To truly become rich, you need to stop acting like it

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/30/AR2010013000031_pf.html

by simonreed • 16 years ago

276 191 16 years ago

_delirium4• 16 years ago

I buy the general principle that living a high-income/high-expense lifestyle isn't the path to accumulating wealth, but you can rephrase the stats to get different results as well.

For example,

86% of all luxury vehicles are driven by people who are not millionaires

can be rephrased in a way that makes it seem like driving luxury vehicles is a trait of rich:

millionaires are 3x as likely to drive a luxury vehicle as non-millionaires

I wonder if this is also skewed by the "millionaire" cutoff not being as high as popular culture thinks of it being; the millionaires of 1970s films correspond to $5m+ today, and the millionaires of the roaring 20s correspond to $12m+ today. A huge proportion of people with net worths in the low single digits of millions have almost all their money in their retirement plan plus house, and not a particularly large disposable income. Sure, in theory they could get money out of the 401(k) and blow it, but the fact that it's semi-locked-up and a hassle to get out makes it easier to preserve it.

It's possible it generalizes to higher tiers of the rich, but I'm not that sure. Do people with net worths of $10m+ have similarly frugal lifestyles? Or is this mainly a feature of people with net worths in the $1m-3m range?

sosuke2• 16 years ago

I just realized after reading your comment that my family were millionaires when I was in high school. We had about $25k a year income, no new cars, no college fund but we owned two properties that put us over the millionaire mark. I qualified for and ate the 25 cent lunches at school and had hand me down everything.

Have a million dollar net worth isn't necessarily fun or comfortable, my parents divorced, cashed out the houses and nothing is left, good times.

groaner4• 16 years ago

I currently live in a neighborhood of mostly ~$1-million homes. Many of the residents are retired people who originally bought their houses in the 1960s for ~$50k. This probably explains why all the on-sale items at the supermarket get sold out right away, and why there's several thrift stores in town.

For what it's worth, my parents got here with dedicated saving: anywhere between $30k-$100k per year for the last two decades. Our investments have performed miserably, and we didn't own a home going into the housing bubble either. It can be done, but it's a lot of hard work.

angstrom2• 16 years ago

Similar story. Grew up on a dairy farm. Our taxes stated our income as around $13K for a family of 5. Farm & equipment sold for 1.2 million (2001). Government got about $600K in taxes. Another $200K went towards existing loans. $120K towards a 1000sqft 1 story ranch home for my parents to move to. They gifted 20K to each of us kids to avoid further taxes on that. Each of us has done well using it to pay off education, buying land, or reinvesting.

Anyways, they both have medical problems that no insurance would cover in the past decade (part of the reason for selling the farm). Having just turned 60, they're both sitting on about 150-200K to retire on. One can't look at this as anything except a system rigged towards a Sisyphean outcome.

nostromo2• 16 years ago

Can you share the source supporting your second statement? Not because I think it's wrong, I'm curious as to the number of people in that group and how it's calculated.

_delirium4• 16 years ago

The estimates of what % of the U.S. population are millionaires varies, but I was using roughly 5%. So if 95% of the population (non-millionaires) drives 86% of luxury cars, and the remaining 5% drives 14% of luxury cars, that means that the luxury car prevalence ratio among nonmillionaires:millionaires is (86/95):(14/5) = ~1:3.

katovatzschyn• 16 years ago

  Do people with net worths of $10m+ have similarly frugal lifestyles? 
  Or is this mainly a feature of people with net worths in the $1m-3m range?

My parents are with combined income of 7 figures now, 8 figure net worth and they live very frugally. My father drives 1997 Toyota. The wealth is mostly tied in investment and assorted properties. My mother mends socks instead of buying new ones.

Tichy5• 16 years ago

"86% of all luxury vehicles are driven by people who are not millionaires"

Or maybe they are just really good at hiding their money from the tax man/census.

jamiequint4• 16 years ago

"86% of all luxury vehicles are driven by people who are not millionaires."

This is a good example of one of those stats designed to fool people who don't understand statistics.

According to wikipedia there are ~9.3 million millionaire households in the US representing ~7% of US households. [1] Meaning that millionaire households purchase luxury cars at a far higher rate than non-millionaire households which is the opposite of what this article implies.

[1] http://en.m.wikipedia.org/wiki/Millionaire

groaner4• 16 years ago

I don't think I got the same message from the article as you did. The unstated assumption that the article is trying to challenge is that luxury vehicles are the exclusive domain of the rich. Even if the statistic were that 43% of luxury vehicles were purchased by non-millionaires instead of 86%, it would still say a lot about how these purchases are actually distributed.

jamiequint4• 16 years ago

I think the fact that luxury goods have become attainable by non-millionaires says a lot more about the decrease in cost in luxury goods than the irresponsibility of non-millionaires.

The classification of these goods is also confusing. For example, I drive a Lexus IS250 AWD which would be considered a luxury vehicle but actually comes in at the same price point as Toyota 4Runner.

