How Rich People Think – Why Penny Pinch When You Don’t Have To?

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Ever wonder where the penny-pinching millionaire trope came from? Or how rich people think about frugality when they don’t have to be frugal?

“Let me get this straight. You can live on $300 a month with a million dollars. Why don’t you sell your houses and buy a family home in some place not expensive and just hang it all up?”

In her usual guileless way, Soap (a good friend of mine) asked me something I’ve wondered myself before. Why are there wealthy people who are still frugal?

Soap continues, “It admirable but it doesn’t make sense to me. I know if I had that money, I would go shopping and I wouldn’t be rich for long but you ARE frugal. We both know you’re not going to go crazy one day and spend $3,000 on a dinner plate so why work knowing you can swing it lean?
And the other thing that doesn’t make sense, since Hippo is still working and making good money, do you even have to be frugal?”

Who exactly are those that do not need frugality but still so stubbornly choose to practice frugality?

Good ol’ Billionaires Warren Buffett, Bill Gates, and Chuck Feeney – who is this girl’s frugal hero.

(By the way, if you think those rich frugal people are rarities…you should probably read and meet some of the commenters below this post.)

So why are millionaires still so frugal? Why do they continue working, saving, and investing even after their FI date?

The usual reply is something I consider…a little snarky and convenient guesses than anything else. Most of the time, the answer other people give is one of these three:

#1 “The rich understand it’s not how much you earn, it’s what you save.”

Not a great answer. I’m not talking about what anyone thinks poor people don’t know vs the rich knows.

Personal finance is not a hard concept. You earn money, spend less than what you earn, save what you don’t spend and you invest it in something less stupid than your brother-in-law’s new restaurant.

Money is a hush-hush topic because it’s so easy to understand that if more people knew about the basic principles, no one would be dumb enough to fund the immediate economy at 16% APR unless they were genuinely destitute. Everyone would be penny pinchers and our market would spiral into a depression* until new baselines are set again. *That theory depends on which economist you ask but yeah.

#2 “They don’t go to Starbucks and drop 5 bucks on a cup of joe every day. They don’t buy expensive cars and swap them in for an upgrade once every few years.”

That answer is unsatisfactory too. Funny, this was one of the top answers as to why millionaires and billionaires are frugal even though it doesn’t really answer the question of why.

Another thing, getting coffee every day is probably not going to prevent you from becoming a millionaire. You would have to blow $25,000 a year on liquefied cocoa beans for 30 years in order for that to happen.

I’m literally still wondering which millionaire has gone bankrupt from a latte habit. I also can’t wait to meet the millionaire whose monthly $2,000 grocery bill for 2 leads to their bankruptcy hearing right around the corner. I don’t see that happening ever. Even just 1 million dollars is still a lot of money to blow on coffee and cars.

If someone asked us (and yes, I consider us frugal baby millionaires) why we’re still frugal I would go into a long answer that gets more and more uncomfortable as it goes because they’re inviting themselves into my life narrative.

Most of the time, it’s just things I do. Why do I choose the economy class when we could afford first class cabin plane tickets without much of a $ dent at the end of the day? But we don’t! What is the resistance of buying name brand ketchup if you already have more than enough money to buy all the name brand products you want without compromise?

Related: How We Keep Our Grocery Bills Low

#3 “They have to be frugal or they wouldn’t be millionaires.”

This is what my husband said. I can’t say I completely agree with this answer as there are some high earners who could have pulled through with a millionaire status even if they had a comfortable, cushy middle-class lifestyle.

Earnings can outpace frugality because earnings do not limit you to a set sandbox of numbers.

For example, we know our lowest cost of living is baseline around $300. Typically, that number is closer to $1,000 per month. We can save $700 by living with extreme frugality. That may not be anything to sneeze at but there’s nothing left to cut. The gravy train stops here. But if an internal transfer and promotion netted an extra $2,000 a month and opened up career advancing pathways then you’re better off optimizing for a higher income than being extremely frugal.

