In 1996 Stanley and William Danko authored the book "The Millionaire Next Door: The Surprising Secrets of America's Wealthy." The book compared the behaviors of high income families that tended to live very affluent lifestyles, spending much of their money on luxury goods, status items and expensive lifestyle. These families lived lavishly but often neglected savings and investments. Thus, they did not accumulate much wealth despite their higher income levels.
This was contrasted with families who, based on good habits and the cumulative effect of time built significant wealth, regardless of their income. These families spent less than what they made, saved and invested the rest, and made wise and non-emotional investment and spending decisions. Overtime, these habits allowed families to accumulate far more wealth than other people within their income strata did.
I have referred to this book often since I first read it in the late 90s. I have seen these principles play out over and over again within my client base. I have many clients who would not necessarily consider themselves wealthy. However, they have net worth's well over a million dollars. This is primarily due to good and conservative habits implemented throughout their lifetimes.
Forbes Magazine recently pointed out an extreme example of this when they noted that Warren Buffett lives in the same home today in Omaha, Nebraska that he purchased in 1958 for $31,500. A highly acclaimed but rarely copied investor, Mr. Buffett is worth $78 billion at age 87 years old. He obviously could afford anything he wanted. However, he practices what he preaches, and is the ultimate example of "The Billionaire Next-Door."
The Billionaire Next Door?
