
Millionaires Who Are Frugal When They Don't Have to Be - m-i-l
http://www.nytimes.com/2015/06/06/your-money/skimping-on-the-splurges-even-as-a-millionaire.html
======
jasode
The millionaires at $1m to $10m absolutely DO have to be "frugal" if we use
define "frugal" to be about "smart spending" as opposed to fishing pennies out
of public fountains.

The word "million" is deceptive because it is an amount beyond what 99% have.
It makes it seem like some mind boggling amount of money but mathematically,
it really isn't that much. A person classified as "millionaire" could be
tagged that because of _total net assets_ and not the _liquid cash_ in a bank
account. E.g. a $500k house + $500k IRA/401k + $25k car is a "millionaire".

But let's say you have a _multi-_ millionaire (e.g. 2 million dollars). That
might be $1 million in cash in the bank. That's still not much money because:

\- it's not enough to park $1 million of principal into risk-free US T-Bills
and live off the current interest rates of < 1%. That's only $10k income per
year which is less than minimum wage.

\- if your child gets an expensive health problem like leukemia or spouse gets
cancer, your medical bills could blow past the lifetime cap of the health
insurance policy and therefore, you have to drain your savings to pay for
expensive treatments.

\- non-Ivy League schools can cost $50k per year. If you have 2 children and
you want to give them the gift of college education without being burdened
with student debt, that's at least $400k. And to stay at $400k, it would
require the parents to be "cheapskates" and not fund any extracurricular trips
like ski vacations and Spring Break parties down in Mexico.

The millionaires that have less than $10 million definitely have to be
"frugal" and watch their money. Consider than NBA star Allen Iverson earned
$200 million and blew it all away.

At $100+ million, one can start getting frivolous and maybe buy a Ferrari.
However, $2 million is not enough cushion to live off interest income and be
100% worry-free from unexpected life events. One would still have to work
somewhere to keep adding to the nest egg.

~~~
gizmo
It's laughable to suggest splurging on a 300k Ferrari is irresponsible at $10M
< assets < $100M.

~~~
jasode
Everyone's appetite for risk is different.

If I had $10,000,001.00 in the bank, I _personally_ would not feel secure
enough to spend $300k on a car (and also pay all the expensive maintenance
that it entails.) Since the car is 3% of my available funds, I'd be constantly
hyper paranoid about a stray rock being kicked up by the truck in front of me.

If I had $100 million, the $300k car would feel a little more "disposable". If
a runaway shopping cart dings it, I'd just shrug it off and buy another one
and donate the imperfect one to my landscape gardener.

On the other hand, Elon Musk bought a $1 million Mclaren F1 after the 1999
zip2 sale netted him ~$20 million. Like I said, everybody's risk profile is
different and most people including me do not think he's fiscally
irresponsible.

I think the nuance that's getting lost in translation is my idea of
"affording" to buy an exotic car. Yes in mathematical terms, $10 million
subtracting $300k leaves plenty left over so one can buy without requiring a
loan and still be "wealthy."

However, my idea of "afford" also _includes the state-of-mind_ after one pays
for it. I'd like the luxury of not giving the super car no more thought than a
Toyota Camry. If I'm paranoid about the car, I can't "afford" it no matter
what my bank account says. The car is ruling over me instead of the other way
around. The cost of ownership is too high (this includes "mental costs"). The
threshold isn't " _how much money I need to buy the car without a bank loan_ "
but " _how much money so that the car feels disposable._ "

~~~
allendoerfer
I get your concerns but also think you are better off without $10 million in
the bank, if you are scared of spending it because you fear you could lose
some and be only worth $9.7 million.

~~~
jasode
>you are better off without $10 million in the bank, if you are scared of
spending it because you fear you could lose some and be only worth $9.7
million.

You misunderstood what I'm saying if you think $10 million to $9.7 million is
some kind of reduction in self-esteem. That's not the point.