This is why *I* think millionaires are frugal long past the date of FI… 

1. Habits are hard to change

You and I both know that our frugal habits will be lifelong even post FI. If you guys are reading our family income reports and expecting things to change much in a decade in terms of spending…good luck. It is not happening!

I’ve even got a piece of science as proof. A young 20-something-year-old brain is still in the phrases of a young adult’s development but the choices and actions we make are strengthening the neuro-connections and that is solidifying our behavior and stabilizing our personality and future identity (compare to our teenage brain) for the long-term. These neuro pathways being exercised constantly will make most of us stubborn creatures of habit. If you’re a price comparison shopper like I am, it would be a hard fight to not comparison shop.

Related: At What Age Does Being Broke Stop Being Cute?

2. Frugality as a past time

Some people think skiing is fun, some people love a good 5,000 piece puzzle game. I know a lot of millionaires who think it’s simply fun to find a bang for your buck in a sea of things for sale. I know when I hit the grocery store, I’m in game mode, I have a target budget to keep under and with self-limitations, I am allowing my creativity to flow.

“Frugality includes all the other virtues.”

I know to some it may sound crazy but limitations bring a sense of challenge, meaning, and creativity. I am a firm believer that living a simple frugal life brings you closer to thy real self and real happiness.

Related: 3 Signs when Frugality isn’t Worth It & What to Do

3. Giving back means more than anything else

9 erikson stages

Not everyone craves a 5000 square foot mansion (too much cleaning!) The natural progression of being according to Erikson Psychosocial life stages, GIVING is the favorable stage of a middle age and elder being. A portion of the wealthy who have already reached financial freedom will come to the last stage and realize there is nothing that money could possibly do more for them – so they generously give it away and live without lavish abandonment for a selfish lifestyle.

4. Influences of parents/poverty

Many wealthy frugal people have quoted how seeing their parents lived through the Great Depression in the 1930s changed how they viewed money and spent money. Even though my Chinese family was nowhere near the United States in the ’30s, I can understand growing up with that feeling of scarcity. There are people who have to work like dogs day in and day out to keep food on the table and bills paid on time today. I knew that about my parents because they openly complained about it constantly as to motivate me to do better in school. Seeing them work hard to get absolutely nowhere but kicked down was not pleasant and affected my perception of spending money.

Related: 11 Perks Of Growing Up Poor (I Can’t Tell If I Sound Crazy…)

5. Stealth wealth is easier

The safest hiding place from a lynch mob is to be part of the lynch mob. Forget the McMansion Hells; stealth wealth is here to save the day! Everybody wants to call themselves middle class because, in that disappearing gray zone, you get to embody the neutrality of a disappearing, humbling, victimized class. There is no one to impress, no one to catch up to, no giant green lawn to maintain and upkeep…AND you save more money by being stealthy. That’s a triple deal for the post-FI frugal millionaires.

There are some money guilt-ridden people out there, like my husband who is guilt-ridden because he’s white, male and made good choices in life. Can you imagine the level of imposter syndrome he suffers from most of the time? If you think you’re a fraudulent person, would you really dress to impress?

Related: Everybody should know about my husband’s dumb luck to riches tale by now!

6. Simply a greedy cheapskate

Sometimes, it’s just not enough…it’s never enough.

Soap’s first response to the frugal millionaire trait was “admirable” because she associated frugality with almost a zen-like quality of inner peace that she’s been trying to crack.

There is all this cool stuff and adventures in this world you can exchange for money but…you’re not tempted by anything? Wow, that’s some degree of nirvana!

But there’s another flipside to that. Sometimes, they could just be greedy for actual money. Greedy enough to not feel temptation other than keeping the money on their persons because it’s the first and most precious thing. The green papers represent money, security, and status which is more direct than any other material possession. 

Maybe that hero frugal millionaire (like us?) are just a bunch of money greedy cheapskates. Never put any blogger on a pedestal. They’ll just break your heart and leave you to raise the babies all alon….wait what.

7. Chronic overachiever

Do you know what’s a million times better than a million dollars?

2 million.

What’s better than 2 million?

