Review: The Millionaire Next Door

I’m stepping away from my usual France-related books to discuss one of my favorite financial guides: The Millionaire Next Door by Thomas J. Stanley and William D. Danko. While discussing finances is a major faux-pas in French culture, I cannot recommend this book enough – in fact, I’ve often talked off the ears of various friends and relatives!

The premise of the book is that while we have a certain image in our head of what a millionaire looks like, that image is very likely wrong and is based on the super-rich (think Hollywood A-Listers). Rather, the average millionaire tends to live below his or her means: a ranch home in the suburbs, a 5-year old Toyota truck, jeans and a work shirt.  In other words, they look like your average middle class homeowner.

In the beginning of the book, the authors describe a reception they held to which they invited a large number of millionaires that they would be interviewing for the book. The people that arrived looked nothing like they expected (in fact, they thought the first person who walked in had gotten lost). Finally a gentleman arrived who looked like their idea of a millionaire — tailored suit, expensive watch and shoes, well-cut hair.

He was the lawyer for one of the millionaires… and not a millionaire himself.

The secret of the millionaires’ wealth, explain the authors, is not that they make huge amounts of money but that they don’t spend that money on devaluing luxury goods like expensive cars, flashy clothes or high-end restaurant meals. Conversely, the people who do all of those things are far, far less likely to acquire significant wealth in their lifetime even if they have large incomes.

The authors have a ton of data and anecdotes that back up their assertions, but what I want to talk about is the relationship between wealth and happiness.

It’s been said that money can in fact buy happiness, but only to a certain point. Once you’ve reached that magical number where you can pay your bills and afford a few luxuries, more stuff  — a bigger home, a nicer car — doesn’t make you significantly happier.  You get a brief initial rush, of course, but after a short period it’s just part of your landscape.

Worse, once it’s been acquired and you’ve gotten acclimated to it, many people turn their sights to something bigger and more expensive in order to get that same rush. In many ways, it’s like an addiction. And too often, people go into debt to fund this addiction.   When you’re always seeking the next rush, the next big (or little) thing  — and always wondering how you’re going to pay the credit card bill next month — it’s difficult to be happy.

As I mentioned in the opening, an interesting cultural trait of the French is the reluctance to discuss money. It’s considered gauche, tacky, Simply Not Done in polite society.  Further, the French tend to dislike gaudy displays of wealth like handbags emblazoned with giant designer labels.  Even in their homes, furnishings may be antiques not because they were purchased as such at an inflated price at a boutique but because they’ve been in the family for multiple generations.  Compare that to the American tendency to purge the “junk” only to buy new (and ironically, often “distressed”) goods from Ikea or Pottery Barn.

While the French believe in quality, they do not believe in new for new’s sake. They are far more likely to buy a well-made tailored suit from an unknown but talented designer than a cheap knock-off of a well-known brand.  This meshes with the author’s data in The Millionaire Next Door where the millionaires in question will pay more for a dependable car such as a Toyota, and then keep it for 7-10 years.

Finally, rather than “stuff”, the French value knowledge, intelligence, wit and charm. Further, they value relationships, socializing and savoring life in the moment. Last I checked, all of those are free.

TL;DR: The Millionaire Next Door offers a fresh perspective on time-tested advice advocating frugality and long-term thinking over short-term gratification.

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