Additionally, the variance in prices between luxury and non-luxury goods is decreasing. A low-end Lexus now costs less than $10k more than a similarly equipped Subaru Outback or Honda Accord, making the difference when it comes to actual affordability pretty small.

danudey• 16 years ago

What I got out of it is that people with a lot of money (i.e. millionaires) tend to get there by being frugal and responsible with their money. Lots of other people, however, tend to buy big flashy items that say 'look at how much money I have', but buy them all on credit and then put all their disposable income into paying off their flashy lifestyle instead of accumulating lasting wealth.

Moral of the story: being rich and acting rich are two different things.

nowarninglabel• 16 years ago

Silly, rich people don't drive cars, their chauffeurs do. Home, jeeves.

lsc4• 16 years ago

Actually, every time I hear about anyone talking about blowing a hundred grand on a car, I think "wow, I could spend $20K on a car and hire a driver for two years!" I mean, nice cars are nice, but a driver? that'd be real luxury. It's also got a better justification; I mean, if you drive a lot, with a driver, those could be billable hours!

I mean, if we are going to talk about ridiculous fantasies of wealth, that's mine.

jonhendry• 16 years ago

I wonder how many are driven by the children of millionaires, who are not millionaires in their own right.

nostromo2• 16 years ago

In a recent TED Talk, Tim Jackson talked about conspicuous consumption. I really liked this quote:

"This is a story about us, people, being persuaded to spend money we don't have, on things we don't need, to create impressions that won't last, on people we don't care about."

limedaring2• 16 years ago

Since I'm creating a wedding startup, the insane amount of money people throw at one event has been in my mind lately...

It's a brutal cycle — the weddings featured in magazines and online are almost always out of the average couples budget, and what those stories do is create the idea of "this is what you should have". Couples then concern themselves with having the best card boxes, the perfect playlist, hand making favors that will be thrown out the next day by the majority of their guests, because this is what they're told is the right way of throwing a wedding. A one day event that people spend way too much money on because they're persuaded to by this industry.

rdtsc3• 16 years ago

This calls for another startup -- the funeral startup.

Weddings and funerals are businesses with huge markups. There is a lot of emotional attachment involved in both, and people will be willing to shell out enormous amounts of money on such events.

prawn3• 16 years ago

I think that's one influence, but a great many people do it to impress their friends. You don't want to be the couple that had that bland, short wedding where there were no hook-ups, the dancefloor didn't go nuts, that one person didn't embarrass themselves, no one kicked on afterwards until 4am and people still weren't talking about it years later, do you?

nick_santillo• 16 years ago

I find that very interesting as well. I'm getting married in May and quickly figured this out... its about the union of two people and what makes them happy, not how many layers the cake is or how expensive the party favors are... we opted for a destination wedding with the closest people to us - instead of 200 people in a giant, expensive, impersonal function hall

gaelian• 16 years ago

My wife is involved in the wedding industry. Both she and I have commented at various times that if people invested less in their wedding day and more in their ongoing relationship after the day, they'd often be better off.

billybob3• 16 years ago

The sad thing is that money problems are a major cause of divorce. Starting out with a bunch of wedding debt is not helpful.

As several folks told my wife and I, "the marriage is more important than the wedding." Our wedding was wonderful, but simple and cheap - I think about $3,000 (with lots of help from friends). But from the start - from dating to pre-marital counseling to continued investment in our relationship - we've been focused on our marriage itself.

jlgbecom2• 16 years ago

I think the best advice I ever got from my parents about weddings is that you have to have really good food. Nobody hardly remembers anything else, even the bride's dress, but if you have incredible food, people will talk about it for a decade. This may be biased, being from a southern Italian family, but I think it's good advice.

seiji• 16 years ago

Very close to the fight club quote: "Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need."

_delirium4• 16 years ago

It's possible it's even older than this, but the earliest mention I can find of that quote has it being attributed to a Reverend T. Garrott Benjamin, Jr. in 1987: http://books.google.com/books?id=2bMDAAAAMBAJ&pg=PA16

cemregr• 16 years ago

I think the first occurrence is in "Design for the Real World"s preface (Victor Papanek, 1971):

... And possibly only one profession is phonier. Advertising design, in persuading people to buy things they don’t need, with money they don’t have, in order to impress others who don’t care, is probably the phoniest field in existence today.

Interesting chain of "inspiration" :)

dgallagher• 16 years ago

Link to Tim Jackson's TED talk (~20 min): http://www.ted.com/talks/tim_jackson_s_economic_reality_chec...

----------

Anti-Consumerism was a main theme in the movie Fight Club. This scene, where Norman describes his "perfect" apartment, will always be memorable to me (partially edited):

Like so many others, I had become a slave to the Ikea nesting instinct. Like a coffee table in the shape of a yin-yang, I had to have it. The Klipsk personal office unit. The Hovetrekke home exerbike. Or the Ohamshab sofa with the Strinne green stripe pattern. Even the Ryslampa wire lamps of environmentally-friendly unbleached paper.

