The Frugal Millionaire

I’ve emphasized the importance of reading quality books, specifically regarding money and finance, and always learning as much as we can on the subject. Becoming competent in the area of personal finance and always being determined to improve our financial literacy is important when striving for financial independence.

If you haven’t already, I highly recommend reading a few books written by Thomas J. Stanley: The Millionaire Next Door; The Millionaire Mind; Stop Acting Rich: And Start Living like a Real Millionaire.

Dr. Stanley is one of the premier researchers in regards to millionaires and their behaviors. He has interviewed thousands of millionaires and decamillionaires; and has thoroughly studied their lifestyles to find common behaviors and characteristics which allowed them to build such a significant amount of wealth. What he has concluded is very interesting and pretty eye-opening.

When we think of wealthy people–or the rich, if you will– we imagine fancy cars, big houses in prestigious neighborhoods, expensive watches and clothes, luxurious vacation homes, etc. While this may be the case with some rich people, most likely the extremely rich, it is not the case with your average millionaire next door. In fact, the millionaire next door is so normal, he might be actually living next door and you have no idea how wealthy he really is.

The average millionaire is more concerned about being anonymously rich rather than deceptively poor. They live below their means. They do not get caught up in the race to “keep up with the Joneses.” We often confuse high income earners with wealthy people. They are not one in the same. Just because somebody makes a lot of money, doesn’t mean they have a lot of money. Many high income earners also participate in a high consumption lifestyle. They make a lot of money and they spend a lot of money. They might have nicer “stuff,” but they are not independently wealthy. There is a common misnomer that in order to become sufficiently wealthy and be able to retire with dignity and savings, one must make hundreds of thousands of dollars annually. This is also not the case. It definitely helps, but is not absolutely necessary. The factors that will cause us to become wealthy are much more about behavior and lifestyle than they are about income and salary.

Here are some characteristics to consider about the millionaire next door:

• They are extremely frugal and live a low consumption lifestyle relative to their income.
• They do not borrow money and avoid debt.
• They understand how to budget their time and money efficiently; anticipate and plan their income and expenses.
• They believe that financial independence is more important than portraying a high social status.
• They do not rely on their parents for financial assistance and they teach their own children to be self-sufficient.
• They married the right person.
• They have integrity.
• Their spouse is more frugal than they are.
• They are generous givers.
• 2/3 is self-employed.
• 80% are self-made, first generation rich.
• They work between 45-55 hours per week.
• They found the right career and love their job.
• 80% have a college degree.
• The majority of millionaires live in homes valued at under $300,000.
• More millionaires drive Toyotas and Fords than they do BMW or Mercedes.
• 86% of those who drive prestigious makes of cars (BMW, Mercedes, etc) are NOT millionaires.
• They drive two to four year old used cars that they paid for with cash- they do not lease cars or borrow money to purchase vehicles.
• They do not purchase expensive watches, shoes, and suits.
• The median household income is just below $90,000.

The truth is that our society has given us a false perception on what it looks like to be wealthy. They have told us we need to drive expensive cars, wear expensive suits, and live in big houses in prestigious neighborhoods. This is obviously not the case. In fact, we are more likely to become wealthy by doing the complete opposite of those things. It makes sense, right? Drive a less expensive car, buy a less expensive watch, wear a less luxurious brand named suit, and you will have more money. This is how it is done: Live on less than you make. Spend less money than you earn. Stay away from debt and the monthly payment lifestyle.

It is also not true that the average millionaire is a jerk, or that he is greedy and selfish and doesn’t care about anyone but himself (of course there are always a few exceptions). It is also absolutely false that “true Christians” cannot be rich. They are actually the opposite of selfish and greedy. They work hard, serve within the community, are very charitable, and regular attend church services. Rich people are pretty anonymous, which is by choice. They aren’t concerned with their image or impressing other people with luxuries and stuff. They are your small business owners, your plumber, your dry cleaner, your professor, etc.

In a way, these misperceptions we have been fed have caused many of us to resent and envy the rich. They have also discouraged many of us from believing that we are capable of actually becoming wealthy. Just remember, there is a difference between building wealth with the intention of self-indulgence and impressing others with our luxurious lifestyle and building wealth with the intention to provide for our families, give to others, and reach a level of financial independence. Anybody can become a millionaire.

The next time you see someone driving down the freeway in a brand new Mercedes or BMW or Range Rover—which is probably a lease anyway, either that or it carries a $800 car payment behind it– there is a great possibility the person is not rich, just acting rich in order to impress themselves and you. I’m not saying there is anything wrong with driving a luxury car, just don’t drive one until you can afford it– when you are a millionaire!

It is much easier to appear wealthy than it is to be wealthy. The true rich are satisfied by the feeling of peace in their lives and the ability to care for their families.

*debt-free mormon is a certified financial counselor serving the northern Utah area. If you would like help with your finances, one-on-one counseling and coaching is available. Send an email to debtfreemormon@gmail.com

Sources

1 Thomas S. Monson, Guiding Principles of Personal and Family Welfare