It's not the absolute $ amount. It's a _subjective_ sense of the magnitude of
payment _in relation_ to what I get in return. The calculus includes the
_mental state_.

In my 20s, I spent $500k on a music studio thinking it would earn multiples of
that. Things didn't pan out that way but I'm still young enough not to be gun
shy about spending large amounts of money. I'm just a little wiser now and
won't be throwing money away at such endeavors.

Today, if I came across a web startup I believed in and they need $900,000 (3x
the $300k of Ferrari), I'd feel _compelled_ to reduce my bank account to $9.1
million to see if my angel investment will work.

With the Ferrari, the ownership of it also _includes many headaches_ in
addition to whatever pleasures I could derive from it. The pleasures are
seriously curtailed in my city where I couldn't floor it and race it above
80mph.

On the other hand, with the killer web startup, I would _lose sleep at night_
if I missed the chance to invest so in that situation, I _must_ spend $900k
just to have some piece of mind. Mathematically, I'm "poorer" at $9.1 instead
of $9.7 but _I feel better_. Maybe the startup will crash & burn but I spent
the money hoping they could change the world.

Here's the crazy thing: it's very possible for someone else to think of the
Ferrari as the "sure reward" and the web startup investment to be a fool's
game. We all have different risk profiles.

~~~
allendoerfer
Okay, so you are just not into Ferraris. I would not buy one, either. I saw it
as an example for something expensive, that you buy just for fun. A single
unhedged angel investment is such a thing, too.

In the first comment you argued differently. You said, that that even most
millionaires can not afford to buy a sports car. I would say, that a single
startup investment outside of any investment plan is an even higher luxury. It
is comparable to spending thousands of dollars in Vegas.

A Ferrari loses some of its value, in exchange you get fun. A startup will
most likely fail completely. Additionally a Ferrari is much easier to
liquidate again.

------
mmrasheed
When I read this article few minutes ago I found the following phrases and
quotes defining the characters of these people and justifying their acts-

...“It’s (money) an important tool. They don’t neglect it, but they also don’t
worship it.”...

...“Part of this pressure to keep going is less about greed and more about
insecurity that might be self-imposed,” ...

...“It’s about paying attention to what makes you happy and not just doing
what our society tells us to do,” ...

... he and his wife simply didn’t care that much about material possessions...

... “We like to travel, and we’ll spend the money for that because it’s worth
it having a real experience together.” ...

And when I went through the comments here, I found none so far discussing on
any of the points above.

~~~
Retra
Every one of those quotes is portraying selfishness. Why should anyone discuss
those points? They don't have long-term value to anyone else.

~~~
crgt
Hm. Not caring about material possessions is selfish? Not sure I follow that
logic...

~~~
Retra
A drug addict isn't chasing material possessions, either. "Selfish" doesn't
imply any concern for material possessions.

------
SlipperySlope
Its important to have a spouse who has a similar desire for sensible
frugality. The level of income is less important than simply living below your
means for your whole life. With prudent financial planning, compound interest
and the passage of time achieves the level of wealth described in the article.
Indeed car purchases are a good indicator.

