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The Millionaire Next Door

Thomas J. Stanley, William D. Danko · 13 HN comments
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The incredible national bestseller that is changing people's lives -- and increasing their net worth! CAN YOU SPOT THE MILLIONAIRE NEXT DOOR? Who are the rich in this country? What do they do? Where do they shop? What do they drive? How do they invest? Where did their ancestors come from? How did they get rich? Can I ever become one of them? Get the answers in The Millionaire Next Door, the never-before-told story about wealth in America. You'll be surprised at what you find out....
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Not GP, but there's a used paperback copy of the 1998 version for $0.25: (or a used hardcover for $0.02 and a new one for $0.60)

It is also likely available for $1.50 in late charges at the public library...

The local public library has it, too.
Mar 13, 2013 · icefox on Wealth, risk, and stuff
The entire premise of this blog entry is: "Go out on the street and look, and I bet you’ll see that the richer people are carrying less." Well some guys did that very thing and published is in a book where they found that to be not true at all. Millionaire's don't buy the shiny new toy when the one from three years ago. Rather then wasting a grand on a new macbook air they would spend $30 for a new battery. They buy used cars too.
That has very little to do with how much stuff they carry.
the millionaires "next door" that i know do both. suburban california families worth a couple million bucks or more (white and asian tech and biotech industry families), i have seen:

* buy shiny new luxury cars... but drive them for a very long time. they also buy used cars because they have lots of cars (3-4+ per household)

* buy brand new apple products constantly... but also use 10 year old PCs and other old tech

* eat out and buy overpriced organic groceries whole foods ... but also buy bulk stuff at the not-rich-people supermarket because they cook too

* go on expensive vacations.... every 3 years

this stuff is not black and white, and it's really ridiculous to hear stuff like "millionaires don't buy the shiny new toy" .. yes they do.

I know a guy who's family net worth is $2+ billion. When he goes to the movies, he brings pre-popped popcorn in ziploc bags and shares with his friends.
yeah? if he's like most rich kids i've known he probably does it because it's more fun to flout the rules at the theater than to buy their popcorn.


lots of rich kids i knew in college dealt drugs. think about that one for a minute. same exact (rule-flouting) behavior as poor folk - but is it because they were poor? or frugal? was it because they didn't want to spend their own money on their own drugs, or because they enjoyed flouting the rules to get free weed/coke/x/whatever?

Maybe it's to get experience running a business. Probably also a good opportunity for networking.
Is it because the theater is inside his house?
To quote the Bill Gates character in The Simpsons, "Oh, I didn't get rich by writing a lot of checks"
Some might say that's the way to keep your money, when you have 2bn.

Others might say that's the way to keep friends, when you have 2bn.

or just whatever the guy feels like doing, in fact
It's not ridiculous because it was the result of the study done by the authors of the book. The fact of the matter is that the typical millionaire--i.e., person with a net worth of at least one million dollars--does not buy tons of shiny new toys. Yes, some millionaires do, typically the ones who are worth 10-100 million rather than 1 million. But the typical one does not.

If you know some millionaires who do, all this means is they are actually not the "typical millionaire," no matter what you might think. You also need to take into account the fact that a lot of people you might think are millionaires actually aren't, because they've spent their money on assets that depreciate rapidly. This means you could have a salary of 1+ million a year and still not be a millionaire if you spend it almost as fast as you make it. Look at many of the sports stars who go broke within two years of retiring--yes, it happens very frequently. They were never millionaires despite what everyone thinks.

Example: my uncle is a marketing executive, lives in a very nice house in an extremely affluent area, only stays in the nicest hotels, etc. Except his family probably has a net worth of maybe $100k at most. They're not even close to being millionaires. Why? Because they spend most of the money they make. If he were to lose his job, their entire lifestyle would grind to an incredible halt and they'd be forced to change everything they do just to not burn through their savings. If a millionaire loses his job, it's not a problem.

