The myth of the millionaire next door …

weep warning

This post will make you cry.

But, it is a post that I have to write.

It’s one that I have been putting off … and, off … and, off.


Because, I am going to tear apart one last (well, until the next) tenant of finance …

… one that even I have not dared touch until now.

But, I have finally decided to bite the bullet, because there has been a whole generation weaned on an aspiration that, in itself, is a lie.

Yes, I am talking about:


The Myth of The Millionaire Next Door.


In case you are too young to remember, The Millionaire Next Door is the title of a 1996 best seller by Thomas Stanley and William D. Danko that was touted at the time as revolutionary but, to me, produced a totally mundane and obvious conclusion:

Most of the millionaire households that they profiled did not have the extravagant lifestyles that most people would assume. This finding is backed up by surveys indicating how little these millionaire households have spent on such things as cars, watches, suits, and other luxury products/services. Most importantly, the book gives a list of reasons for why these people managed to accumulate so much wealth (the top one being that “They live below their means”).


The perception after this book was released, becoming an instant – and enduring – best-seller, is that the typical American millionaire is actually your neighbor, the small business owner who has been working for 20+ years on his business, investing (and, reinvesting) its profits rather than spending on lifestyle and luxuries.

In other words, somebody who slips under your radar; somebody you probably ignore; for good reason …

It’s all fine and dandy: like all “spend less than you earn and save, save, save”-driven strategies you, too, will no doubt become a millionaire by the time that you retire, but there are two problems:

1. What about inflation? Start now and, if you take 20 years to become a millionaire, you are really still only half of one in today’s dollars, and

2. Who says that you can wait 20 years?

I certainly couldn’t.

That’s why I call this type of ‘Millionaire Next Door’ business – an ATM business – little more than ‘a job with benefits’ …

… if you really do want to have one of these businesses, then here’s what you need to do:

Do NOT spend the spare business cashflow on personal lifestyle building (homes, cars, vacations, etc.); instead, use that cashflow to fund an aggressive investment portfolio, outside of your business: one that will one day grow to replace your personal income i.e. the amount of money that you DO take from the business to live off.

When the day comes that this passive income surpasses your personal business income, you become free.

However, this freedom does not come simply from saving and investing passively – otherwise, you are simply following the advice given in the Millionaire Next Door and you, too, will slave for the next 20+ years to get there.

Rather, this true financial freedom comes from investing your business profits aggressively and actively, with a mixture of your money and borrowed money, in things such as direct stocks (no funds for you!), and real-estate.

In this fashion, you may still need to work your business for 20 years before you shut it down, but at least you will retire a real millionaire (or better) in today’s dollars.

Far better, instead of starting a lifestyle business that relies on YOU being the front man (e.g. lawn-mowing round; accountancy practice; design studio; etc.), or a business that is tied to a single location (such as a car-wash; a restaurant; a corner shop) …

… start a business that can scale like McDonalds, invest aggressively, and you (too) may be able to do it in 7 😉

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9 thoughts on “The myth of the millionaire next door …

  1. The millionaire next door is a book about themes, mindset and control.

    Sure, there is a vital part missing – the investing to beat inflation – but it’s a good start to be in control of your finances and understand the reality of consumerism, the difference between needs and wants and the notion that the perception of ‘rich’ people is very different from the reality.

    I enjoyed the book, found it motivational and it further confirmed my actions to save as much money as physically possible. My difference, I save for deposits on properties, not for funds or low interest accounts that are eroded by inflation.

    I highly recommend it to anyone that is not rich/retired/ financially free and is spending money on expensive suits, cars and watches.

  2. Hey Adrian,

    Okay – I get it that you don’t like the Millionaire Next Door Model.

    What would you offer as an alternative?



  3. “Rather, this true financial freedom comes from investing your business profits aggressively and actively, with a mixture of your money and borrowed money, in things such as direct stocks (no funds for you!), and real-estate.”

    @ James – That!

  4. No joke, my all time favorite book. it creates the proper mindset. then its time to move on to more advanced lessons.

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  6. Adrian,

    So, I am getting the impression that for you the key ingredient is active management.

    From my read of the millionaire next door, I don’t think the authors would necessarily object to that characterization.

    I think the purpose of their book was more that they wanted to paint an accurate picture of what wealth in American looks like – its work hard and build up a small business – not lifestyles of the rich and famous a la Robin Leach.

  7. @ James – But, that’s where I disagree. Shouting wildly about holding a small business for 20 to 40 years and not spending is exactly the same to me as every blog that shouts wildly about holding down a job for 20 to 40 years and not spending …

    … it’s great if your Life’s Purpose entails working for 20 to 40 years; it just happens that mine doesn’t 😉

  8. I have worked for 20 years and I can tell you I wish I knew THEN what I knew now….. Adrian was more financially successful in 7 years than me in 20…. now thats an accomplishment great job good for you Adrian!! thats the idea of this blog… learn faster and help each other to accomplish better things then we could on our own… So goals in the next 2 years is to learn 20 years worth of insight…. So in 5 more years ( 25 years total) I can “retire” with my number… PS. My number is 200K USD passive ( VERY PASSIVE.. with so so limited active involvement from me) that’s my new goal as posted tonight for the world to see and my to accomplish :>

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