it worth the tuition? Despite the pontifications of countless tech bros, the numbers point toward yes. Forty-five percent of college graduates were millionaires between fifty-five and sixty-four. That includes 11 percent with a net worth over $5 million. The average college graduate’s net worth is over $2 million now, though, as usual, those at the very top skew this.
Don’t let this trick you into thinking anyone played a get-rich-quick scheme. Wealth accumulation takes time. Specifically, leveling up to the seven-figure mark takes, on average, 32 years. Eighty percent of current millionaires didn’t land at a million dollars until they were at least fifty.
The millionaire next door message seems to have been well received and well followed. Sure, inflation over the past decade means dollars have wilted, but wealth is growing in the US, even adjusted for that pesky inflation. According to that by the Federal Reserve, there are more millionaires (by overall net worth) than before. 16 million families. That’s 12 percent of US families, up from only 9.8 million in 2019!
The mean (average) net worth in America is just over $1.0M, up 42 percent from $749,000 in 2019 and up 23 percent in real terms (adjusted for inflation). That’s quite a jump, but it makes sense when we look at the change in home value from 2020 through 2022 and the S&P 500’s growth from December 31, 2019 through December 31, 2022.
It’s essential to note that when it comes to wealth, money, and income, using an “average” is very misleading. It only takes a few hundred billionaire families to skew the numbers. For a more accurate picture, we prefer looking at the median net worth in the US. As a refresher, the median is the middle number when a data set is examined from least to greatest. That number stands at $193,000, or up 37 percent since 2019.
Okay, now we know who the millionaires next door are and what their finances look like, but how did they get there? If you look at the most recent Wall Street Journal wealth survey, I think it’s safe to say education, saving, and investing in stocks, businesses, and real estate were all consistent themes. But what about the millionaires’ habits? Here are five major ones.
1. MNDs live well below their earnings.
Frugality can be a significant piece of wealth-building. I’ve seen people scrimp and underspend their way to wealth. What you can save is simply the net of what you earn and don’t spend, so prioritizing saving can lead to enormous progress. However, the notion has some nuance, as not all millionaire families live on beans, rice, and library books. Indulgence can occur as long as earnings (from wages or residual investments) support the spending. Outflow needs to be moderate relative to income.
2. Millionaire next door families focus their time and energy on wealth building activities and think about how to foster growth.
This group regularly saves 15 percent or more of their income, often requiring only a modest amount of straightforward, intentional planning. They take the time to sit down and map out a savings plan with their spouse, CPA, or financial advisor. Then, they put even more time, energy, and thought into investing those funds with inflation-hedging assets. Investment planning equals wealth accumulation, and purchasing power can be protected in the process.
3. MNDs seek independence and freedom vs. status.
About 80 percent purchase their vehicles, while only about 20 percent lease. This doesn’t imply that leasing is terrible, but the owner mentality is evident here, even with cars. Back in the original research of the MNDs, only about 25 percent of millionaires were new car buyers, opting for something two years old. In a post-Covid world, the price and availability of used cars are a bit more limited, but these car statistics serve as evidence that the ownership mentality holds more weight than “looking wealthy.”
4. They raise independent children.
It’s not uncommon for adult children to outspend a sizeable monetary gift, leading to less wealth than they started with in the first place. MNDs foster independent children. The family emphasizes education and a mindset of saving, investing, and entrepreneurship.
As we found in our research for You Can Retire Sooner Than You Think and What The Happiest Retirees Know, too much financial support for adult children can correlate with lower happiness levels in retirement. The happiest retirees on the block (HROBs) limit financial support to less than $500 per month, while the unhappiest retirees on the block (UROBs) drift toward $700 per month and above. The MND example shows a similar trend.
This is a topic I wrestle with as I raise my four boys. I’ve certainly seen financial support help create successful adult children, but that support needs to come with the right amount of teachable moments and expectations.
5. MNDs are typically hard workers who dedicate time and effort to achieving their goals of financial independence.
Millionaires are often self-employed or business owners and attribute their success to hard work, discipline, and persistence toward achieving their financial goals. They highlight the potential for higher earnings and the ability to control one’s financial future as benefits of self-employment.
That said, there are plenty of MNDs in professions with modest incomes. Stanley and Danko found that many teachers, accountants, engineers, managers, etc., became millionaires by living below their means, saving, and investing diligently.
Bottom Line
One key theme from the data and figures is that millionaires live below their means. They budget. Personally, I recommend sitting down and digging into the numbers once a month. That amount of attention should keep you on track without overwhelming your free time.
It’s difficult to argue with the habits of millionaires next door. Their outlook and discipline can lead to financial security and real wealth, which provides flexibility for health, longevity, family, self-reliance, respect, honesty, achievement, and happiness!
Anyone can start this journey, no matter their age or financial fingerprint. Try some MND practices and watch what happens. These mindsets could change how you think about money or, better yet, move up your retirement date. A happy, early retiree—that’s what I call wealthy living!
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions.