The simple secrets of quiet millionaires
By: Adam Mayers Personal Finance Editor, Published on Thu Mar 12 2015
The Millionaire Next Door was a surprise best seller about how the rich get that way. Its big message is that anyone can come out ahead by getting a few things right.
Wayne Gretzky told a 2012 retirement seminar sponsored by TD Bank, that he avoids the stock market, doesn’t borrow money or invest in anything he can’t undestand.
The Millionaire Next Door was one of those unlikely success stories, a personal finance book that started out as a grad student’s MBA thesis and became a best-seller about the how the wealthy get that way.
It was written 20 years ago by Thomas Stanley, a marketing professor at Georgia State University and William Danko, a student in his class who went on to do a Ph.D. The book evolved out of a look at who the rich are, how they get that way and how real money differs from the appearance of wealth. It has sold three million copies and made both men millionaires.
The book is in the news, because Stanley, 71, died in a car crash near his Atlanta area home on Feb. 28. According to the Atlanta Constitution, he was working with his industrial psychologist daughter on an updated Millionaire book. The original had spun off a handful of related titles.
The book’s theme was that there are plenty of people who live in big houses, drive new cars and live in high-income neighbourhoods. But while they may appear rich and have a lot of cash to support their big mortgages, car payments and high living, that doesn’t make them wealthy. Looking wealthy and being wealthy are quite different things. Those who look wealthy often have a very small net worth, which is the difference between they own and what they owe.
The people who have all the money often go by unnoticed, dressing well, but without flash, driving used cars and living in the first house they bought in a modest neighbourhood. The authors called them the quiet millionaires. They often work in, or own, unglamourous businesses that spin off steady streams of cash.
By unglamorous, Danko’s oft repeated example was “bovine semen distributors, with their long gloves and rubber boots and beat-up pickup trucks,” as the New York Times noted in an interview with Danko.
The wealthy know that the key to financial independence is spending less than you make and putting the difference into savings and investments. They also have a plan and are patient investors, taking risks based on research and careful analysis rather than impulse or second hand advice.
I believe the reason the book became so successful was because the basic message was that anyone with modest or moderate income, doing the right things, can come out ahead. You don’t need to be born with a silver spoon — in fact the wealthy usually wean their kids pretty quickly.
The book offered up the notion that living within your means is the surest way to financial security. It need not be any more complicated than that. It only requires a plan and discipline.
Two examples of the Millionaire Next Door doctrine in action come to mind: Wayne Gretzky and David Chilton, author of The Wealthy Barber and late of CBC’s Dragon’s Den.
During a 2012 Toronto event hosted by the TD Bank, Gretzky described his personal investment philosophy which could have been lifted from the pages of the book.
“My grandfather always taught me: If you have $2,000 in the bank, you buy an $1,800 car,” The Star’s Kevin McGran reported. “You don’t borrow or leverage. So I never borrowed.”
Gretzky said his father reinforced the message, telling him at a young age to be conservative and keep it simple when it came to his financial affairs. He doesn’t invest in things he doesn’t understand and avoids the stock market. It’s advice he’s passed on to his kids and young NHL players.
“You don’t need to go spend big dollars on fancy cars and big houses and watches and jewelry,” he said. “Put your money away and you’ll enjoy your life that much more when you retire.”
David Chilton’s first book, The Wealthy Barber, sold more than two million copies. His sequel, The Wealthy Barber Returns, is also a best seller. Chilton lives a modest life in his home of several decades outside Kitchener.
In an interview, Chilton offered simple advice on saving and spending, plain vanilla things anyone can undertake.
“The best financial planning processes block you from making mistakes,” he said. “They automate things. That’s why the trite advice of paying yourself first works. Taking money off the top in a payroll deduction is very effective.”
When it came to passing on good habits, he sounded like Gretzky.
“I’m not going to tell a 15-year-old about the subtleties of an RRSP, but . . . turn your kids into savers and the rest of it will take care of itself.”
That’s a powerful message: Keep it simple, do a little at a time and maintain your discipline. Whether you’re an NHL superstar, weekend warrior or university student writing a thesis you can still come out ahead.
How quiet millionaires think
Financial independence is more important than the appearance of wealth
They get rich slowly, saving and investing a little at a time
They spend time planning their financial path
They hang on to their cars and houses
They are not afraid of investment risk
They have a long term horizon
They value education and life long learning
Their adult children are self-sufficient as they were
They often work for themselves
Source: The Millionaire Next Door
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