An Interview With The Co-Author Of The Millionaire Next Door
“Most millionaires measure their success by their net worth, not by their realized income. For the purposes of wealth building, income doesn’t matter that much. Once you’re in a high-income bracket, say $100,000 or $200,000 or more, it matters less how much more you make than what you do with what you already have.”
―The Millionaire Next Door
Bill Danko is a renowned author, speaker, and academic who has gained widespread recognition for his research on millionaires and wealth accumulation. His academic publications have appeared in the Journal of Consumer Research, Journal of Business Research, Journal of Advertising Research, and other leading journals.
Bill Danko, co-author of The Millionaire Next Door
He is best known for his New York Times bestseller, The Millionaire Next Door, which was co-authored with Thomas Stanley in 1996. The book has sold millions of copies worldwide and sits atop the bookshelves of anyone interested in the field of personal finance and wealth building.
In The Millionaire Next Door, Danko and Stanley challenged the conventional wisdom that millionaires are flashy and extravagant spenders. Instead, they presented a compelling case that most millionaires are actually frugal and live modestly. The book provides insights into the habits, attitudes, and behaviors of self-made millionaires, and it offers practical advice for people who aspire to build wealth themselves.
Through an interview with MindBodyDad, Bill Danko provided insight on what separates millionaires from non-millionaires, financial tips he gives his kids and grandkids, and his newest book, Richer Than A Millionaire ~ A Pathway To True Prosperity. As a bonus, I also learned that Bill is married to an OT.
5 Questions for Bill Danko, co-author of The Millionaire Next Door
1. What are some of the biggest misconceptions people have about millionaires?
I have been studying wealth in America since 1973, when I assisted my mentor, Professor Tom Stanley, with his very first study of the affluent market. Over the next 20 years, we conducted many nationwide surveys and studied IRS and Census Bureau data. With this knowledge base, we published The Millionaire Next Door in 1996, revealing the truth and misconceptions about building a significant financial net worth.
Here are a few widely held misconceptions:
Inheritance is the source of wealth: Most millionaires are first generation wealthy due to their focus, hard work, and perseverance. In fact, we show that inheritors often embrace the “easy come, easy go” attitude, leading to an unsustainable lifestyle.
Higher education is essential: I recall an article about a somber reunion for an Ivy League law school, where attendees assumed their elite degree would be like a lifetime annuity. The reality is that ambition is a better predictor of success; don’t rest on your laurels!
Appendix 3 of The Millionaire Next Door provides a litany of businesses/occupations of self-employed millionaires. Many are surprised to see “blue collar millionaires,” such as beer wholesalers, meat processors, and pizza restaurant chain owners on the list. To illustrate, let me cite a 2021 obit in the Wall Street Journal for billionaire B. Wayne Hughes, who co-founded Public Storage. He said storage units allowed him to buy real estate without having to worry about toilets and carpeting. His company now owns more than 2,600 self-storage facilities.
For sure, most self-employed people are not millionaires, but they have a greater chance to build wealth. Government data shows that the self-employed have a five times greater net worth than those who are employees.
The education question is an important one to answer as the cost of higher education increases.
2. My favorite chapter in The Millionaire Next Door is on millionaires and their cars. You mention that only 23% of millionaires have a new model car and a quarter of millionaires haven’t bought a new car in four or more years. What does this say about the key habits or behaviors that set millionaires apart from non-millionaires?
Being well compensated, but spending freely is like being on a treadmill. When you get off, you are still in the same place. The question that must be addressed if you ever hope to retire is: how much money can be saved and invested, while maintaining a reasonable lifestyle? Here are two reassuring encounters showing that rational behavior can prevail. One MD told me that he enjoys luxury cars, but only buys them several years old, saying “I want someone else to give me the gift of early depreciation.” After introducing himself prior to a procedure, my anesthesiologist told me that he drives a Ford instead of a Mercedes because of me.
Our research shows that for every financially able buyer of a luxury item, there are four to five others who make the same purchase because they want to look wealthy. The choice is yours.
3. In the book, you state that wealthy people spend over 8 hours a month planning their financial future. What are some things worth considering and planning for during these hours?
Recall the axiom: if you fail to plan, you plan to fail. This is certainly true for those interested in building financial wealth. Unless you happen to win the lottery, it doesn’t happen by chance. Planning must become a habit, and plans must be reviewed on a regular basis.
Consider these examples of good planning:
Be a saver: Most households save about four percent of their discretionary income. Millionaire households typically save 20 percent. If you consistently save and invest for the future, compounding of your money will occur over time. The 1985 Nobel Laureate Franco Modigliani won his prize for the “Life Cycle of Money” idea. Briefly: when you are young you work for money, when you are old money works for you.
Professional athletes, with a limited number of productive years, sometimes forget this lesson. As big earners, they would be well served to think of their total income as 1/3 spendable, 1/3 for taxes and legal issues, and 1/3 long term investment. This is simple, but useful advice, and it takes time to implement.
Protect your assets: The self-employed must separate personal assets from business assets, or risk everything! Consult with your attorney on how to do this. For example, I have a rental house (and some very good tenants). Nevertheless, both my accountant and attorney advised me to place the house in an LLC. In addition, my attorney advised me to dramatically increase my Umbrella Insurance policy. The record keeping and consultations take time.
Be vigilant: Benjamin Franklin advised us to oversee our own financial affairs, if we hope to become wealthy. No one wants to be swindled. Educate yourself by studying such books as A Random Walk Down Wall Street by Burton Malkiel, a retired Princeton professor, so you can understand the nature of prudent investments. In addition reading the Wall Street Journal will keep you current. Personally, I’m well served by not listening to “talking heads” on TV!
4. You identified several characteristics of millionaires, such as living below their means and investing wisely. How can parents instill these habits in their children?
I am the father of three and grandfather of six. Here is the financial advice I freely provide to them:
Markets tend to fluctuate, but compound interest over time tends to increase the value of investments. Lesson: start investing early.
Dollar cost averaging at fixed intervals creates a disciplined approach to investing. You will “win the game” by saving and investing 20% of whatever you earn. So, live below your means and practice self-imposed economic scarcity; be frugal.
Time in the market is more important than timing the market for building wealth. Trying to predict what will affect the market over the long term is foolish.
A diversified portfolio is prudent: Stocks, Bonds, and Real Estate are a good mix.
In a discretionary account, tax efficiency is achieved through indices. NB: taxes and management fees diminish your investment returns.
Choosing individual stocks is difficult. However, you might consider dividend payers especially those that have a record of increases. Ask yourself what value a company provides and why anyone would want to buy what they are selling, before investing.
Create a Roth IRA to help ensure a comfortable retirement when you can’t or choose to no longer be employed.
Avoid excessive debt; reflect on Proverbs 22:7*.
Always share your time, treasure and talent with those in need, as you are much better off than most people! You were born to be a giver and not a taker.
Money is a useful tool. It gives you many options in this material world. But never forget that true prosperity is only found in God, not money. Always keep the priority straight. Reflect on The Parable of the Rich Fool (Luke 12: 16-20)**.
5. Tell me about your most recent book Richer Than A Millionaire ~ A Pathway To True Prosperity and for whom it was written?
My colleague Rich Van Ness and I published Richer Than A Millionaire in 2017. The main premise of the book is that money is good, but money and happiness are better. Those who are “Richer Than a Millionaire” can have modest financial wealth and be happy; great financial wealth does not guarantee happiness. We show this to be true by using both primary and secondary data. In brief, we have more than our personal opinions to offer.
Primary data: The median household net worth in the US is $100,000. The top 10% have a net worth of $1 million or more. A nationwide sample of households with a net worth between $100,000 and $1 million (n=557) are compared to households with a net worth over $1 million (n=797). These samples are augmented with personal interviews and case studies. Low net worth households are excluded. In addition, we use a reliable and valid scale that measures Subjective Well Being to determine each respondent’s happiness level.
Secondary data: published studies, government data.
Based on our over 50 collective years of teaching thousands of college students, we know that the vast majority want to do the right thing and have a successful life. With many competing interests and messages, young people are often uncertain about which path to pursue. Having enough money by understanding the key to financial freedom AND understanding the personal value system that leads to true prosperity are outlined in our book.
We want our children, grandchildren, and our students to succeed by benefiting from our wisdom about money and happiness.
Note: Bold is mine.
*The rich rules over the poor, and the borrower is slave of the lender.
**And he told them this parable: “The ground of a certain rich man yielded an abundant harvest. He thought to himself, ‘What shall I do? I have no place to store my crops.’
“Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store my surplus grain. And I’ll say to myself, “You have plenty of grain laid up for many years. Take life easy; eat, drink and be merry.”’
“But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’
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