Why Being Cheap Does Not Mean You Are Broke
(It Can Actually Mean The Opposite)
Written by Rizwan Memon, Mar 4, 2017
Warren Buffett is worth more than $70 billion, but he often doesn’t act like it — and neither do many other affluent individuals.
As a long-time trader and investor in the financial markets, it is only a given that I see Warren Buffet, the second richest man in the world (he keeps swapping first and second plate with his friend Bill gates) and an investment icon as an inspiration. Beyond his astounding track record in the markets, his wise business decisions and his extraordinary philanthropic efforts, he is known to be a very down to earth and humble individual.
I was watching “Becoming Warren Buffet”, a documentary that aired on HBO (highly recommend watching it) and was astounded when I saw a part in the film where he grabs breakfast from a McDonald’s drive-through and goes on to explain how he asks his wife each morning to set out $2.61, $2.95 or $3.17, which ultimately determines which breakfast he gets. “When I’m not feeling quite so prosperous, I might go with the $2.61, which is two sausage patties, and then I put them together and pour myself a Coke,” he says in the film.
Granted the scenario in the film may seem overkill, but the key takeaway is how disciplined and down-to-earth he is. He isn’t the only wealthy person behaving like this. After all rich people do not get rich by spending it all, they know better than anyone that by being watchful and restraint spenders they can achieve a lifestyle several notches higher in the income ladder.
There are myriad reasons that many affluent people are, well, cheap. Some of them are self-made and have spent many years being thrifty before they were wealthy. Others fear that their wealth isn’t permanent, so they don’t spend a lot of their money. This is particularly true of the top 10% of the income spectrum, according to the 2015 Survey of Affluence and Wealth by research and polling firm YouGov. “The resourcefulness, financial independence and spending constraints that arose from the fear of the recession are now enduring attitudes of family financial management,” the study authors write.
During the deep recession back in 2009, like many Americans, fear drove them to step up their savings, cut spending, and retool their household budgets and to become more resourceful and independent when evaluating and making significant purchases. Over time, panic has given way to confidently applying these practices to their purchasing habits.
Yet amongst people, there is sadly still a stigma that being cheap, thrifty, frugal and having restraint is seen as being financially unstable, or in other words broke. Maybe I’m old fashioned but I see being calculative and keeping yourself in check when it comes to much you spend as being financially mature and informed.
Now you may be thinking about someone you know who is wealthy and spends a ton on luxury items (cars, jewelry etc.) and of course you wouldn’t be wrong, there are plenty of rich people that to do end up spending a ton. In 2015 alone, the affluent upped their spending by 6.6% on luxury goods — largely driven by increased spending on travel, dining out, home entertainment and cars, YouGov found.
Remember, we are talking about the upper echelon of high-income earners who not only make a significant amount every year but are also considered wealthy due to an accumulation of assets. These ultra-rich individuals are in fact more likely to be careful when it comes to their spending habits than those who make significantly less than them (those earning $100,000 to $150,000 a year) and whom still can’t seem to save enough and build wealth. Here are five stats that prove that:
They punt around town in a Ford
Sure, there are plenty of rich Americans that have exotic supercars from prominent auto manufacturers like Ferrari, Lamborghini etc. as their weekend car and drive BMWs, Mercedes-Benz’s, Lexus’, and Audi’s as their daily drivers, but a large percentage of them actually drive far more modest cars. Data released in August 2016 by car site Edmunds.com found that the most popular car among those with incomes above $250,000 a year was the Ford F-series trucks, followed by the Jeep Grand Cherokee and the Jeep Wrangler; the Lexus RX and BMW X5 were only the No. 4 and No. 5 on the list. “There will always be an interest in and a market for high-end exotic vehicles,” says Edmunds.com executive director of industry analyst Jessica Caldwell. “But, overall, most of the wealthiest Americans look for their vehicles to perform the same kind of functional tasks that everyone else does.”
Other studies show a similar penchant for modest cars among the wealthy: Among the top 10 most popular vehicles in America’s wealthiest neighborhoods, half are non-luxury vehicles, an analysis of car-buying habits of residents of the 10 wealthiest zip codes in America by TrueCar.com found. These include the Honda Accord, Toyota Camry, Honda CR-V, Volkswagen Jetta and Toyota Prius. Who would have thought?
You’ll find them in the aisles of Wal-Mart...
Discount department stores like Wal-Mart, Target etc. have gotten a bad rep for some of the clientele that shop there, but did you know that when a survey of 1,200 high net worth individuals (worth $5 million and more) was conducted on where they predominantly shop, on average 33% of them said they shop at Walmart, 50% said they shop at Costco and the remainder said they shop at other discount stores like Target.
…. And dropping coin at the dollar store
Many dollar store shoppers make upwards of 6-figures a year or more, data released by research firm NPD Group found last July. Estimates show that approximately 25% of dollar store sales are generated and made from high net worth individuals. That is quite the contrast from what social media and intimate gatherings would believe, where everyone thinks rich folks exclusively shop at luxury branded stores like Gucci, Hermes, Prada, Burberry etc.
They clip a lot of coupons
Millionaire actress Kristen Bell says she’s an avid couponer. Her favorite: the Bed Bath and Beyond Coupon. And she’s not the only rich person to do so. Studies show people making over $100,000 were actually more likely than those making less to use coupons. The key here is the mindset as they don’t use coupons because of financial constraints but because they perceive coupons as saving them money.
They are FREE
I have been fortunate to meet both sides of the camp when it comes to wealthy individuals; those are flashy and frivolous with their money and those that are conservative in their spending and in showing their wealth. Without generalizing, during my experiences I can discernibly say that those who prefer to be low-key and under the radar often come from humble beginnings and thus are more modest and easier to get along with. Again, this is my personal experience. Now am I saying that if you buy an expensive luxury item or that supercar you’ve always wanted, then that you are somehow in the wrong and pretentious? Absolutely not. We only have one life and we all want to pursue our passions and attain certain things. My general rule is that so long as you can afford what you are willing to purchase, will not be overextending yourself financially, taking on excessive debt, are not harming or hurting someone in the process, and have the right intentions, then there isn’t anything inherently wrong with it (balance is key). One of the most important aspects of being able to get what you want is to be grateful and not pretentious because of your possessions. With that said, the well-off will agree with me when I say there is a certain beauty in knowing that you can easily attain the expensive and outlandish materialistic things if you so please, but you have the self-awareness and self-control to know that your desires and possessions do not make you who you are nor do they control you. To me, that is true power and freedom!
About the Author,
Rizwan Memon is the founder and president of Riz International. Rizwan started the firm with the goal of mentoring and teaching individuals how to trade, invest and grow their wealth in the financial markets. Prior to starting the firm, he spent the majority if his life operating multiple businesses from a very young age. He also has first-hand experience working at one of the largest banks in the world as a Financial and Investment Advisor. He currently spends most of his time managing a 7-figure investment portfolio, overseeing his other business ventures and mentoring students.