I'd flip through catalogues and wonder "What kind of dining set defines me as a person?"

I had it all. Even the glass dishes with tiny bubbles and imperfections, proof that they were crafted by the honest, hard-working, indigenous peoples of...

...wherever.

Retric3• 16 years ago

If your 26, and saving 20% of your income why not spend the rest however you wish?

At some point spending money now is going to be more fun than spending 10x that much money when your in your late 50's. So, yes plenty of high income people buy nice things, but even if I had invested every cent I had ever revived I would not be a millionaire because I am still to young.

sosuke2• 16 years ago

There is a large gap between being a millionaire, net worth of 1 million dollars or more, a being a billionaire but there is a point in between when you make enough money to be rich and act like it too. Is there a word for that point that everyone can agree on. The millionaire people want to be is the one that makes enough money to be able to spend it without worry, not the millionaire that is still making a $50k yearly salary with a nice house.

groaner4• 16 years ago

BREAKING: People don't actually want to be rich, they want to live like they are "rich" people. Film at 11.

theoneill• 16 years ago

Your comment would be more effective without the parts on either end.

megablast4• 16 years ago

No, people want to live how they actually believe the rich live, from watching too much tv, rather the truth.

thibaut_barrere4• 16 years ago

If like me, you consider that "wealth = how long you could sustain your current lifestyle (same expenses) if your income stopped, today.", then it becomes clear that learning not to show off is really a key to becoming wealthier.

jkahn2• 16 years ago

I think that is a real key. That's what we (my wife and I) try to do.

It can be difficult at times, when we see others flaunting their awesome new stuff. We just remind each other that the default behaviour in society these days is to live beyond your means.

Not that we don't have nice stuff. But we limit it and pay cash.

jacquesm7• 16 years ago

What a world we live in, where 86% of the non-millionaires are apparently able to afford a luxury vehicle. That's fantastic news, that means that money is no longer as important as it used to be for simple stuff like that. Either luxury vehicles have gotten cheaper (what's a luxury vehicle anyway) or banks are stupid enough to give lots of money to people that can't afford to pay the interest (forget about the principal) when it's due.

Any statistic like that can be bent to make it say whatever it is that you want to say.

Before Henry Ford made the first production automobile even the millionaires couldn't drive them and now such luxury items are within reach of most of the gainfully employed people in large parts of the world. That doesn't mean they should stop doing it, what point is there in having money if you can't enjoy it, whatever floats your boat I'm fine with you having it, but there is a catch.

Here in the EU there used to be a save first, spend later mentality. The only thing people would think of borrowing money for were houses, and if you couldn't afford to buy a house then you would be renting one (or if you didn't want to own a house).

Over the years that has changed, with people spending first their own money, and then their banks money on 'conspicuous consumption'. Cars, boats, furniture, package holidays and so on. Little by little the save-first, spend later mentality has been replaced by spend as much as the bank will let you borrow, worry about the consequences later.

Those people that are buying those automobiles they can not afford are being allowed to do so by lending institutions that are pushing cheap credit, no make that ramming, down peoples throats. That's where the real problem lies, given the opportunity to borrow money at initial rates that are designed to lure people in with the nasty consequences written in very small print in gray on slightly-less-gray backgrounds people will fall for it every time.

Banks are the problem, not the people that think they in fact can afford this stuff.

thibaut_barrere4• 16 years ago

At least around me, there is a real shift of mentality toward "save-first" again (maybe a generation thing, I'm 33). People start to see that they become enslaved to their jobs if they don't do that.

ScottBurson• 16 years ago

Banks are the problem, not the people that think they in fact can afford this stuff.

Can't agree. Banks may be taking advantage of the situation, but speaking as one who used to have a bad habit of living beyond my means, people who do that are the problem.

I understand the temptation too well, having succumbed to it. When one first starts to have some money after not having had much, all the things one has wanted to buy for so long seem much more important than saving for the future. I don't know that there's any way around that; people just have to go through it (many of us do, anyway).

If you want to put some further restrictions on the banks, I'm not necessarily opposed to that, but blaming it all on them is not right.

gaius3• 16 years ago

Banks are the problem, not the people that think they in fact can afford this stuff.

That makes as much sense as saying carmakers are responsible for auto accidents, not people who think they're better drivers than they are.

jacquesm7• 16 years ago

Cars don't come with hidden costs in the form of overdraft charges, late payment fees and foreclosure and the seizure of your assets, if you pay cash for them.

There is nothing wrong with cars and the personal responsibilities that go with them, financing is something that most people that are eligible for do not understand sufficiently to evaluate the risk.

Of course the standard capitalist answer is 'sucks to be you, should should have studied harder in school', but the fact is that this out-of-control lending is causing a large amount of trouble.

People should not by default be allowed to borrow this much money for simple reasons such as financial health of the nation and (in)solvency of the banks.