You're under the very misconception that the book seeks to correct. In any case, your anecdotes really aren't sufficient to destroy the results of a pretty solid study.

no. you are completely wrong and also fallacious. here is why.

i am not under any sort of misconception. i was refuting an unequivocal claim that "millionaires do not..." with 100% verified fact that yes, they in fact, do. certainly not all of them, but certainly not anywhere near NONE of them.

i never said my anecdotes were typical. you put those words into my mouth. i was refuting an unequivocal claim with specific equivocations. STRAW MAN ALERT.

and i am not fucking naive, obviously i know a lot of people have high incomes and just spend all their money and have bank accounts that look like dog shit. nobody ever said that wasn't the case. STRAW MAN ALERT.

and you know what? that is a perfectly valid way to live. the great thing about money is you get to do whatever the fuck YOU want to do with it and not what some self-righteous cheapskate on the internet tells you.

When the guy said "millionaires do not..." I think it was pretty clear he was not actually making a universal, unequivocal statement. Yes, some do. Many do, in fact--there are a lot of millionaires on this planet. But the typical millionaire, according to surveys, does not. The typical millionaire is self-made and worth between 1 and 2 million and is at least 50 years old. Those assets will typically be used to sustain a comfortable life in early retirement. Someone who makes 10 million at age 30 is not typical at all, even though there are, numerically, a lot of such people. There are simply far more millionaires who had good careers, spent wisely, lived somewhat frugally (at least relative to their salaries), saved up, invested, and now enjoy their retirement.

And yes, of course, you can spend your money however you want. That includes spending so much of it that you aren't even a millionaire, even if you easily could be.

My wife and I save for a trip around the world by avoid "lifestyle inflation" which is what I've heard this referred to in the past (possibly from the Millionaire Next Door[1]). Each time we received a raise, we would increase our trip savings.

The easiest way to describe it is that we lived paycheck to paycheck. Neither of us would be disciplined enough to follow a strict budget, but we can easily avoid spending the money if it isn't in our accounts. So, each month, we had money withdrawn for retirement, trip savings, 529, and house savings. We increased this amount until we were just scraping by with just enough money each month. This meant I could buy whatever I wanted, so long as we'd have enough money at the end of the month to "pay ourselves".

I'm fond of this method, though I haven't found many others using it. I think typically, if people are disciplined enough to save money, they're able to follow some kind of budget.

A word of warning: Be sure not to be TOO aggressive with this, we almost certainly were. We were living off less than 30% of our after tax income. Remember, you should enjoy yourself while you're making money now, not just save it all for the future.


Edit: formatting, link

I have to do this. 20% of my income after taxes goes to charity and savings. I live off the rest and any income left in my account at the end of the month goes to my electronics fund.
> We were living off less than 30% of our after tax income. Remember, you should enjoy yourself while you're making money now, not just save it all for the future.

If you can live off of 30% of your income, the future becomes a lot closer: you can retire in ~8.8 years. (Or round it up to 10 or so and you'll have even more income during retirement.)

Try if you want to fiddle with savings rates and find out how long you need to work. Notice that the number of years depends solely on the savings rate, not on the total salary.

That calculator is a terrible way to go about it: They are missing inflation, which will have a large effect on your expenses over time.

There are other problems too, but that one alone make it worth looking elsewhere.

If you want to account for inflation, just subtract it from your savings rate. The market typically supports a 6-7% return before inflation, or a 4-5% return after inflation.
Umm, you might want to check your math. Or perhaps your assumptions about buying power.

There's a reason retirement planning doesn't go down this path.

The 5% return rate for investments is taking inflation into account, actually.
Even if you limit it to the investment return: It is ignoring variation in return for that level of return, which is a terrible way to do long-term planning.
Agreed, that is the main problem with this plan. The 4% withdrawal plan is increasingly less likely to work the longer the length of your retirement. If you retire at age 65, the probability is low enough to not generally worry... but if you retire at 30, you might want to think twice.

I'm sure somebody somewhere has calculated or estimated the probability of the 4% plan lasting for a given number of years. I'm curious what the results were.

