Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I know quite a few millionaires and one billionaire. None of them are fancy or impressive to look at. The billionaire is the best example. He drives a 90 suv and where normal clothes. When going to a restaurant with some of the other guys he ordered a cheeseburger while everyone else ordered steak and then he complained about the price. You dont make money by wasting money. These are people who know the value of a dollar.
It is the "frugal millionaire" that is rare, these are people that have done well for whatever reason and haven't changed their spending habits to match their income/wealth. This doesn't happen often..
It really depends on how you define "frugal". If by that, you mean living in some small house in a bad neighborhood that's falling apart, then yes, I think that's rare of most millionaires of any stripe, although I'm sure such creatures do exist.
I'll give you examples of 2 millionaires I know, one of whom has a 401K statement I've seen (so I know he's not faking it).
Millionaire #1 is 65 and worked as an engineer at Lockheed Martin for 35 years and retired at age 58 with more than $1,000,000 in his 401K, plus over $100,000 in cash and savings bonds. He lost about $100K in the real estate bust by investing in construction loans, but it didn't really hurt him too badly. He has a pension that pays 48K per year. He owns a 3BR house in a nondescript but ok neighborhood in a Silicon Valley city. He never earned more than 97K per year, and that was only because he got a lot of overtime in that particular year. But his salary was conistently in the high 5 figures in the years before he retired around 2003. Since his house & car are paid for, he lives comfortably off his 48K pension and hasn't touched his 401K. He can apply for Social Security but hasn't yet....which means he can upgrade his lifestyle and still not need to touch his 401K.
Millionaire #1 has a 1984 Honda Civic that still runs fine. He also has an old 1969 Mustang just because he thinks they're cool, although it mostly sits in his garage (He's a packrat that way. UGGH!). Being a packrat, he has a hard time throwing stuff, out, including clothes. I will say he really does need a wardrobe upgrade, but he doesn't card about that stuff. He also bought a big screen TV around 10 years ago when they were thousands of dollars but he hasn't upgraded to a new model. He's done some travel over the years to Europe and gone on a cruise or two.
Millionaire #2 is 52 and came from a well off family who paid for his education at a small, private, liberal arts college in the L.A area (but not an elite one). He then went on to get an MBA at a public U in a cheaper state. (I'm not sure if his parents paid for that, but they may have). He was pretty ambitious and kept getting promoted at work and did live in another state before moving to Silicon Valley. He's been a cheif financial officer at a biotech company for a while now. He lived in a rented 2 BR condo in a Silicon Valley city for the longest time (once again, an ok, but nothing special condo/neighborhood). Although his furniture was nice, it wasn't trendy, and some of it was used (like his dining room set). He had hand-me-down dishes because he ate out most of the time anyway. He didn't own a TV for the longest time since he wasn't home that much to watch it.
When his landlord's pain in the a$$ son took over management of his rented condo and jacked up the rent to boot, Millionaire #2 bought a 3 BR townhouse in a neighboring Silicon Valley city in late 2007. A nicer place in a somewhat nicer neighborhood, but still, nothing too fancy or flashy. In some ways that wasn't smart. He got a price break on the condo, but values fell significantly since he bought it. Nonetheless, he can handle the mortgage and he's not going to end up out on the street. Millionaire #2 is in the 6 figure salary range, although I'm not sure how high into that range he is (not too high, I don't think). His one indulgence was paying $33K cash for a 1995 used Jaguar. He shopped around for around 8 months before he bought it. It was about 4 years old when he bought it and he still has it. He eats out a lot and always pays for dinner for his friends at moderately priced restaurants.
Both are gay, so no kids are involved in their life scenarios. Neither one has ever really taken part in the trendy San Francisco gay scene (where a lot of gays get caught up blowing their money on going to clubs, drugs, etc). One of these millionaires spent his younger years in LA, but did not partake of the trendy gay scene there, either. One is semi-closeted while the other has always been "out". Both are just pretty low key about their sexual orientation as well as everything else.
Anyhow, the book focuses almost entirely on penny-pinching and ignores the revenue side of things, yet increasing revenue is a far more pleasant way of building wealth than being a skinflint. Penny-pinching isn't any easier than making attempts to increase your revenue, business isn't the only option here. There are many things the average-Joe can do to increase his revenue.
That's not true at all. I think you're seeing what you want to see. If I remember correctly, they did a whole chapter on choosing the right profession. They also talk about business ownership as being a major wealth creator and the fact that most millionaires have incomes well above average (although not as stratospheric as a lot of people think).
They do emphasize the importance of frugality, though, because a lot of people, even high income people, have a hard time putting a good chunk of their salaries away in savings/investments.
I think penny pinching is equally or more important than increasing revenue. If someone makes 100K a year and spends it all without saving anything, then they still have no wealth. While someone who makes 25K a year saves 2k a year would have more.
You're thinking about this the wrong way. Take someone that makes $75k/year and assume they also spend $75k a year. So they have no savings, now this person can do one of two things, take these examples:
1.) They can cut spending by $7,500 and save $7,500 a year.
2.) They can increase their revenue by $7,500 and save $7,500 a year.
Both achieve the same amount of savings, yet 2.) does not require a cut in spending. There only reason one should focus on 1.) is if they were simply unable to increase their income. 1.) should be a last resort, not a first resort.