That way, if you can't afford a fancy car you won't be buying it.

Cheap credit has become a way to push the economy forward on money that hasn't been rightfully earned yet, that can't go on forever before it will come back to haunt us, the mortgage crisis is one nice example of what happens when the financial system is rotten. I won't be surprised if there will be another chapter to this based on the amount of credit card debt there and the number of people that find that they are no longer in a position to fulfill their obligations.

techiferous• 16 years ago

"86% of all luxury vehicles are driven by people who are not millionaires."

is not the same thing as

"86% of the non-millionaires are apparently able to afford a luxury vehicle."

jacquesm7• 16 years ago

Yep, you're right. That doesn't change the rest of it though.

btilly2• 16 years ago

Sorry, that's a common misconception about Henry Ford. See http://news.ycombinator.com/item?id=1757576 for a bunch of interesting factoids about early cars and how Ford was not first.

jacquesm7• 16 years ago

The assembly line concept was as far as I know applied to the automobile first by Ford, if you wish to dispute that I'm fine with it but that's what just about all the sources I've got say about it.

http://en.wikipedia.org/wiki/Assembly_line

Whether or not his was the very first assembly line ever or whether it was the first mass produced automobile is of no consequence, then you can replace Ford with whoever was the first in the paragraph above to satisfy your needs.

Another thing that Ford pioneered was the living wage for his assembly line workers, which created a much larger market for his products. That probably was the bigger accomplishment of the two.

antareus3• 16 years ago

Yes, but I still think there's a problem with conspicuous consumption. What, exactly, does it mean when someone buys a luxury car? It certainly doesn't reflect on their character, or what they've contributed to society. All it does is signal that they have enough money to spend on an overly expensive car. And what, exactly, does that mean?

All it means is they have money. That's it.

Or, at least, that's what it should mean. Unfortunately, people still talk about cars as if they actually matter, when, in reality, they're just means to an end.

(Yes, I know people can enjoy cars, and they should. My gripe is with the perception of luxury cars as being an inevitable upgrade from other cars for reasons that seem steeped in consumerism.)

cynicalkane4• 16 years ago

This is such a strange and pernicious thing to say. Marxist-style class anger combined with blaming the enabler combined with a complete lack of understanding of the numbers and the character of the various families of loans in the US. Also, it's all poorly written.

So how are you wrong? Let me count the ways. You seem to blame a facet of capitalism (banks) for conspicuous consumption. One, all capital is handled by people. Two, all transactions are voluntary. Three, long term supply equals long term demand--a borrower does not change the allocation of goods simply by borrowing, and does especially not changing the temporal allocation thereof, unless he has a time machine... so you're going to need to change your mental model of how debt and credit work if you want it to make any sense. If banks stopped lending and borrowing, do the big vacation packages and luxury cars just go poof and disappear? How about all the money that was invested before, but now no longer is?

jacquesm7• 16 years ago

Sorry to disappoint you but Marx doesn't enter in to it. I used to work for a bank and I've seen first hand what goes in to 'product development' there and how much effort is made to hide the cost of lending. To the point where legislators stepped in and outlawed certain products outright and made them disclose the real costs of lending in clear and unambiguous ways.

Proleps• 16 years ago

I agree that a save-first, spend later mentality is better. If you have a save-first, spend later mentality, everything you buy will be cheaper. If you don't have that mentality, the bank gets money for almost every luxury product you buy.

But I don't think it is just the fault of the banks. I think the biggest problem is that people don't realize how much borrowing money really costs. They don't add up the total interest they will have pay over their loan, they just look if they can afford the monthly payment. If you don't borrow money you are able to buy a better tv, a better car or more luxury goods in general.

ziadbc• 16 years ago

Money is a commodity like anything else. Talking about wealth in the context of consumption means you've already lost. Better to think about how to produce the most than how to consume the least.

harshaw• 16 years ago

My parents are fiscally conservative "millionaires". They are 70 and 71 and may never need to tap their investments for operating cash (they can live off of pension + social security + misc income). My pet peeve is that I hope they spend a bit of money on themselves before it is too late.

I used to think their "conservative" consumption habits were a generational thing. However, they recently had a college friend who sold their paid off house, bought a very expensive townhouse in DC with their equity plus a giant mortgage (why does a bank give a 30 year mortgage to someone who is 70?), and then proceeded to loose the new house plus all of their equity because they had unexpected medical bills for one of their adult children.

avar• 16 years ago

> Why does a bank give a 30 year mortgage to someone who is 70?

Presumably they're counting on the mortgage being paid off by the estate of your fiscally conservative parents once they die.