Take a look at the Trinity Study: . The authors did a historical analysis of a reasonably sensible retirement portfolio (50/50 stocks/bonds), and figured out the minimum rate of return you could safely assume over any 30-year period (even those including the Great Depression). They also made some very conservative assumptions, such as that the retiree will continue increasing their spending every year by inflation (as measured by the Consumer Price Index). The answer: 4% per year.

This number commonly goes by the name "Safe Withdrawal Rate", or SWR. You'll see that term quite a bit in discussions of retirement, especially early retirement.

Turns out that very little difference exists between the amount needed to sustain 4%/year for 30 years and 4%/year indefinitely. The numbers also get better if you make a few less conservative assumptions, such as some flexibility in the amount you spend (buying fewer luxuries if another depression happens, for instance), or receiving any kind of additional retirement benefit later on (Social Security, corporate retirement), or various other safety nets that the study didn't cover.

In any case, if you don't feel comfortable with 4%, you can adjust it easily by working only a little longer. For instance, in the previously mentioned case of spending 30% of your income, if you've already saved 25x your annual spending (so you can live on 4% returns), and you work one more year past that, you'll save another (7/3)x of your annual expenses and earn about 1x in returns, meaning you now only have to assume a ~3.53% return (1/(25 + 7/3 + 1)).

The "4% plan" is a way to explain the problem for your avg Joe who can't do math. It's a nice rule of thumb (often you'll see 3% even) but doesn't leave a ton of room. Just look at the current environment if you need an example: Lots of people who retired in the 90s are getting killed on their principal.

Sensible planning involves calculating the probability that you will not outlive your assets: Portfolio planning will pick points from the so-called efficient frontier, and then often run Monte Carlo simulations to get a handle on whether the expected variation will put you in the poor house.

BTW, this is usually where the 3-4% plans arise from. People will make an assumption about return+variation, and then see what withdrawal is likely (but not guaranteed) to avoid outliving the principal.

More like 12 years.

If you retire in 10 years, you will need more than 25 years of retirement spending.

Nope, that calculator assumes you want enough retirement savings to cover your expenses indefinitely. The numbers do vary based on your assumed rate of return; a more conservative estimate would put it at ~9.1 years, while a more aggressive estimate would put it at ~7.3.
Story of my life, Ed. I am your poster boy who lives "cheap" and not "frugal" by choice. I clip coupons and browse slickdeals before committing to a purchase. I never buy anything at MSRP. I monitor airfare prices for weeks before booking a ticket.

This is a difficult problem to escape because it's one that I behaved myself into, and that it's self-reinforcing for a variety of reasons:

- When you're already on a fixed salary, the opportunity cost of spending time on being cheap is not obvious. You're not taking time away from that $500/hr side consulting gig that you don't have. Instead, you're at a situation where the marginal rate of return on clipping coupons (say, $10/hr) is significantly better than spending the next hour working on that iPhone app that is months from release and has no interested buyers (how long is it going to take to recoup the Apple developer fee?).

- Some people get a rush out of saving money, a feeling of "Ha! I beat the system." To them, saving money is a form of entertainment [1], and there's certainly far worse hobbies to have from a well-being perspective. Unfortunately, there are people who take this too far and end up as total misers or compulsive hoarders. I'm not a pathological case, but I've done things that would make some people cringe.

- Seeing people successfully live frugally can be a motivator to follow in their path. My parents are immigrants who worked hard and saved for 20 years before they were finally able to afford a house in an expensive neighborhood (and nearly paid for it all in cash). They drive Toyotas, shop at Costco, and cook at home. They are basically the epitome of the "millionaire next door" [2].

- There's also a moral justification for this. "Why do I have to keep up with my spendthrift neighbors? So what if I don't drive a Maserati or carry a Hermès bag? No thanks, I shall be comfortable in my own skin, since envy and greed are evil." This is now an identity statement [3], and while it's a good position to take from a financial perspective, it can be crippling in the way it makes some people closed-minded. Of course, this doesn't necessarily stop them from pontificating about retirement at 30.

