The Millionaire Next Door is a explanation of the behavior and attributes of those who have achieved a significant amount of wealth. Contrary to the title, it does not just examine millionaires: instead, it looks at those who have a significant amount of net worth, multiple times their income.

How Much Net Worth Should You Have?

The main gauge for determining your success is your net worth relative to income. The equation looks like:

2 * income * age_in_years / 10

So, if you are 40 years old and you earn 80,000 dollars, then you should have 2 * 80k * 40 / 10 = 640k of net worth.

The 2 at the beginning of the equation is a multiplier factor that helps puts you in one of a few categories:

  • 0.5: UAW (under accumulator of wealth). Anything at or below this number is the last quartile of net worth of those with similar income.
  • 1: AAW (average accumulator of net worth).
  • 2: PAW (prodigiuos accumulator of net worth): Anyone at or above this number is within the top quartile.

The book was written a few years ago (1996), so it could be that these numbers have changed. But the general philosophy is to set a goal of net worth that is a multiplier of your income, in contrast to a set number for all.

The Behavior of the Wealthy

The book contends that the wealthy have two primary behaviors in common:

  • living considerably below their means
  • making sound, non-taxable investments

Choosing a lifestyle that's below one's means results in a significant amount of excess income. That excess income can then be used to fund investments, which compount in interest and have returns that increase exponentially as time allow. The investment being untaxable (or taxed minimally) increases the return of the gains (as there is less money pulled out of the investment pool) in contrast to an investment taxed at normal income levels.

By building a foundation of net worth that compounds, and reducing the cost of living in one's day-to-day life, it tackles the goal of financial independence on both sides: reducing the target goal, and investing heavily to get to that target quickly.

The Spending Habits of the Wealthy

A majority of the wealthy interviewed had very similar behaviors around money. Oftentimes, the wealthy went with financially conservative options. This includes buying and keeping a car for decades, forgoing the finer things like exotic vacations and boats, and simple, cost effective hobbies.

The wealthy also strictly budget: they track spending closely to ensure that the wealth accumulates over time.


I think this book formalizes a lot of the ideas we understand in principle. Many of the ideas the book puts forth are logical, but it is nice to have them all in one place. The book has already influenced the way I am organizing my assets. I am looking toward investing more, and setting a clear budget goal on the amount I would like to invest.

Having the PAW target also helps, as it sets expectations on how much one should be saving, to continue toward the path of achieving a significant amount of wealth.

Conversely, I do not agree with the idea that we should live a frugal lifestyle and ignore the opportunity for unique experiences: vacations to new places and trying new things is a pillar of a satisfying life. Ultimately, wealth should be accumulated to enrich the lives of those you care about. Wealth does not accomplish that by sitting in a bank.

I aim to be more conservative around luxury items like products I do not need, or eating out when I can bring food from home. But I will continue to look for ways to use my wealth to get the most out of life, and I won't hesitate to take a step back from my long-term wealth goal to have a once-in-a-lifetime experience.


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About Yusuke Tsutsumi
I work at Zillow. I focus on tools and services for developer productivity, including build and testing.

My other interests include programming language design, game development, and learning languages (the non-programming ones).