Even if that isn't the case they can claim the townhouse from the estate and try to sell it to someone else.

nezumi• 16 years ago

What's the point of having it if you don't enjoy it? This article doesn't seem to do justice to those who:

- have enough savings on hand to cover a few months' living expenses - have a sensibly invested pension plan - spend their surplus cash on things they enjoy

I'm sure the book is simply using the popular, but arbitrary and out-dated 'millionaire' tag as a hook for sound financial advice. But if your goal in life is just to be a 'millionaire', you're missing the point.

jacquesm7• 16 years ago

That's very true, those people are living within their means, not outside of it, and there are plenty of them.

nutjob123• 16 years ago

A penny saved is a penny earned - ted turner

bambax• 16 years ago

But... why bother being a millionaire if you can just pretend?

The author of this article seems to assume that it's better to actually be a millionaire, even if it means living like the poor. I would think it's better to drive a luxury car (whatever that is) and drink expensive wine, even if you can't afford it, than the other way around.

It's "bad" to pretend, only if it doesn't end well: if you have to repay what you borrowed, and can't -- but if you die before you're bankrupt you win!

Now, none of this means much; it doesn't matter to live like a millionaire, or to be or not to be a millionaire, etc. What matters is peace of mind, happiness, fulfillment.

A subject for another article maybe? Although probably not in the "Color of Money" column.

megablast4• 16 years ago

Why? Do you really believe that driving a fancy car and buying expensive wine actually makes you happier? This is the illusion.

It seems better to me to be able to buy a fancy car and know that you don't want one, than it is to live in a fantasy world were buying stuff makes you happy.

timcederman2• 16 years ago

I certainly derive a lot of pleasure out of driving a nice car and drinking a good wine.

gyardley• 16 years ago

Buying expensive wine - no, that doesn't make me happy. Drinking high-quality wine, which sometimes happens to be expensive - absolutely. I enjoy that very much.

Claiming that my enjoyment of high-quality wine is an illusion because you can't see a difference is just arrogance. The same goes for the consumption of any other luxury good you might not have a taste for yourself.

dkarl• 16 years ago

Few people just want to have money for no reason. Most people want to have money because of what they want to spend it on; their outrageous expenses are their passion in life and their reason for wanting money. It isn't helpful advice to say, "Don't spend money on Manolo Blahniks, and then you'll have plenty of money," if your whole reason for wanting money is so you can wear Monolo Blahniks.

In other words, it sounds like a sermon on loving money for itself instead of loving it for what it can buy you. Or, if you read it charitably, it's a sermon on loving security more and short-term pleasures less. As much as I sneer at expensive fashion and gravitate toward the <$10 wine bin at the grocery store, this article strikes me as nothing but unhelpful moralizing. Yeah. I get it. If I don't spend money, I'll have more. Yeah, I really, really get that looking good and living it up is a vacuous pastime -- I'm totally with you on this one -- but it's the most common passion on the planet, and it's a cop out to tell people to stop enjoying the one aspect of life that gives them the most pleasure and call it financial advice.

groaner4• 16 years ago

You might call it unhelpful moralizing, but I would consider it helpful if it alerted people to the pretentious nature of their social signaling and got them back on track financially. Deferred gratification is an important lesson to learn.

bbuffone• 16 years ago

I don't know about this. You really aren't enlightening people by saying stop spending money and you will have more money. People aren't stupid. This is the same kind of story as people are fat because they don't know what kind of foods to eat. It's just not true. Everyone know what kind of food to eat, they just don't.

I once went to a nutrionist and she ask what I eat for breakfast; I told her and she said "you know how many calories were in that bagel?" and I told her. She looked puzzled, then I told her "I wasn't fat because I was stupid"

Behaviors with food and even money are learned early on and until people choose to unlearn them; they will be fat and poor.

megablast4• 16 years ago

You don't have to spend money straight away, you can use money to make your life comfortable, or buy crap. Money does not have a time limit on it.

It is not just about spending less, it is about getting people to realize that rich people do not do show of there riches buy buying crap. (86% of luxury cars are owned by people with less than <$1m). So maybe you should not buy that crap either?

It is only a recent event that we have become such a consumer driven society, just after WW2 when we had all this extra factory producing capabilities (due to the war), and the advertising industry really kicked it up a notch.

loewenskind7• 16 years ago

I agree with most everything you said, but money does have a time limit in effect. If you hold cash it will become worth less over time. If you invest it your investment may go down.

Some people are buying nothing but garbage (there are whole markets based on selling garbage), but I think right now there are also people trying to move the money they have right now into some other source they trust more. If you try to build a house in Switzerland right now be prepared to wait. A lot of people have emptied their pensions to build houses (they cost a lot in Switzerland) since the crisis hit.

zootar• 16 years ago

Most advocates of saving that I’ve seen in mainstream media are interested foremost in personal finance, not anti-consumerism. To them, the problem isn't that people enjoy spending money. On the contrary, they want to help people spend their money in a way that maximizes the amount of enjoyment derived. Writers like Stanley know that spending a lot of money early in your working life is rarely a way to maximize enjoyment.

