The American dream has always been a dream of being wealthy. Wealth, or at
least living in comfort, is a driving factor in the lives of many Americans. But what does it
really look like to be wealthy? The book Millionaire Next Door takes a look at just that
question. When you drive through the high-class neighborhoods and see all the nice
cars and toys in the driveway or the three-stall garage, does the thought of “oh the life of
a millionaire” cross your mind? The Millionaire Next Door looks at how the picture
painted in society’s mind looks a little different than every day life of a true American
millionaire. Millionaire Next Door excellently displays stories and prof that real American
millionaires live in stark contradiction of the typical view of a millionaire and examines
how it is millionaires actually live and interact on a daily basis.
One of the things that I love most about Millionaire Next Door is way that they
determine wealth. They do not simply look at a person’s net worth, which can often be
affected by age, or simply at someone’s income, which all can be spent and never even
have an impact on net worth. They do establish that net worth is far better indicator than
income, but they explain that looking at the two in correlation is a good way to truly
determine someone’s wealth. The authors have developed a simple but effective
equation to determine what someone’s wealth should be, “Multiply your age times your
realized pretax annual household income from all sources except inheritance. Divide by
ten.” This puts everyone on the same playing field in examining wealth. I used to have it
in my mind that if someone had anything over a million dollars they are wealthy, but the
book explains that is not necessarily true. What you are worth should be directly related
to to your income and age. I like the way that the book takes the reader through several
example of people in different income brackets and their net worth. The jist of what they
are getting at is if there are two people both worth 1.5 million and relatively the same
age, but one is making $85,000 and the other is making $385,000, the one in this
situation who is making 85k is doing a whole lot better job of accumulating wealth. This
is all to show how easily or uneasily a person would be able to sustain themselves
without their annual income; how many years after retiring could this individual live off
their nest egg based on their current consumption habits? If, in this example, the first
person is used to living on 60k a year and the second is used to living on 360k a year,
the first person would be able to live off their nest egg substantially longer than the
second person. I enjoyed the way that Millionaire Next Door looked at factors and
situations in a way no one else had before, such as determining what it means to be
truly wealthy.
