Thomas J. Stanley and William D. Danko - The Millionaire Next Door: The Surprising Secrets of America's Wealthy Books

Like may who start out on the road of self help books this was the first one I read. It does, on the surface, seem sensible enough, but despite some good advice it is also deeply flawed. “The Millionaire Next Door” isn’t alone in this respect, many such books fall prey to “Survivor Syndrome” & many readers fall into the trap due to lack of knowledge.

First of all what does it do that is right? The single basic advice that it offers & the cornerstone of financial security is to live within your means. This is very unfashionable today where we are encouraged to get easy “credit” & receive messages by the hour that tell us to “Buy now!”. You can get cash out of your house, no money down deals, pay nothing until February & so on. It is a seductive message.

What this book tells you is not to listen, to be frugal, no to waste things & to NEVER live beyond your means. While it can be beneficial to use offers mentioned above if you have already decided you need to buy something all too often they are ways to encourage us to spend more than we can afford too. All it takes is an illness, a job layoff, even a sick pet & suddenly you find there’s no room in your budget & then you’re into debt, loans & paying interest. This is the way you can lose control of your financial life.

I did like the piece about the man who gave his wife a birthday present of a large portfolio of stocks & she kept on clipping coupons despite now being well on her way to being financially independent. This is good advice, coupons are money! You don’t throw away $5 bills do you? Yet every day people shop & don’t take advantage of discounts they can get for a little time spent with a pair of scissors.

I also totally agree wih avoiding “Economic Out Patient care” for family members (meaning it prevents that family member from sorting their life out). Having had to go through this myself with a sister I can honestly say it really does get them to tackle their problems rather than taking handouts from me & letting their lifestyle & financial troubles go unresolved. I do have to add that there are times you still need to help people out though.

What does the book do that is wrong? Well here it gets serious because to follow the advice means risking your future & maybe your families future to a degree that could result in unrecoverable losses. This is where the book strays into the problem area of “Survivor Syndrome”. Basically only successful people are shown, often the self employed & what they did to get that far & that successful is therefore assumed to be the correct way to proceed. However this is a dangerous delusion as it does not isolate the TRUE causes of success.

“Survivor Syndrome” is hard to grasp, but imagine this scenario. You are stood on top of a tall building where a tight rope stretches out to another tall building. You meet a man who has just walked across blind folded & he’s the only one who’s made it. The assumption is that in order to cross the tight rope you must be blindfolded as this was the technique used by the man who did it successfully. Logically this is sound, but common sense tells you this is ALL WRONG! Well your common sense is spot on as you are not looking at the dead bodies piled up on the ground below when you make your LOGICAL assessment.

This is where Stanley & Danko seriously blunder, they have not looked at what people do to become successful, they have simply looked at those who HAVE become successful & not isolated those charactersitics from the people who've failed. Take the example of their constant advice to “start your own business” as the road to wealth, yet anyone who’s been in business will tell you that the first year failure rate is very high & doesn’t improve much afterwards. You can start a busienss doing "something you love" as the book suggests, you can do everything right & it can still fail & probably WILL fail because often key factors that influence success or failure are not within your control. For instance do you think the Roomba was the first? Actually there was a cleaning robot that was just as good before but it never made it. Why? Many people work for years & invest everything they've go to bring ideas to the market only to fnd 2 weeks before their product launch a competitor that also has been working in secret gets there first. Sometimes its a case that someone simply can't handle the workload or they get sick & the business slowly falls apart. People who’ve done this have lost their life savings, their houses, their health, their marriages & everything they have worked so hard to build up. This isn’t the exception, this is the NORM yet you wouldn’t know it from reading this book.

To gain any credibility & to provide useful information Stanley & Danko need to go back & re-research this section to separate out any true corelations & not just random factors. 

The book gets even sillier as it proceeds & I actually laughed at the claim that “Millionaires buy their cars by the pound” (meaning they’ll buy a heavier/bigger car if offered at the choice between that or a smaller/lighter car at the same price) which simply stuns me as either lazy or downright delusional.

This is a shame as in so many ways this book has good advice. The message of frugality & delayed gratification is a message that has been swamped by seductive advertising & hence forgotten by the Baby Boomers onward. However if you follow the book’s advice to the letter you will almost certainly be in for a rude shock & could end up losing far more money than you ever thought possible.