I do still think that my years of being cheap are starting to pay off, mostly because I'm finally getting comfortable with the sort of "discretionary" expenses you mentioned in your post. The difference is that it probably took a much larger bank balance for me to consider them "affordable." I just flew across the continent purely on a whim to visit some friends that I hadn't seen in years, I no longer cringe at expensive bar tabs if they were time well spent with buddies, I can afford to make an impulse electronics purchase just to see what it's like, and I'm preparing for that self-funded sabbatical [4] to reboot my life.

Was it worth it? Well, it was really, really hard to re-orient myself this way, and it took much more sacrifice than necessary, but the good news is that aside from lost time, most of the rest hopefully can be recovered.





Money let's you trade things you don't mind doing and stuff you don't need for things you want other people to do and stuff you want to have. Clipping coupons can pay 1000$ an hour or 1.5$ an hour but the important thing is not just ROI but how much you like or dislike doing things. But with stuff there is a third option. I don't listen to music so the cost of a CD or concert ticket is irrelevant to me. I don't like to travel so the cost of a plane ticket is irrelevant, I don't like posters, nick nacks, or buying clothes so most stores simply don't have anything I want to buy.

So, when you see someone that saves most of their money don't assume they are hording it, some people just don't find all that many things they want to trade it for at a price they are willing to pay. Now I like playing video games, but I have several of them unopened new in box so I don't feel the need to buy yet another one that may or may not get played etc. I have cable TV, but I spend far more time playing free flash games not because they are cheap but because I simply enjoy them more.

I think it was a post on HN awhile back that got me thinking like this. If I don't want to do it, and the opportunity cost for me is greater than the cost to hire someone else to do it, then I should just pay them. The key here is the opportunity cost is for me, not for anyone else. For example, I hate mowing the lawn and I estimate I'd have to be paid well over $100 to get me to "enjoy" doing it. Thus, I pay the $60 for lawn service. To me, I just earned $40 of my time back. Now, I'll admit, it isn't as cost effective as being cheap or "frugal", but I do think I enjoy life a bit more.
Well I would say that savings driven life is far better than the spendthrift side of things. Now this is purely personal choice. No denying.

In my case I like to sit on piles of cash, without any debts and EMI's to pay. And loan interests to worry about. I like to live a tension free life at the same time get a realization that I'm getting rich. And if you do so, you actually see that a lot of luxuries come a little late, but they come at zero stress, worries and hassles to worry about. The lateness in affording things is often very differential and in my case at least has made very little difference. Over the years you are far better off having money, peace and tranquility in your life even if you drive the Mercedes two years late. Than having a Mercedes right now and all the while paying off debts endlessly in cycles(Home, Credit card etc).

Now the point is simple, I don't really understand the spend thrift part of the world. Just because I don't dine at a seven star hotel eating a sever course meal, I doesn't mean I'm not eating well. I eat whatever I like, drink whatever I like and wear whatever I like. I just don't fall for the brands and buy 1 get two free kinda stuff.

I can go with the same phone for some years provided that server the job for the moment. Which most of the times it does. I don't see any reason to have credit card(Yes I don't have a credit card at all). Its just if you don't succumb to peer pressure and blindly imitating others spending patterns. You sort of can end up saving really lots of money. With savings and investments you can really end up making a lot after a while.

And then you can buy everything your want, retire early. Buy your dream home and live well.

In fact this is more pleasurable than the other approach.

It's funny that a black 0 in your bank account can make you better off than so many others, these days.
Debt is a dangerous thing. I don't think the same about governments. But I consider debt to be disastrous for individuals.

The reason is simple a lot of your work, time and energy drains into paying the most scary thing invented by finance industry so far - 'Compound Interest'. This is especially dangerous in the case of credit card. The debt keeps mounting because of two reason, you being unable to pay and yet still continuing to borrow money. This sort of a spending patters brings a lot of pain to people every where.