An omission of the article is that often frugal persons are generous to their
loved ones and causes they care about.

~~~
briandear
Compound interest? Where? The interest rates are such that inflation would
destroy whatever gain you have. Nearly all savings accounts are paying an
annual yield of less than 1%! That means WITH compounding, you're looking at a
1% or lower gain. Inflation is typically between 1-4%, with 2% being the
benchmark in terms of financial planning, though admittedly in April, we had
slightly negative inflation, but that trend won't continue.

Investing is the only way to build wealth. It's impossible to save your way to
financial freedom. If you make an average of $100K per year from age 30-60,
that's $3 million in income. Assuming about 35% in state, local and federal
taxes, that leaves you with $65K per year. Now, you're saving 10% of that per
year, that's $6,500 saved per year. With a 1% rate, at the end of 30 years,
you have about $229K. Assuming you live to be 80, that's $229K that needs to
earn enough to pay your bills. Even if you saved 20%, you'd still not even
have $500K at the end of 30 years.

With the same 20% savings rate and some reasonably smart investing (12%
returns,) then you'd end up with over $3.5 million over the same period. If
that investing is in real estate, you could potentially earn that gain tax
free (or tax reduced) because building depreciation percentages can generally
exceed the "profit" from real estate cashflow. On top of that, a 1031 exchange
means you can keep selling and trading up to larger and larger real estate
without paying a capital gains tax, which means you build even more net worth
that can then be leveraged to buy more properties. Most millionaires get there
because of property, very, very rarely because they save their way to it. A
typical middle-class wage doesn't lend itself well to saving your way to
millions. The math just doesn't work, the tax code also doesn't support it.

Frugality isn't the key to success. The $30 you save by washing your own car
is peanuts compared to the value of that time doing something more productive
(like sourcing real estate or researching investments.) Frugality can actually
cost you more money because of the time-value of money. But admittedly many of
us have inherited our parents/grandparents' Depression Era, middle-class
ethos. It's a classic example of Rich Dad Poor Dad.

~~~
SlipperySlope
Sorry I was not clear. * Compound interest in this context is ROI after
inflation. * Savings in this context is defined as investment, e.g. saving the
earnings of one spouse to make the down payment on a rented duplex. *
Frugality in this context is defined as delayed or avoided gratification to
spare discretionary funds for investment.

Relative frugality (not being a spendthrift) is a necessary requirement for
holding wealth. It is a key - not the only one - to gaining it.

------
DanAndersen
The article is decent, though the headline is a little silly. In the sort of
cases described in the article, it's the frugality of these millionaires that
was a major contributor to how they got to be millionaires in the first place.

Rather than letting falling to the all-too-common temptation to let luxury
spending grow wildly with income, it's possible to set clear goals of
financial independence, build habits that keep you on that path, and arrest
the tendency to keep going on the hedonic treadmill.

I've found value in resources like Mr Money Mustache's blog for quantifying
what actions are helpful to work toward financial independence:
[http://www.mrmoneymustache.com/2012/01/13/the-shockingly-
sim...](http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-
behind-early-retirement/)

------
beachstartup
the people in this article have multiple or large houses, take expensive
vacations, buy luxury goods... they don't sound overly frugal to me. wtf? am i
taking crazy pills?

my parents (in their 60s) have 2 lifetimes worth of savings and investments
yet still do their own laundry, have a vegetable garden, mend their
clothes.... but they drive nice cars, take expensive vacations, and buy tons
of gadgets. they have a massive OLED TV that they watch stereotypical old-
person shows on, yet still re-use their ziploc bags. this is not an either/or
proposition. people are complex creatures, especially when it comes to money.

in other words they're just normal people, not overly or underly frugal. this
entire article is confused. older people with $millions today have a huge
diversity of backgrounds, philosophies, and lifestyles. it's impossible to
capture some kind of over-arching rule. spending habits are usually a mix of
contemporary attitudes and early life values.

if nobody spent any of their money our economy wouldn't work. the important
thing is to be careful with your savings and investments - the goal isn't to
be a complete cheapskate and die with every penny you ever earned. i can't
think of a worse way to live.

~~~
SlipperySlope
Its clear to me that the article's family are still living well below their
means. Multiple homes make sense for those who are frugal enough to restrict
vacations mostly to the second home, which if well-located can appreciate in
value faster than inflation. Frugal families often have such assets that
appreciate, rather than expenses or possessions that depreciate.