What a lot of people don’t realise is that “short-term pleasures” cost a lot more when you’re older. In your 20s and 30s, you don’t need much more than a computer and a bicycle to be perfectly content. You have lots of energy to work, study, take cheap outdoorsy vacations, and cut your own lawn. But at some point, you start to find those things significantly more wearisome. That’s when it’s really nice to have the financial freedom to quit your job, eat in good restaurants, and outsource all of your home maintenance. By far the majority of people won’t achieve that level of financial freedom unless they defer a large proportion of their income from the first half of their career to the second half and to retirement.

Evidently, many people must overcome significant psychological obstacles to save their money. That’s why there are so many personal finance books trying to explain the same idea in different ways. Some emphasize the time value of money. Others, how expenses tend to increase over one’s lifetime. Stanley tries to reduce the urge to spend by showing that many big spenders are not actually rich or financially secure. The success of “The Millionaire Next Door” seems to be evidence that a lot of people find this approach helpful.

Andrew_Quentin2• 16 years ago

or very hyped by the media with an agenda.

Tichy5• 16 years ago

"it's a cop out to tell people to stop enjoying the one aspect of life that gives them the most pleasure and call it financial advice"

If the same people then don't end up complaining that they have no money left, fine.

billybob3• 16 years ago

OK, but I think the point is that 1) status symbols may actually be debt symbols, which makes them less attractive, and 2) people who can buy fancy stuff often don't, which demonstrates their belief (maybe true) that it's not worth it.

Secondly, there's a lot to be said for peace of mind. Who is richer: someone who lives in a fancy house and constantly worries about losing it, or someone who lives simply, has no debt, has saving, and can basically do whatever they want?

_pius• 16 years ago

Who is richer: someone who lives in a fancy house and constantly worries about losing it, or someone who lives simply, has no debt, has saving, and can basically do whatever they want?

Wealth is the extent to which you can let things alone and still be comfortable.

psawaya• 16 years ago

   What do we often tell a child who expresses an interest in teaching? "You won't 
   get rich as a teacher."

   Yet, there are more than 350,000 millionaire educators, working or retired
   teachers or professors, according to Stanley's research.

I think it's a little misleading to include college professors in the same group as public school teachers here.

tjr• 16 years ago

True, but it's also a little misleading to make the unqualified claim that "you won't get rich as a teacher".

ciupicri• 16 years ago

I would also bet that those teachers/professors are working on some lucrative (research) projects or are members of a board of directors, e.g. John L. Hennessy at Google[1].

[1] http://www.google.com/corporate/execs.html#johnhennessy

samg2• 16 years ago

Hennessy actually got rich founding MIPS Computer Systems Inc, years before Google.

http://en.wikipedia.org/wiki/MIPS_Computer_Systems_Inc.

drbaskin• 16 years ago

It's also not really fair to include Hennessy on this list -- he is the president of Stanford, after all. That is a very different job from professor, and pays quite well. According to his wikipedia page, "As Stanford's president, Hennessy earns an annual salary of $566,581."

sethg• 16 years ago

I also wondered how many of those millionaire educators are widows of men who had more lucrative professions.

mncaudill• 16 years ago

Or widowers of women...

blahedo• 16 years ago

Yeah, the public school teachers make a lot more money than the college professors.

sliverstorm• 16 years ago

> $16: what most millionaires pay for a haircut (including tip)

I wish I knew where to find a decent haircut for $16, including tip. Or are they just so rich and powerful they don't have a use for a decent haircut, and elect for the bargain-sub-basement chop?

EDIT: I should characterize this statement a bit. My hair is very thick, and has a mind of it's own. It has been my experience, over many many years, that stylists at low-end shops repeatedly

1) fail to blend my hair well, making it look so ragged it looks like a 5yo cut it with craft safety scissors.

2) fail to understand my hair. It won't go the way you want it to go without GLUE, so the stylist has to work WITH my hair.

Mid-range shops usually have barbers who are up to snuff. Costs me $20-25 usually.

thibaut_barrere4• 16 years ago

What about relocating to a place where 16$ is a decent price for a haircut ? That's what I did roughly, and the haircut seems to be welcomed by my wife, too :)

patrickaljord2• 16 years ago

Haircut is $2.5 here :D

lanstein• 16 years ago

In SF, Lee Hong in the Mission (http://www.yelp.com/biz/lee-hong-hair-styling-san-francisco), $12 + tip.

Lily has been there almost 30 years.

megablast4• 16 years ago

Have you seen donald trump?

But seriously, what is a decent haircut? Unless you are getting something fancy, short back and sides should suit most people.

nicholasjbs• 16 years ago

In Mountain View, Paul at P's Barbershop gives a great cut for $9 (plus tip): http://www.yelp.com/biz/ps-barber-shop-mountain-view

In New York, Encore is only $11 (plus tip): http://www.yelp.com/biz/encore-beauty-salon-new-york

philwelch2• 16 years ago

I wonder how many millionaires just go over their head with the number 2 guard every couple of months.