And all of this for what? Upgrading from iPhone 4 to iPhone 4s. Is this really worth?

In this sort of set up people living with a savings driven life get a automatic lead ahead of spendings driven people.

Because while you are working to pay off the interest money. He works for the same time and saves that interest money.

I think it will be safe to say to say that if your paying X% money as interest to bank by working for hours Y(Remember you are loosing X% money, thereby in effect rendering your Y hours of work useless, as though it never happenned). The same X% is the money earned by the savings driven guy in the same Y hours(Additional to the money he is already earning. So this his extra income).

You work to loose money and he works to get rich. Although both work for the same time. One gets richer other gets poorer. This is how bad debt can inflict suffering on you.

These days you can be relatively rich by just saving money! And avoiding debt.

Don't forget however that you still have to have a roof over your head. Assuming you have close to $0 net worth when you graduate, you still have to lose money, be it over a mortgage or over renting.

So, the question is, which is cheaper? Your mortgage, or your landlord?

I think the lack of understand about borrowing to fund an asset, versus borrowing to fund lifestyle. If it is going to return higher than the interest rate you are borrowing at, then cool. If, in the case of a house, it is cheaper than renting (without a high risk of capital value falling putting you into liquidity diffulties), then also cool.

Borrowing for consumption is where people make the mistake.

Looks like it's time to recommend The Millionaire Next Door:

Don't bother to buy it: Get it out of the library and skim it. It's not a difficult read and it belabors its own point a bit. My own summary:

The secret to retaining a high net worth is the same as the secret to accumulating it: Control spending. Don't waste money.

Most of the people you know who look like they're wealthy -- fancy cars, country club memberships, stylish clothes -- are actually spending money as fast as they can get it, or faster. They have no savings and are living paycheck to paycheck.

Meanwhile, many of the wealthiest people in your town are wearing four-year-old work clothes and driving ten-year-old trucks that they bought used.

It doesn't do your future any good if you make $300k per year and spend $325k per year. Contrariwise, if you make $75k per year and only spend $50k per year you'll be a millionaire in under forty years.

The millionaire next door makes too much of a deal about stuff like clothing and cars. You have to control your bleed, sure. I've found that if you have half a brain and live somewhere with a lot of money flowing around like NYC you can buy fancy shirts, go out to dinner, AND save 6-10 grand a month, which is the best of all worlds.

Millionaire next door is more for people running a landscaping business in the suburbs, and saving every extra dollar instead of blowing it on a new home theatre system or an expensive vacation to somewhere that isn't as boring.

I.e. it's more for lower middle class people trying to get a leg up. In my experience it's better to become a "millionaire next door" ... next door to multimillionaires or billionaires. It's way easier if you're around a bunch of people with a lot of extra dough.


I hang around with two distinct groups of people a lot: grad student types with essentially no money and young professionals (doctors, lawyers, etc) with nice, solid salaries. From my experience, it's much easier to not spend money when I hang out with the first group, because they have no expectation of spending a lot of money. On the other hand, you'd feel out of place with the other group if you don't spend some higher base level for doing "normal" things like going out to eat, trip to Vegas, whatever.

I assume this scales if you are just the millionaire and you hang out with multimillionaires.

It depends. In NYC if you work in finance you'll probably find yourself getting taken out to nice cigar bars or steak houses after a good Friday trading session and running up several thousand dollar bar tabs on somebody's corporate card, rather than paying anything out of pocket.
So you'll either be a poor-ish young playboy or a rich old guy? Why does the first option sound more attractive?

Of course, fast cars and country clubs are all superficial, but being a miser just so you can die with millions isn't that much better...

You've got the dichotomy disease. There is no need to go to either extreme.

You can belong to a country club and still live within your means.

You can certainly drive a fast car and live within your means. Fast cars can be bought for well under $10k, especially in California where a fast car can last for thirty years and more without rusting. Most of the stuff on more expensive cars is just bling, or comfort features that have nothing to do with high performance.