I think it would probably shock you to see the net worth of a group of people seated in any room such as a town hall meeting. The ones with the good balance sheets are probably not the ones with the designer bags, acrylic nails or the one driving the latest car or giving the most parties or the one with the most elaborate home. The millionaire may be the one that doesn't even have a cell phone.
You cannot accumulate money by drinking, partying or smoking it away. The millionaire also does not want to bring attention to what he owns, because he will then become the target of someone who wants what he has.
Sometimes you can just know someone has money. The really good indication that the one who can afford what he wants is the safe car, warm coat, comfortable shoes. or that is my opinion. They do not have to impress anybody, because they are impressive without trying. It is that nice couple down the street that may have never had an alcoholic drink in their lives and they may eat at Wendy's because the food there is healthy.
Great post. Not to quibble....but since when is the food at Wendy's healthy??? But I do get your point. It's the people who wear "ordinary nice" clothes and drive "sensible" cars who tend to have the $$$.
No need to take things to extremes. It's possible to drive an old, but well maintained car: to live in a small, but well maintained, house; to wear quality clothes with classic styling and maintain them well for 5-10 years or more, etc.
The point is that people that live well below their means may as well have a lower income and/or net worth. They also need to learn how to live life...
Quote:
Originally Posted by mysticaltyger
I'd also add that a lot of rich people derive satisfaction from their work. If you're happy in your work and you earn a good income, having cool stuff becomes less important. It's the people who hate their jobs who feel they need to "reward" themselves with new and trendy stuff.
I don't see how enjoying your work has anything to do with the sort of stuff you want. I enjoy my work, yet I have no interest in driving around an old car and have numerous modern devices.
You're thinking about this the wrong way. Take someone that makes $75k/year and assume they also spend $75k a year. So they have no savings, now this person can do one of two things, take these examples:
1.) They can cut spending by $7,500 and save $7,500 a year.
2.) They can increase their revenue by $7,500 and save $7,500 a year.
Both achieve the same amount of savings, yet 2.) does not require a cut in spending. There only reason one should focus on 1.) is if they were simply unable to increase their income. 1.) should be a last resort, not a first resort.
Maybe you're one of those rare people who doesn't have a hard time increasing his income, but that's not most of us. Once you reach a certain point, it's easier to save the $$$ than it is to make more.
Of course, I guess that's why the authors of "Millionaire..." emphasized small business ownership because successful small businesses tend to bring higher incomes to the owners as well as better tax advantages (e.g. you can save something like 49K in a retirement planif you're self employed but only 16K in a 401K if you work for someone else).
I don't see how enjoying your work has anything to do with the sort of stuff you want. I enjoy my work, yet I have no interest in driving around an old car and have numerous modern devices.
It actually has a fair amount to do with it. It's about what brings satisfaction. If you're satisfied with your job, you won't go looking for satisfaction in new and better stuff all the time.
I think you've got some serious issues with consumerism. I think you're too busy reacting against your parents frugality. Somewhere along the way you decided you were NOT going to be like your parents and now you're out to prove it. That's ok to a certain extent...but I wonder if you're not taking it the opposite extreme. Consumerism is fun for a while, but it doesn't satisfy in the long run. Economists have a name for it. It's called the "hedonic treadmill", and it sounds like you're on it or aspire to being on it.
I'll give you examples of 2 millionaires I know, one of whom has a 401K statement I've seen (so I know he's not faking it).
What is the point of your examples? These aren't the sort of people typically think of when they think of "millionaires". The issue here is that "millionaire" is used in our language to refer to someone that is wealthy, it goes back to a time when a million dollars was a large sum of money and before 401(K)s even existed. Someone with a net worth of $1 million in 1970 had a lot more money than someone with a net worth of $1 million today. Today its fairly common for older middle-class folks to have a million in assets, but its largely geared towards retirement. These people aren't "rich" by any means.
If we are trying to determine who is rich than I think it would be far more instructive to exclude retirement accounts and even personal residences, both of these operate very differently than having say $1 million in the bank.
Anyhow, today having a net worth of around $1 million doesn't mean you're rich. The people in your examples are technically "millionaires", but they aren't rich.
Maybe you're one of those rare people who doesn't have a hard time increasing his income, but that's not most of us. Once you reach a certain point, it's easier to save the $$$ than it is to make more.
Increasing your income is not that difficult, it just requires some thought. From a purely technical point of view, its easier to save, but once you consider human psychology I don't think that is true. If saving was so easy, more people would do it. This issue involves far more than purely financial matters...
Quote:
Originally Posted by mysticaltyger
Of course, I guess that's why the authors of "Millionaire..." emphasized small business ownership because successful small businesses tend to bring higher incomes to the owners as well as better tax advantages (e.g. you can save something like 49K in a retirement planif you're self employed but only 16K in a 401K if you work for someone else).
This is actually false, small business owners have lower than average incomes. You have to remember that a business is an asset, extracting a lot out of your business in terms of income is the worst thing you can do tax wise. When you sell equity in your business it is a capital gain and you'll be taxed a lot less than if you realized it in income.
If you started a business with $10,000 and built it into a business worth $1 million in 5 years and sold it, that would be a gain of $990,000 and you'd pay 15% in taxes on it. FICA taxes alone are 15%, ideally you'd extract an annual income of zero from the business for the 5 years...or better yet have a paper loss!
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
