I have read hundreds of books on all sorts of financial topics — general money management, investing, retirement, and on and on. Unfortunately the vast majority of them aren’t worth the paper they are printed on. They are poorly written and contain little valuable information.
That said, there are many books that stand out for one reason or another — and I mean this in a positive way. They do have good information and are worth anyone’s time in reading.
In fact I’ve developed a list of the only five personal finance books anyone needs to read. These are what I consider to be must-reads for any student of personal finance and books that I wholeheartedly endorse. If you simply read these five books and do what they say, you’d probably be a multi-millionaire within a couple decades.
I personally have read all of these and many of them I refer to quite frequently.
I thought ESI readers would be interested in my take on them and why I think each is so important. So I’ll be posting on each over the next few months so you can get the basics of these fine books.
This post we’ll focus on my all-time favorite, The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.
According to Wikipedia, The Millionaire Next Door is: “a 1996 book by Thomas J. Stanley and William D. Danko. This book is a compilation of research done by the two authors in the profiles of ‘millionaires’. In this case they used the term ‘millionaire’ to denote U.S. households with net-worths exceeding one million dollars (USD).”
The book’s message is that most millionaires in America aren’t the ones living in huge homes, driving expensive cars, and taking extravagant vacations. In reality the average American millionaire is just your typical guy next door. He’s unassuming and someone most people would never pick as being wealthy. That’s what made this book such a phenomenon — its findings turned conventional thinking on its head.
The book highlights seven common denominators among those who successfully build wealth. They are:
- They live well below their means.
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
- They believe that financial independence is more important than displaying high social status.
- Their parents did not provide economic outpatient care.
- Their adult children are economically self-sufficient.
- They are proficient in targeting market opportunities.
- They chose the right occupation.
Do any of those sound familiar? 🙂
If you’ve been reading my posts so far, you’ll see several of these themes mentioned over and over again.
There’s one reason this book means so much to me: after reading it I applied every one of the learnings above except #5 (since I don’t have adult children) and doing so made me wealthy.
In 1996 I was relatively newly married (a few years), was just starting a new family, had a promising career, and knew virtually nothing about managing money. Somehow I got a hold of this book, loved it, and began applying it to our lives.
I had been working on eliminating debt from my life (yes, including my mortgage), but this book pushed my financial vision into over-drive.
Here’s what it did for us:
- Got us living well below our means. We bought a house we could easily afford and spent way less than my salary allowed (I was already 10 years out of school by this time, so my career was well under way).
- I also started a side business and began writing articles about personal finance. The more I learned and applied, the more I had to write about. Most of the pieces were “Money 101” sorts like “30 ways to save money this month” for women’s magazines like Woman’s Day (which paid really well by the way).
- With the large gap we had between income and expenses, we paid off our house and started saving large amounts of money. My only regret is that I didn’t start this process right out of college — I wasted a decade or so!
- I focused on growing my career and (eventually) investing while keeping spending low. Our net worth shot up over the years as our investments kept building upon themselves.
So that’s why this book is especially special for me — I know it works from first-hand experience. I wouldn’t say this is the “best” book of the five currently on my list, but I would say it’s a must-read for anyone interested in becoming wealthy and was the reason why my net worth is where it is today.
Is It True?
The book has had some controversy and has been challenged by some saying the research was faulty for one reason or another.
Personally, it doesn’t matter to me whether the research was good or not. The principles it lists are certainly true (basic math proves them to be right). Plus the fact that I have personally applied them and know they work. So I know the principles work for people and that’s why I still recommend the book. Whether the research is true or not doesn’t impact the principles one way or another.
So this book is near and dear to me for one reason: it worked for me. I know it will for others and that’s why I recommend it.
If you haven’t read it, I recommend you do so as soon as possible. Then do your loved ones a favor and have them read it — especially your kids, relatives you have that are graduating college and high school, and so forth. Doing so will change their lives forever and the earlier someone begins applying these principles, the better!
How about you? Anyone out there ever read this book? If so, what do you think of it?
K D says
This book was important to me as well. It caused us to change our spending habits, which changed our mindset (or vice-versa).
I also read The Millionaire Mind but it was more interesting than influential. The later Stop Acting Rich and Live Like a Real Millionaire seems to be a more up to date version of The Millionaire Next Door. It is an easier read, with more text and fewer statistics.
I am still trying to figure out how to get our twenty year old to fully embrace the message. She gets some of it but not all of it.
I loved The Millionaire Next Door as well. It truly opened my eyes and I changed the way I live my life because of it. I am on my way to becoming a millionaire!!!! My son read the book as part of a Personal Finance class in college. He totally gets the message. I laughed when he referred to his friend’s parents as having “big hat, no cattle”.
Jen W says
I did all the highlights you mentioned and am quite a happy person. The book that influenced me was a different one- it was Sylvia Porter’s Money Book (I think that was what it was called) way back in the day. I was a newlywed at a time when banks were giving all kinds of gifts for opening accounts with them. I chose the huge aforementioned 2-volume book and was awakened to personal finance for the first time. What a great gift that bank gave me; a good book can enlighten a person all right.
Oh, I had not heard of Sylvia Porter or her book. Will add it to my financial books to read. Have read the usually listed books several times so it will be refreshing to read a quality new to me writer.
Matt C says
This is really encouraging for me, if you consider yourself to have lost a decade and still end up where you are.
I kicked it into overdrive a few years back and have a pretty promising career ahead of me.
My only fear is that my first 5 years out of college I did not do much for saving.
I am going through all your posts and look forward to following you in the future.
Thanks for allowing me to come along for the journey
Of course, Matt! Glad to have you here!!!
[email protected] says
Amen to the article and all the comments. This is, hands down, my best personal finance book. Like you, it really made me take notice of my current situation.
I didn’t get it till around the year 2000, and then the market crashed and took about 1/2 of the small amount I had saved (only paying into 401K to match). After reading the book, I immediately put my 401K at 10% of salary, and within 2 years had maxed it. Then within another year I was maxing out our Roth IRAs.
We’ve lived frugally since then, did OK in 2008 (didn’t sell anything) and are less than 39 months away from Financial Independence. A big reason is this book!
Mr 30 months