What you have to do is pay attention. Don't spend more money than you have. Don't spend at an unsustainable rate. That doesn't mean "spend no money at all". There's a happy medium there.

And you don't have to be a miser. Though, in fact, you probably do have to die with millions, or at least several tens of thousands, unless you plan your own suicide and stick to that plan. To ensure that you're living as comfortably on your last day as your first, you need a bunch of money in the bank. And you don't know which day will be your last. So, die with a million in the bank and endow an amusing trust fund in your will.

Anybody can buy a fast car, but few can actually afford to maintain it.

A $10K fast car you buy might cost you a good bit of money per year to drive and keep in shape. Especially when it's thirty years old.

That's mostly the reason it's only $10K to begin with (and the fact that the market for impractical cars is not too large).

well the car doesn't really need to be 30 years old.

sure if you buy some unreliable piece of crap...but there are plenty of fast cars that only require regular oil changes to keep in shape.

granted there are different definitions of fast, some people are fine with 14 second cars, others need 12s...and others don't consider anything fast that doesn't run 10s.

But overall, $10K is plenty to get yourself a reliable 6-7 year old car that's quick/fast.

Fast, fun cars are emphatically middle class these days. The Subaru Impreza WRX is $25k new, for example. A millionaire who started collecting fast bargainmobiles would be killed by garaging and insurance, not maintenance.
When I lived in the Valley I bought a 1986 Toyota MR2 for about $6k. It had hilarious 80s-era retro styling with angles reminiscent of Tron, and it admittedly has been through an engine and transmission rebuild in the last 24 years, but it still runs great (for the friend I sold it to) and doesn't cost much more to maintain than any car of that age would cost.

It is marginally less fuel efficient than many cars, despite its tiny size, and one does go through tires when one is tearing off the starting line at the entrance ramp to 101. Fast cars are more expensive than regular cars. But not necessarily much so.

Of course, if your definition of a fast car includes the word "Chevy" or, god help you, "Porsche" I take back everything I said. ;)

The WRX has been mentioned in this thread, that's one that I would definitely stay away from second hand.

People that drive those usually push them as far as they'll go (and further) whenever they get the chance.

MR2 is a great little car and about as reliable as sports cars come.

First Gen MR2s are definitely fun (and cool/quirky looking), but I sure wouldn't call them "fast". The NA cars are 0-60 in the mid/high 8s and standing quarter mile well over 16 seconds.

The average 2010 soul-less imported sedan will easily show its taillights to a 1986 MR2 in a stop-light grand prix (and most will give the MRS2 a good run).

The fun in driving a sports car is all in the handling and improving your skills as a driver, not necessarily in raw power.

I drove this little thingy for years: , 700 cc, not even 80 HP and an absolute hoot to drive. On the straights not the fastest car (about 175 real km/h), but very quick of the mark because it's so light and absolutely unbeatable in corners.

It's also RHD which helped a lot in not having it stolen.

Most fun I've ever had driving a car.

As others have pointed out, with the buyout presented in the article, you can live forever spending low six figures (like $120k, with inflation adjustments.) That's not "rich young playboy" territory, but it's not "miser" territory either. At that level, you can raise a family in a comfortable house in a nice neighborhood, drive a nice car, have an RV or a boat or a cabin in the woods, have a country club membership and season tickets for your favorite sports team.

Or you can live a little bit cheaper, still doing most of that stuff but maybe skipping out on the country club membership or something, and become a rich old guy who can leave a huge estate to his kids... and still not be a miser.

The key is to position yourself in that middle ground.

Saving a buck is a lot easier than making a buck.

That's one very good reason why plenty of rich people are seen as 'misers', if they let it roll then they'd stop being rich pretty quickly.

The secret to that is to not make it plain what your financial situation is and to live well within your means.

The tax situation on work you do for yourself (saving money) is also as favorable as it gets.

There's a sense in which dollars saved are like tax-free income.