~~~
beachstartup
_> Frugal families often have such assets that appreciate, rather than
expenses or possessions that depreciate._

i'll repeat myself. the people in this article have _both_ , like most
successful people in general. it's not a mutually exclusive choice. this
article is basically not making any kind of point whatsoever. what's the
thesis of the article? that most successful people don't blow all their money
on bullshit like some poor people do? wow, what a revelation.

these people drive cars and take vacations and buy cartier watches. truly
'frugal' people usually don't do any of this stuff. for example, you don't
have to look far on HN to find cheapskates that make professional salaries yet
shun cars, live in tiny apartments, shop at garage sales, don't vacation, and
live on dry foodstuffs. in fact i was poking fun at them in a comment i made
just yesterday. i called it the 'cheapskate olympics'. i think that kind of
lifestyle is absurd if you can afford to live a bit better than that.

~~~
SlipperySlope
The thesis of this article is that a frugal lifestyle may lead to relative
wealth that permits occasional splurges.

I regard the article as inspiring to someone who wants to become successful
later in life due to their wealth, despite a modest job history.

------
UK-AL
Is this a surprise?

People who have lots of money, are good with spending money? and knowing the
value of things?

I don't think they're cheapskates, they just know what ACUTALLY brings value
to their life's. They probably wouldn't mind spending, if they get more or
equal value from the thing they are purchasing.

Fancy Cars in general are terrible value, for the enjoyment they bring you.
Unless say its your hobby.

~~~
phlyingpenguin
_Fancy Cars in general are terrible value, for the enjoyment they bring you.
Unless say its your hobby._

Buying a brand new fancy car is a terrible investment for the enjoyment, but
that doesn't need stop you from having one. The article makes the point that
there are plenty of ways to have "nice" things without breaking the bank, even
if you don't have $$Texas.

------
massysett
"And while they own three homes — condominiums in Naples and Boca Raton, Fla.,
and a house in Lebanon, Pa., where they grew up, none of them are huge. One
splurge is an annual trip to Italy."

Frugal? Is this a joke?

~~~
adekok
I think "frugal" in this context means "spending within their abilities".

In contrast, many lottery winners are bankrupt within 5 years. Why? They're
"rich"! They can spend money like it's water! And they do... Then they run
out.

As other commenters point out, a million dollars is money, but you still have
to be careful. You probably still have to work.

You can go out for dinner three times a week at a reasonable restaurant and
not worry about it. You can buy a decent car without it impacting your budget
too much.

They're not penny-pinching. They're not part of the 47% of americans who'd
have trouble raising $400 for an emergency expense.

But care-free? Nope.

One trip a year to Italy is probably $5K for two people. In comparison, that's
like $50 for someone with $10K to their name. It's money, you likely have to
plan for it, but it's do-able.

------
11thEarlOfMar
The Millionaire bar is lowered each year at the rate of inflation. So to see
how I'm really doing vs. my generation, I factor in inflation since my birth
date, and that is the number I need to achieve 'Millionaire' status.

It's somewhat arbitrary, but for me, that's about $6,000,000 in 2015
dollars....

~~~
drpgq
Yeah when they made the film How to Marry a Millionaire in 1953 with Marilyn
Monroe, a million really meant something.

------
salmonet
Sometimes I wonder if people do things like darn their own socks just to show
off how frugal they are. I have a hard time believing that a multi millionaire
values his time low enough to darn socks to save sock money.

~~~
casion
Maybe he enjoys doing it? Perhaps it's something from childhood or early
adulthood with fond memories, or just simply a task he enjoys the process of?

I'm sure most people here can understand the idea that sometimes fixing your
own stuff can be fun, even if it's cheaper to replace it.

~~~
salmonet
I get that it can be fun to fix things instead of replace them even if
replacing them is cheaper. I just don't think it is frugal.

------
reagency
Another NYTimes article by a millenial amazed by the completely ordinary lives
led by their parents' friends.

------
secretmillion
I'm a "frugal millionaire" with liquid, investible assets of approx 1.2m USD
(does not include my home, car, etc.) I saved and invested my way to this
after about about 15 years of working. My highest yearly income was
approximately 160K while my lowest was around 50K. I drive a 10 year old car
(which I bought new, in cash) and my mortgage is fully paid off.

