Review of “The Millionaire Women Next Door” by Thomas J. Stanley

“Unmarried”…”Unattractive”…”Unwanted”…”Business Owners”…”Married to their business”…”Revenge-seeking workaholics”…

These are stereotypes of North American millionaire business-women – an unfortunate double standard, and not very appealing. But not so fast – in his book “Millionaire Women Next Door”, Thomas J. Stanley refutes these stereotypes based on a comprehensive study conducted in May 2001. From a random sample of 2500 millionaire women, 439 participated and answered questions on financial risk taking, leadership, budgeting, happiness and satisfaction, investment habits, academic achievements, goals, planning habits, income-allocation patterns, and eleemosynary habits and attitudes. And his findings are encouraging and more achievable than one might think.

The general success formula comes back to:

1. Having the desire to be wealthy
2. Not equating spending with happiness
3. Having the discipline to save/invest diligently
4. Taking personal responsibility for managing money
5. Expressing care and concern for others
6. Doing what is genuinely enjoyable

Here are some statistics about the average millionaire woman in North America:

1. She usually rises before 6:00am and retires around 10:30pm
2. She often works forty-nine hours a week
3. She typically exercises for about three hours thirty minutes per week
4. On average, she earns 71 percent of her households’ income and the household net worth is approximately $2.9 million
5. She has a 95 percent chance of being married
6. Although she most likely never attended a private school, she probably does have a college education
7. Most likely owns her own home

In his book, Stanley defines an “Under Accumulator of Wealth” (UAW) as someone who has a low net worth compared to her annual income. According to Stanley, an individual would be considered a UAW if her net worth is less than the product of her age and one tenth of her realized pre-tax income. For example, if we consider a 38 year old surgeon earning $200,000.00 per year, then $20,000 x 38 = $760,000. A net worth of less than $760,000 by that age would be considered a UAW. The lifestyle of a UAW is based on consumption of income rather than saving and investing.

On the other hand, a “Prodigious Accumulator of Wealth” (PAW) usually accumulates well over the product of the individual’s age and one tenth of her realized pre-tax income, and either are, or become, millionaires (or multi-millionaires) in their lifetimes.

The main reason why UAWs have debt is due to the fact that they often spend tomorrow’s cash today, whereas PAWs have the common belief in saving or investing today’s cash for tomorrow. UAWs often believe that money is one of the most renewable resources, leading them into consumption of expensive and excess items, allowing them to temporarily live a life of luxury and style, with no security and limited choices later in life.

The millionaires profiled in Stanley’s book did not live extravagant lifestyles. Rather, these millionaires spent little on cars, watches, suits, restaurant dining and other luxury items. The reason why these women managed to become millionaires is because they were able to live below their means. Women who have actual wealth and a high net worth are referred to as ‘Balance Sheet Affluent’, while women who have a high income but low net-worth are referred to as ‘Income Affluent.’

So, according to Stanley’s data and findings, how can you become a Millionaire (Woman) Next Door?

Spend less than you earn. If you constantly spend more than you earn, you will never be able to increase your net worth, no matter how high your salary is.

Avoid purchasing status objects. When you purchase imported vehicles, you will be lead to constantly want the latest model. This turns into a never-ending cycle and you are left with depreciating assets.

Invest for high returns. You can never go wrong when you invest your money for a great return. Many wealthy people do not put money in the stock market, but rather invest in private businesses or joint venture projects.

I thoroughly enjoyed this book. I appreciated the evidence presented by Stanley that most millionaires don’t ‘look like’ the stereotypical image many of us have of millionaires: People with flashy cars, brand name clothes, big houses and extravagant lifestyles. Instead, most millionaires look pretty average on the outside, and exhibit characteristics of persistence, frugality, humility, discipline and are dedicated to enjoying a meaningful life. Relationships, charity, integrity, and a high valuation of freedom, independence and hard work were also consistent attributes that Stanley’s study subjects shared as well. Stanley’s findings are consistent with my own experience. One of my early jobs was as a teller in a downtown Vancouver bank. I clearly recall that the best dressed and “flashy” customers were usually the ones with the lowest bank balances and the maxed out credit cards.

My only negative critique of Stanley’s book is the focus on net worth, without a discussion of the importance of positive cash flow. In my opinion, having a million dollars in net worth (a “mercantilist” definition of wealth) and being financially independent can be quite different.

The main complaint that I have with the high net worth definition of wealth, is that one also has to have money to live on. If one has to start spending one’s assets in order to live – by selling the real estate, spending the capital gains earned in the stock market, and draining the bank account, etc. then inevitably, net worth disappears.

I prefer R.Buckminster Fuller’s definition of wealth and “financial independence”, which is the amount of time you can survive without having to work. It makes more sense to me to focus on accumulating assets that also produce immediate positive cash flow, thus freeing up my time and creating more options for a satisfying quality of life, which is what motivates most people to become millionaires in the first place. Positive cash flow, like it sounds, creates continuous streams of monthly, quarterly or annual income that carries on indefinitely, regardless of whether we choose to work or not.

While Stanley’s book “The Millionaire Woman Next Door” provides terrific examples of the mind set, characteristics, habits and goals of those who are able to produce and save/invest considerably more than they spend, that is only one side of the coin. Next month, I’ll be writing a review of Robert Kiyosaki’s book “Guide to Investing” which outlines ways to create those passive income streams and develop a savvy investor mindset that embraces both net worth and cash flow. As always, we welcome your comments, stories and suggestions and thanks for reading!

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.