Take a guess 🙂

So sometimes, it just never feels good enough…it’s never good enough. Now I don’t consider myself an overachiever but according to Valerie, I am? I thought being an overachiever meant you had to achieve something first…

The biggest sign of being an overachiever is feeling highly competitive, never feeling good enough, always needing to be the best and expecting too much out of everythi………AWWW heck what. So I really am one…?

Related: The 13 Status Symbols of Frugal Upper Middle Class People With Comfy Day Jobs

8. Diminishing returns on higher prices

The savvy shoppers who have spent an entire lifetime chomping down and pinching pennies will be price comparison shopping for experience and overall result for the price. The easiest example of diminishing returns is the economy vs first class flight pricing. Both kinds of flights will land you safely at your destination, except your 14-hour flight would be varying degrees of pleasant in the first class select cabin. But the first class select cabin also cost exactly twice as much as the economy class ticket. Unless I could write it off as a business expense, I would feel very guilty about paying essentially another ticket for 14-hours of rented sky luxury comfort. That is justtttt the way I am and it’s made worse by my nihilism (more on that below.)

Random bonuses reasons:

1) Seeing the money grow is addicting and rewarding.

2) You run a successful finance blog and your scared readers will judge you for spending $550 at a spa.

3) And lastly — you look forward to giving it all away one day. For now, you are playing the guardian of compounding interest.

This is *my* personal reasons for being frugal past the 7 figure mark… 

1. Building generational wealth

I’m not sure if this is a common reason as to why millionaires choose to live frugally but it is a big reason for me. If imposter syndrome is my husband’s issue at work with himself then this one is mine. I have clear intentions of leaving a reasonably large chunk to my husband’s future kids. I have made this very very clear to hubby and it is not negotiable.

That is why our FI/RE number is so high. They should never have to worry about money, ever, for generations.

Dreams of being an artist are what puts your family in financial danger. I had to give up art because my family’s poor. But I’ll be able to protect them from that!! 🙂

Whatever life we engineer someday won the genetic lottery because they get to breeze through life after we’re dead, doing whatever they please from studying art, singing, underwater basket weaving or just being a brilliant and underpaid research scientist. They will never have to worry about money or supporting old parents like I had to worry. They don’t have to say no to their talent and dreams. That’s the best gift I can give them and that’s why generational wealth is not negotiable with me.

2. Paranoia

Nobody likes to lose money or entertain the thought of it. Frugality could stem from fear and insecurities about your wealth. Sorry to rat out my husband again but this is more him than me. LeanFIRE is the principle of retiring at or under $1 million dollars and trying to live lean within a safe 4% market return. This usually comes with no debt (not even mortgage) and branded together in a typical digital nomad lifestyle. Generally, it’s either a childless or a single offspring couple who best fit the ideal of LeanFIRE.

You can see why I’m tempted by this idea, right? We’re mad frugal and we can swing this. I bought up the topic of LeanFIRE with hubby before but he actually blubbered at me. “Pffffff, we’re not doing that. I’m not doing that for the rest of my life. That’s too close to the edge for me.” Hmm, well, it takes two to tango so LeanFI isn’t in our plans.

3. Existential Nihilism 👍

Nihilism, extreme skepticism maintaining that nothing in the world has a real existence. Well, this has our brand of frugality all over it. Maybe we’re all just a little depressed?

>See cute outfit in mall.

>Debate price and necessity in mind.

>“Do I really need this outfit for the money?”

>“Why do I want this?”

>“…and who cares that this speck of dust has a new outfit among the other gigabillion specks of dust.”

>*Existential crisis and nihilism sets in.*

>Gives up, go home sad.

Did you ever question or wonder to yourself why so many of those post-FI continue being so frugal and diligent with their dollars? Are you one of them? What is your FI number?



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34 thoughts on “How Rich People Think – Why Penny Pinch When You Don’t Have To?”

    • I thought the SWR was 4%? Did they change that?

      Yes I’ve looked into trusts in mad detail 2 months ago, I was going to write a post about it but it seems to far off topic and too soon.

      • I don’t think anyone should rely totally on the 4% rule , especially if you have 30+ years to live after leaving full time work. “Rules” should just be a guideline. Even when you hit your magic number you might need to preserve the principal that is producing the income you’re living on. Having other sources of income and the ability to trim expenses further and stay flexible are key to me.