"Living frugally" isn't what it used to be in the pain department. I have a Netflix subscription for one DVD and unlimited streaming instead of a $70 cable subscription (or an expensive antenna for my area), and while I made this choice to be "frugal" in the end I've actually been happier than I was with the cable. Do you need a smartphone with unlimited Internet? I can't speak for you, but I'm almost always within range of a computer and Wifi, and when I'm not I don't really need it. Does a new car bring you proportionate joy to the cost? It doesn't me, so mine are chosen to be relatively cheap to buy and operate, and I don't miss out on much I care about. (And I'm examining doing without my car; without going into my personal analysis it isn't a drop-dead win for my real numbers, but I'm looking at it. Note: I do not live in an area where I can trivially use public transportation.)

And so on. You don't really have to eschew the pleasures of the flesh entirely to be a "miser" nowadays; you can eat well (cooking yourself), drive adequately, be entertained for a reasonable price, etc, and still save enough money to retire comfortably. You do have to avoid credit card debt, not overcommit on your housing, and there's some tricks and issues (can you psychologically deal with having $10K+ in the bank without spending it, without relenting on the discipline?), but the days of actually facing the choice you outline are gone for most of the people who would be on HN in the first place.

Oh, recently internalized "trick": Take all "monthly fees" and mentally multiply by 12 to get the yearly cost, then treat that as the real cost. $24.95 a month for a service may sound reasonable; does $300 a year sound just as reasonable? I've been using this as part of my cell-phone upgrade resistance; there's a lot of ways I'd personally rather spend $300 than on a cell plan upgrade, up to and including not spending it at all. My Netflix savings is ($70 - $9) x 12 yearly, or $732/yr. My only regret is that I didn't do it about a year earlier!

Any tips on finding a reliable, inexpensive car?
Live close to work, and cycle. You also get free exercise, feel better in the mornings, and now can travel lots of other places cheaply.
Used Japanese. Any of them.
My approach is to live in Michigan and have half my family work as engineers for car companies.

This approach may not scale, and may carry certain other disadvantages. (I like the Michigan part, honestly, but your mileage most assuredly may vary.)

Most people don't become millionaires through inheritance, extreme income, and so forth; they become millionaires because they save more than they spend, usually by a substantial amount, invest widely, buy a house and keep it, and marry and don't get divorced. Stanley and Danko's book The Millionaire Next Door describes this phenomenon: and what wealth in America actually looks like.
The book Fooled by Randomness on the other hand argues that the picture painted by The Millionaire Next Door is skewed by a double survivorship bias: it describes people who not only saved more than they spent, invested, etc. but also

(a) Happened to pick the stocks that outperformed the market, and (b) Invested during one of the strongest bull markets in history.

(Not to say who's right or wrong, just wanted to bring up an interesting counterpoint.)

As good as that book was, I liked Stanley's "The Millionaire Mind" even more:

There were two groups that stood out in the book:

1. Professionals who did well and invested wisely. He noted that most professionals who do well, spend all of their income and often even more.

2. Business owners.

Both groups became millionaires through one means: business ownership - through stocks in case 1 and directly through case two.

I know several people who've done very well and it's because of their businesses. A junkyard owner, an owner of an electrician company, an owner of a used tire business are among those who have little or no post-high-school education. They all have far more in the bank than I do.

Note that all of these are all what the blog post calls "unsexy" businesses. They provide a product or service and charge for it.

The first million didn't happen for them in 3 years. But it did happen and for at least two of them (I lost touch with the junk yard owner) the money just keeps coming in.

That's a slow way of becoming a millionaire. People want to become millionaire the fast way.

It's still hard work though. However, you can probably combine the advice in that book and speed up the process of becoming a millionaire.

Once you get to that, I think you can live off a 3 percent interest. That's 30,000 dollars. I am pretty sure you can manage that if you live like a college student.

30.000 dollars is enough for middle-class living in the Third world :)

I'd spend part of the capital though, or invest on something with a better interest rate (like living off real-estate rent - my grandparents do that).