I still go to work everyday (unfortunately.) I'd rather work part time, 2-3
days a week as a contractor/consultant, then work on my own projects the rest
of the time.

I often wonder how many others out there are like me... "working
millionaires."

~~~
ckib16
I'm curious - how did you amass your 1.2m USD? I have a similar background and
have done well but have not reached your level. Was it thru regular investing?
Or did you have some "high payout" one-time events like making a lot of money
on house appreciation, sale of a company, etc.

In any case, nice work!

~~~
secretmillion
It was through regular savings and investing. I never had a high payout event.

------
drpgq
The Millionaire Next Door is a good read related to this although it is
getting a bid dated.

~~~
mark_l_watson
That book had a large effect on my views of money, not being ostentatious,
etc. Some people need to be flashy with their money, but probably not a good
idea. I have a friend who usually drives a fairly new model Porsche while I
think I have more wealth than he does and I have a 1998 Toyota Corolla. That
said, it would be a more boring world if we were all the same!

------
sehugg
Note also that in several states, the average full-career government employee
receives a pension worth over $1 million. It's just that we don't commonly use
the term "millionaire" when the payment is in the form of an annuity.

[http://www.wsj.com/articles/SB100014240527023043607045794151...](http://www.wsj.com/articles/SB10001424052702304360704579415173512940990)

------
comrade1
The farther you are in life in your job, personal life, friends, the easier it
is to live enjoyably with spending less money through work trips to fabulous
cities, automobile perqs, subsidized meals, work home-buying perqs, etc.

I'm not sure how much these people are struggling with their low spending.

~~~
Nrsolis
As a person who travels regularly for work I can say you have quite a romantic
view of business travel.

The reality is that I usually see (in this order) an airport, a taxi, a
conference room, a hotel dining room and/or bar, a hotel room, a taxi, an
airport.

The idea that there is much downtime on a business trip is a fantasy of those
who don't travel for work.

~~~
whiddershins
This is absolutely true. Then again do you ever schedule a day or two off
before or after a business trip? Mini-vacation with free airfare!

~~~
cpkscpks
I did this before I had a family. Now, it's the first flight out. Sometimes
I'll fly in a day early to get over jet lag, but that's usually working in a
hotel room.

------
crimsonalucard
Please note that although we respect frugality over lavishness. Frugality
among rich people is one of the primary reasons behind wealth inequality.
Sitting on top of an perverse amount of wealth and not doing anything with it
is bad for the economy.

Wealth needs to be redeployed back into the economy and it must be done in
following a method that doesn't grow the wealth in an unnatural compounding
way.

~~~
jsonjson
Unless they've sacked their money away under their mattress, it has been
deployed back into the economy. It is either invested or in a bank where the
majority of it has grown the pie of total dollars through loans (this is often
not well understood). If I have ten dollars that I place in a bank, they will
only hold the required reserve. Assuming this is 30%, then seven will get
distributed in loans. The effective size of the money is now 17 dollars.

~~~
moron4hire
No, assuming a reserve of 30%, the whole $10 is the entire reserve, and they
loan out $33.33, making $43.33 total.

~~~
crimsonalucard
No, this is actually wrong. While they can do this, they don't in practice
because of competing banks. If that 33.33 dollar check goes into a competing
bank, that competing bank, by virtue of being a rival/competitor, is going to
immediately go back to the lending bank and demand the IOU in cash. If the
lending bank has only $10 in reserve then they can't pay back the $33.33. So
instead, due to necessity, the bank will only lend out $7.

What you are describing is fractional reserve banking under a SINGLE or
central bank. The United States Federal Reserve does this kind of lending to
commercial banks deliberately to control the money supply. Actually, I'm not
even sure if the federal reserve is required to maintain a reserve ratio (of
federal notes to cash) at all. I think those federal reserve notes are
literally created out of thin air.