On the other end of the spectrum, if you never cut your hair it stops growing somewhere around mid-back and looks fantastic if you invest in conditioner. Decent shampoo and conditioner is pretty cost-effective if you do this.

jkahn2• 16 years ago

What they fail to mention in the article is that 75% of millionaires are bald.

(Yes, that stat is made up...)

snorkel• 16 years ago

I wish I lived in one of those places where you can buy a decent house for $300k. In this area $300k = rundown bungalow in economic development zone.

owkaye2• 16 years ago

Wishing won't do it. If you REALLY want to live in a place like that just move.

petercooper• 16 years ago

The gist of this article is a paradox. Rich people don't act like rich people? Surely, then, you should act like rich people if rich people are spending less, etc.

spaghetti• 16 years ago

I realized something this morning: when I spend almost all of my life doing something I don't want to do (working a full-time job... Leave the house at 7 am and get home around 6:30 pm) recreational consumption is almost completely full-filling. When I have as much time as I want to work on stuff I like and am passionate about recreational consumption does almost nothing for me.

alister• 16 years ago

I kept reading that you were "passionate about recreational consumption", but then the rest of the sentence didn't make any sense.

A single comma makes a big difference to understanding what you meant:

"When I have as much time as I want to work on stuff I like and am passionate about, recreational consumption does almost nothing for me."

mkramlich2• 16 years ago

I've had a similar experience. When I've had work lifestyles where I had to get up early in the morning, long commute, bureaucrapritude job, long commute back, get back late, but every 2 weeks get a huge paycheck, I'd end up spending way too much on discretionary consumption & toys to make me "happy". When I've had more happiness-oriented work lifestyle phases, with no commute, no bureaucrapritude, but smaller or more irregular paychecks and less "security" I've ended up spending way less money on unimportant stuff, saved way more, and was way more happy in a substantive sense.

retroafroman• 16 years ago

I'm surprised that no one has cited that there was already a book just like this called "The Millionaire Next Door" which was all about pointing out how the millionaires don't act like we expect "rich" people to. It originally came out in 1998. This seems like a rehash.

jbr• 16 years ago

There's a lot of causal ambiguity in this article, particularly due to the fact that no small percent of millionaires likely come into wealth by way of inheritance or marriage. For example, the author cites the presence of 350k millionaire teachers as contradicting the statement "you won't get rich as a teacher." "get rich" implies causality, but "are rich" (the cited fact) does not.

But yeah, conspicuous consumption is tacky.

scottkrager• 16 years ago

Having read a few of the books discussed in the article, the author makes a point of showing how actually a small % of millionaires came into their wealth from an inheritance. He states that 80% are first-generation affluant.

http://www.nytimes.com/books/first/s/stanley-millionaire.htm...

sdizdar• 16 years ago

I wonder what people will do with their money when they die? Spend all that money in after life?

As my father says: money is irrelevant - think about what you are going to think about your life on dead bed. And the other important saying is: don't think too much about how you spend your money think about how to create wealth.

dbrannan• 16 years ago

Life passes by us faster than I care to acknowledge, and while saving your money is important you also need to live. The key, I feel, is finding a happy balance.

brainproxy• 16 years ago

Being rich is an enticing prospect. When I consider it, I often imagine it as "the freedom to do/buy/go what/where you want, without delay".

But then the following warning comes to mind and I'm reminded to carefully scope the bounds and purposes of my worldly ambitions:

"Blessed are you poor, for yours is the kingdom of God. Blessed are you that hunger now, for you shall be satisfied ... But woe to you that are rich, for you have received your consolation. Woe to you that are full now, for you shall hunger." (cf. Luke 6:20,21,24,25)

ruang• 16 years ago

It's not about spending less, it's about spending your money on the correct things.

People need to spend less on status/signaling goods, and more on creating real value. Spend less on investing/speculating on things you have no control over.

To paraphrase Tim Ferriss: Wealth is what is left over when all of your money and material goods are taken away from you.

thewordpainter• 16 years ago

reminds me of one of my favorite messages from guy kawasaki: if you make meaning, you'll often make money.

the ones who end up the wealthiest often don't consider money as their driving factor...so are they that likely to drastically change their habits that got them there?

hasenj2• 16 years ago

The whole point of accumulating money is to spend it. Sure, you can accumulate more if you don't spend (I actually sorta doubt it, but let's assume it for argument's sake).

Then, if you live by "the less you spend, the more money you'll have" you'll basically end up having a "big number" on your bank account, but nothing of what you really want.

I'd rather have a super fast laptop and a nice clean apartment, and only $8000 in my account[1], than a crappy laptop and a crappy apartment and $50,000 in my bank account.

[1] assuming I have a steady income, and/or can generate enough revenue so that I can keep getting nice things without draining my bank account.

I said that I doubt the correctness of the logic behind "the less you spend the more you'll have".

I think that to generate wealth, you need to spend some amount of investment upfront, and if you're afraid to "pay" for things, (because it reduces the "number" in your account) then it follows that you don't have the courage to invest in anything, and therefore you are not likely to become rich.