There's a book called "The Millionaire Next Door" that gives all the citations you could ask for on this topic. It basically corroborates what you're saying -- wealth usually doesn't last past the 2nd generation.


Hence the dictum: Rags to rags in 3 generations.
Yep. And this book is an excellent read and resource to have. It is saturated with great observations and solid data. Highly recommend it.
Go read The Millionaire Next Door: . Ideally buy it from that link, because it has an affiliate link to it, and I get maybe $.10.

Then go read the Motley Fool's Guide to Investing: .

For now, leave the money in a bank or Vanguard low-risk bond fund (see and don't do much of anything with it. Read a lot until you understand what you're doing. Don't trust any single source of advice, and don't trust financial advisers. Their interest is often in high fees and is often opposed to yours.

Finally, remember that no one can beat the market over the long term. Anyone who claims they can should be doubted (although they'll undoubted say that I should be doubted. The difference is that I have Efficient Market Hypothesis: on my side, and they have... promises).

"Actually, when I started reading your post I thought to myself, "seems like this guy just finished his chapter on Perfect Competition"."

I will admit to being an economics student, but I've known about this principle for years, I didn't just learn about it yesterday. I made this post because five people on a forum I frequent were all talking about how great it was for them that startups required very little capital.

"But the main difference is that regular people have the opportunity to actually strike it rich."

Regular people have always had the opportunity to strike it rich, and for most of the US's history, it was easier than it is today. The idea that technology startups are some sort of fundamental shift in US social mobility dynamics is a harmful, dangerous lie.

"High capital requirements tend to mean you need social connections to people with money."

You need those connections anyway. Or, at least, you need to be part of the upper third of society. It's not an accident that Bill Gates's father was a name partner in the largest law firm in Seattle. Why do you think Y Combinator has so many applicants? It's because they provide the connections people need, and the applicants know that.

"than you see low capital requirement markets are in fact a blessing,"

Low capital requirements are good for the customer, and I explicitly stated that fact. What I was saying is: they aren't necessarily good for the entrepreneur.

Go read The Millionaire Next Door: , which ought to be mandatory reading for anyone.

What do I do with the money?

Invest it in stocks or bonds.

How do I invest it in making more money quickly?

You don't. That's the problem: there is no way to reliably do this. In fact, there's probably no way to _unreliably_ do this either. At the moment, bank savings accounts and CDs are paying next to nothing.

As The Millionaire Next Door shows, most people who we might think of as "rich" don't actually get that way by being sports stars, or inheriting money, or TV, or whatever: they get that way by spending less than they make and saving as much as they can, usually in the form of investing in index funds.

Check out "The Millionaire Mind" and "The Millionaire Next Door". The book isn't really about how to become rich. More about the mind set a millionaire has to get rich and stay rich.

In that case, may I recommend The Millionaire Next Door?

EDIT: Must say I'm not really sure why I was downmodded; this is an excellent book (a classic really) that provides advice from 'actual rich people'. Maybe it's the get-rich-slowly aspect?

When you get down to 0 or -1 often it's just assholes being arbitrary or pedantic. Don't worry about it. Asking why you were downmodded is a sure way to get dowmodded more though; it annoys people.
On the other hand, saying "I know I'll get downmodded for this, but..." is a sure way to get upmodded:)
And Felix Dennis' How to Get Rich.
I haven't read this, but Nasim Taleb talks about it a lot in Fooled by Randomness. For example, Thomas Stanley, the book's author, states that risk taking is a common characteristic that rich people have. Nasim basically says "Yeah, sure, but what about the masses of people who are poor because of their risk taking?"

I recommend reading Fooled by Randomness first and then, if you're still interested, The Millionaire Next Door.

That's a good point. Lots of the factoids about rich people don't say anything about all the people who used those approaches. So, besides things like common sense and intuition, it is hard to get a statistically accurate idea about the correlation between the methods and their users' success.
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