        Take a look at Wade Pfau’s work if you’re not familiar:

        P.S. The need for trusts can often be overblown. You might need one, but you should know why you do.They’re expensive to set up and often times (not all) wills, beneficiaries, etc. take care of most issues.
        Mrs. Groovy recently posted…Taxes and Obamacare and Sasha and Talking Trash

        • Thanks for the link Mrs. G. I will always need to see myself as a source of income. In one way or another, I want to work.

          Jared’s grandparents set up a very intricate trust and it did backfire on them. It cost a lot of money too. They did it right but the laws changed after they set it up so I think they were locked in. Total backfire!

      • Yes it did, and it’s been sliced and diced many times. 4% isn’t iron-clad indefinitely based on back-testing, but it’s pretty dang close. 4.5% would have worked for most 30-year time horizons based on Bill Bengen’s research. He did an AMA and answered some questions on longer retirement periods as well.

        TL,DR: 4% is basically safe indefinitely.

        But a lot of this research is based on a lot of assumptions and a particular asset allocation, etc. Tons of folks who agree with it, tons of folks who don’t. Regardless, a 3% rate is obviously safer than 4% 🙂
        Dave @ Married with Money recently posted…The Fiduciary Rule is (Nearly) Dead – Now What?

        • That’s good news! I hope the next 30 years would indeed prove stable enough. 3% sounds like a friendly enough number.

  • I can relate to a lot of the things that you mentioned here. Oftentimes when I want to buy something, I will have the exact debate as the nihilism one.

    I grew up poor, so I never learned how to play any instruments or even take swim lessons. Necessities and an education were more important to my parents than singing, drawing, and dancing. I don’t blame them at all.

    But like you, I do want to give our kids the opportunity to explore their potential. They will get what I didn’t growing up.
    Ms. Frugal Asian Finance recently posted…3 Things I Waste Time & Money On

  • I loved my job so I worked well past FI, millions past. And I still buy modest used cars, still live in my first modest house and still earn 100% of family expenses with entertaining side gigs. I don’t consider myself cheap. It is just that my wife and I don’t find happiness in material possessions but in doing meaningful work, paid or non-paid. And in inexpensive outdoor hobbies. Later this year we will spend $10,000 on a hiking trip in Italy so we do go big on some things. We just are not big on toys.
    Steveark recently posted…Will Early Retirement Kill You?

    • Totally agree! “In doing meaningful work, paid or non-paid” – that’s the best part about FIRE. Splurge when you can 🙂 that’s not cheap. That’s smart.

  • we don’t care about too much spendy stuff in our house. of course that is kind of relative. our wine spending would probably make the frugal community take notice but we don’t care. i like things more simple the older i get. even though we might have “enough” to stop working i enjoy making money and hope to coach and educate the people in my life who clearly need some guidance without being pushy about it.

    this is good writing, yes ma’am.
    freddy smidlap recently posted…My Zero Dollar a Month Cell Phone Plan

  • This is definitely an interesting question. I think you’re right, a lot of it is habit. And honestly I think that many millionaires just don’t CARE about the flashy stuff. That’s how they were able to save enough to get to that point to begin with. Having the money won’t really make someone want to spend it if they didn’t want to spend it before, IMO.
    Dave @ Married with Money recently posted…The Fiduciary Rule is (Nearly) Dead – Now What?

  • Awesome post Lily!

    A friend and I were just speaking about financial independence, and I told her that even if I had f you money right now with slim margins – I wouldn’t quit my job yet.



    The only difference the FI money would create is the pressure to work more hours would be gone. Deal with office politics? No thanks. Worry about promotions (hard work and exceeding expectations is good enough for me). It would give me the freedom to quit if anything happened or the love dried up.

    The point I guess is that money isn’t the only reason for many of us, it is the power and freedom that we want. Why? Because it gives us the ability to do what we want when we want to :). Saving on trips and groceries continues to stabilize that and totally agree the habits are very hard to change !

