Hello! Today we will speak about the book The Millionaire Next Door written by
Thomas Stanley and William Danko. Guys, to be super honest I decided to go with
this book because I have mixed feelings about it. I find some ideas to be
absolutely mind-blowing while some others I believe they need some extra
polishing in order to make better sense as a whole... but let's get started:
For the sake of the story we will use two characters who will help us to better
illustrate the key concepts: Jack will be the wealthy guy while Tom will be the
guy struggling to become wealthy, he will be the income guy. Both Jack and Tom
make two hundred thousand dollars per year but they think and do things
differently. Jack is living in a good neighborhood and he has a nice house for
which he paid four hundred thousand dollars from his past year's revenue.
Not too small for the size of his family and not too big for his needs. He also has a
$20,000 Toyota he bought four years ago. Tom on the other hand is living in an
exclusive neighborhood, his home is rented for $5,000 a month and it has a
pool, a gym and five rooms for his wife and two kids.
He recently acquired a $70,000 BMW as well.
Now...taking this into consideration extend the same differences in everything else
they do or purchase: holidays, lifestyle spendings, gifts for family and so on.
Think: Who has bigger chances to save more money each year and to become
wealthy as time goes by? Who will win the life marathon? Jack who slowly
accumulates wealth or Tom who spends most of his money on improving his status?
The first principle and one of the most
important ones from the entire book is: Be frugal and live below your means.
Jack knows that building wealth is a process. Tom thinks wealth is happening
by continuously increasing the amount of money you make. When tom ignores some
simple facts like you are not the house you live in,
Jack knows that wealth is what you accumulate, basically the opposite of the
spending process. Jack knows that displaying social status won't help him
to win the wealthy game while Tom lives the feeling that each new thing he buys
confirms his status. As you imagine the inner dialogue that happens in his mind
is: because I can afford to buy a 70k BMW this means I'm rich and successful.
When Tom's friends see his current house their reactions in most of the cases
will confirm his thoughts and make them even stronger.
The second principle I would like you to remember is: Financial independence via
delayed gratification is more important than displaying social status.
Because Jack understands how hard it is to earn money and how important it is to
accumulate over time he teaches his kids the same things. Tom, on the other hand,
will see his kids as another opportunity to show his financial status. Jack will
make sure his kids are humble and won't spend their dad's money on expensive
things while Tom's children will copy their dad spending spree. In time, giving
your kids such an example will not only spoil them
but will transform them in another black hole in your budget, another drawback on
your way of becoming wealthy. The third rule you should follow in order to
increase the chances of developing a millionaire mindset is: Raise your kids
by giving them a good example to follow when it comes to financial and education.
It might not come as a surprise for you but because of his humbleness and overall
life approach Jack is also a good networker. He understands the value of
spending quality time with people he can learn new things from, that will help him
building his wealth. Tom is a smart guy; he understands that as well but the big
difference comes from Jack's interest to reciprocate. Jack helps his
acquaintances without waiting something in return. He does that for the sake of
helping and because he loves to add value to everything around him. Tom sees
people more like stepping stones in his way to success. He calculates his steps
carefully by being picky with whom he helps depending on what he can get in
the future from the favors he makes and obligation he thinks he creates.
Our takeaway should be this: Your way to wealth will be much easier if you spend
the necessary time to learn how to become great at networking without
expecting anything in return. You know a lot of things about Jack already so it's
easier to imagine that he is pretty organized when it comes to financial
planning. On the other hand because Tom is focused more on making sure he makes
enough each month to cover his expenses, he invests his time in working more or
pushing harder to get promoted or increase his business. One of the
conclusions of the authors is that people like Jack spend a lot more time
on planning their investments than people like Tom. Especially because Jack
understands that accumulating wealth is a marathon he plans upfront for mile 20
or 35 not only for the moment where he is now or where he will be tomorrow.
One key concept for Jack is: Passive income. Basically he is interested in
making investments that decrease his taxable annual income and increase the
chances of that money to generate extra income without adding extra effort.
that money works for Jack while he takes care of the other important aspects of his
life and business. Investments like stocks or cryptocurrencies while taking
some of your time offer a disproportionate reward if you are
patient. Just to give you an example: if Jack did his homework and invested
$1,000 in Amazon a few months after their public offering now he would have
more than 1 million. Even if he arrived later at the party the X he invested
in 2016 in Amazon stock would not be worth 4X. Being investment literate
when it comes to passive income is the one principle I would
like you to write and remember. Don't hesitate to invest in this type of
education because it's perennial; it works no matter if you live in the US or
Africa and no matter your gender and the century you live in. So the last
principle we just covered is: wealthy people allocate their time energy and
money efficiently to build wealth. Guys, this book is a good read and I encourage
you to take your time to go over it. While some concepts like being frugal
are debatable because some people see that as a spartan lifestyle, the beauty
is exactly this: you need to be the one finding the balance.
Don't be spoiled and wait for someone to give you a silver bullet when it comes
to building a mindset that will make you wealthy. It doesn't work that way.
You need to grind in private as well. Now... if you think we did a reasonable job
explaining the book The Millionaire Next Door please like this video, subscribe
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because this feedback will force us to become: BETTER. Cya!
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