Excerpt from The Millionaire Next Door by Thomas J. Stanley, William D. Danko, Ph.D., plus links to reviews, author biography & more

I am a tightwad. That's one of the main reasons I completed a long questionnaire for a crispy $1 bill. Why else would I spend two or three hours being personally interviewed by these authors? They paid me $100, $200, or $250. Oh, they made me another offer -- to donate in my name the money I earned for my interview to my favorite charity. But I told them, "I am my favorite charity."



"WEALTHY" DEFINED

Ask the average American to define the term wealthy. Most would give the same definition found in Webster's. Wealthy to them refers to people who have an abundance of material possessions.

We define wealthy differently. We do not define wealthy, affluent, or rich in terms of material possessions. Many people who display a high-consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights, or timber land. Conversely, those people whom we define as being wealthy get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.



THE NOMINAL DEFINITION OF WEALTHY

One way we determine whether someone is wealthy or not is based on net worth -- "cattle," not "chattel." Net worth is defined as the current value of one's assets less liabilities (exclude the principle in trust accounts). In this book we define the threshold level of being wealthy as having a net worth of $1 million or more. Based on this definition, only 3.5 million (3.5 percent) of the 100 million households in America are considered wealthy. About 95 percent of millionaires in America have a net worth of between $1 million and $10 million. Much of the discussion in this book centers on this segment of the population. Why the focus on this group? Because this level of wealth can be attained in one generation. It can be attained by many Americans.



HOW WEALTHY SHOULD YOU BE?

Another way of defining whether or not a person, household, or family is wealthy is based on one's expected level of net worth. A person's income and age are strong determinants of how much that person should be worth. In other words, the higher one's income, the higher one's net worth is expected to be (assuming one is working and not retired). Similarly, the longer one is generating income, the more likely one will accumulate more and more wealth. So higher-income people who are older should have accumulated more wealth than lower-income producers who are younger.

For most people in America with annual realized incomes of $50,000 or more and for most people twenty-five to sixty-five years of age, there is a corresponding expected level of wealth. Those who are significantly above this level can be considered wealthy in relation to others in their income/age cohort.

You may ask: How can someone be considered wealthy if, for example, he is worth only $460,000? After all, he's not a millionaire.

Charles Bobbins is a forty-one-year-old fireman. His wife is a secretary. They have a combined annual income of $55,000. According to our research findings, Mr. Bobbins should have a net worth of approximately $225,500. But he is worth much more than others in his income/age category. Mr. and Mrs. Bobbins have been able to accumulate an above-average amount of net worth. Thus, they apparently know how to live on a fireman's and secretary's income and still save and invest a good bit. They likely have a low-consumption lifestyle. And given this lifestyle, Mr. Bobbins could sustain himself and his family for ten years without working. Within their income and age categories, the Bobbinses are wealthy.

Copyright © 1996 by Thomas J. Stanley and William D. Danko.