Bostwick• 16 years ago

<i>The whole point of accumulating money is to spend it. Sure, you can accumulate more if you don't spend (I actually sorta doubt it, but let's assume it for argument's sake).</i>

I disagree. Once you've learned the basics of investing or stock trading, accumulating capital becomes about increasing your income.

Let's look at your laptop & apartment example.

Case 1: Super fast laptop & nice clean apartment. I can max out a Macbook Pro for about three grand, and a nice 2br apartment in Boston will cost about $3k per month in rent. With your $8,000 bank account, you'll need to earn at least $3,000 per month from your job just to pay for your apartment. More to save up and purchase that laptop, and even more still if you want to afford to eat.

Case 2: Crappy laptop and crappy apartment with $50k. A crappy laptop is about $500 for a really nice netbook, and a cheap apartment in Boston is about $600 per month (for those in Boston, think JP and Forest Hills). Let's invest that $50k in an ETF called "PFF", which currently costs $40 per share and pays a monthly dividend of, on average, .20c per share. That gives you 1250 shares of PFF, for an average monthly income of $250. With $50k, you can buy a $1000 laptop in four months, or pay for almost half your monthly rent.

On a forum where people are constantly trying to generate passive income through webapps and side businesses, I'm surprised people continuously overlook the passive income power of large amounts of capital. $50k can buy you $250 a month for life.

hasenj2• 16 years ago

You didn't understand my point.

In case 2, the hypothetical person who has all this money but is hesitant to spend any portion of it on a decent laptop is probably scared of the concept of the "number" in his bank account dropping. This hypothetical person would not invest in stock.

If you invest in stock, then you sorta already agree with me. I mean, you are spending your money, and that's my whole point: if you're afraid to spend money then you're not likely to become rich.

And in Case 1, the hypothetical person already has a means of generating enough revenue so that he can continue to spend/invest without going broke.

rbxbx• 16 years ago

I find it interesting there's no mention of luxuries such as freedom and travel. IE: Paying more to rent things than own them, touring various cities, flying out to see friends for a week. Things that aren't easily placed into rampant consumerism, yet still require something of a luxury budget, and can enrich our lives to no end. (Also food, for that matter)

Hm.

nradov• 16 years ago

What is a "luxury" vehicle? A certified used Mercedes-Benz C-class can be had for $20K. A new Chevrolet Tahoe lists at $37K.

awongh• 16 years ago

idk, I think this article just makes me realize how little a million dollars buys now-a-days.

I think the author is setting the bar way too low; There's certainly a psychological appeal to having a specific amount of money with 6 zeros at the end, but let's face it, to live out our collective cultural conception of what it means to be wealthy takes a lot more than just 1 million dollars- I can't really say how much it is today. Probably even more than tens of millions, more like reaching towards 9 figures, if not mid 8 figures. I think that really invalidates the author's point about supposedly wealthy people being frugal, buying habits of non-millionaires aside....

bradshaw1965• 16 years ago

The whole "Millionaire Next Door" franchise is a massive example of selection bias. Frugality is not causality for millionaire status. There are plenty of valid reasons to be anti-consumer and frugal, but it might be a less then ideal path to riches.

arsh• 16 years ago

I don't believe that "Nearly four in 10 millionaires buy wine that costs about $10". That does not look how our world works...

laut• 16 years ago

It doesn't have to be very expensive to drive a luxury car. Buy a used one for under $10k. You don't have to be a millionaire to do that.

Here's a BMW 5 series for less than $6k. http://sfbay.craigslist.org/eby/ctd/1997867593.html Or an S class Mercedes for under $10k. http://sfbay.craigslist.org/nby/cto/1994579346.html

coliveira• 16 years ago

I think the biggest trouble with this kind of idea is to think that you can get rich just by saving. It is true that you need to save in order to have lots of money, but producing value is what makes you rich.

If you save money during your whole life you will be millionaire when you're 60. By then, 1 million will be more like 100k, and you be still unsure about your future.

It is far better to think about creating value using equity on your own business or real estate, for example.

jlgbecom2• 16 years ago

It's articles like these and the responses they engender that I'm very glad I grew up working class, and lived my 20's punk rock. I can appreciate the finer things in life, but I've also got the skills to survive a near-apocalypse.

Getting rich has never been my motivator for being involved in technology, and to be honest, I'd probably be happier if the industry were de-funded (hopefully in favor of something like biotech or alternative energies, instead of url shorteners like bit.ly), and it cut the fat out, of all the people who prefer schmoozing to hacking.

known3• 16 years ago

Real millionaires prefer to invest rather than spend their money.

known3• 16 years ago

I believe millionaires constantly think in terms of http://en.wikipedia.org/wiki/Opportunity_cost while spending a dollar.

known3• 16 years ago

This attitude is prevalent among white collar workers. And almost nil among farming community.

To truly become rich, you need to stop acting like it

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