    • Sooooo glad to hear you love your job Chris! That’s such a nice yet rare thing to hear! FI money is FU money only if something needs to F off 😉

  • I burst out laughing @ “she associated frugality with almost a zen-like quality of inner peace that she’s been trying to crack.”

    I run a PF blog and I’m going to be spending on 5 star luxury accommodations on island getaways while it’s finally warm and sunny in the Pacific NW. Can’t wait!!

    Underwater basket weaving LOL I just tweeted that yesterday!
    Financial Orchid recently posted…3 Tips When Seeking a Human Financial Advisor

    • Sometimes I mousey over to the superhost sections of airbnb and imagine how I’ll furnish my dream bedroom, bathroom, kitchen, and deck. Airbnb has taken over my Pinterest aspirations. Or even update my current furnishings. Must be the spring blooming inside of me. Still tracking what I’m spending, but there’s AMPLE room in the budget. Winters are more hibernation months. It evens out over the fiscal.
      Financial Orchid recently posted…3 Tips When Seeking a Human Financial Advisor

  • My mom would get so annoyed at her parents because they had saved up millions but, for example, my grandmother wouldn’t buy a new $20 coffeepot when hers started leaking–she just put it in the sink and kept using it. Old habits die really hard. 🙂 The more frugal I get, the more I find myself hating to part with my money when something still works. But I have started to buy quality and hold on to it for a long time. That coffeepot wasn’t even nice!!
    [email protected] recently posted…Location Independent, International Jobs: Kara from Provencial Table

  • The last two books(The Power of Habit and The Slight Edge) I just finished reading were focusing on habits and your right habits are hard to change. Once you get into the habit of being frugal, it’s stuck with you. Your used to finding the best prices whenever your shopping or you rather buy a car used than new because you know how much the value goes down once you drive your new car off the lot. It’s ingrained in you, it’s your personality!!
    Kris recently posted…Developmental Checklist for Our Two Year Old

  • HA! We have to get together 🙂 My wife and I are in a similar situation to you and “hippo”. Her, Chinese, incredibly frugal, grew up knowing very well the value of a RMB, etc. Me, just a bunch of dumb luck. (although, a great mentor of mine once said that it’s funny, the harder you work, the luckier you get!). We are a bit older than you guys, but I think this article is spot on.

    For us, #1 is the EXACT same as you. Generational Wealth. We constantly joke that we would run away to a secluded beach somewhere and fish and eat coconuts for the rest of our lives if we didn’t have kids. But seriously, the idea that we can provide FI for our kids and grandkids will keep us earning and penny pinching until the end. And we LOVE doing it. If we can go out knowing that we secured one more opportunity for our family, we will be happy.

    I will also add one more reason. That reason is simply because once you hit FI (or are close), you see that you CAN accomplish your financial goals. So why not set some more? When I was broke (yes, I’ve been broke and it sucks), the thought of saving just seemed a bit pointless. The bank account always ends up in the same place anyway so who cares? But once I started figuring out how to invest, the miracle of passive income streams, a better education (super important), and some dumb luck, I started to ENJOY saving. I could see it working and it became something that I could actually do. Calculating NW and watching the 999,999 roll over was amazing. So why stop there? What about 5MM? 10MM? I think that’s probably it for us, but then to think that our grandchildren or great-grandchildren could see 100MM equivalents and really use that wealth to make change in the world is really inspiring.

    Great site. I introduced it to my wife and she loves you already!

  • I vote for habit and contentment. Once you have what you want (e.g. FI) what is there to change radically? Most of the folks I see who are FI find ways within their means to continue to enjoy their lives and continue to pursue different goals. While they are often content with the “stuff” and see no real need to keep accumulating it, they often are on the look out for new goals and pursuits. Don’t get me wrong, a new goal could include new stuff (e.g. when I started fencing I had to buy equipment and pay for lessons, etc.) but that is goal specific and not just random and usually within the annual budget. Too many folks like Soapy assume FI is like a race where you cross the finish line and are “done”. That you have somehow “won” and can now just blithely spend away without a care. But it’s a continuing journey that if done right takes you along changing paths as you set new goals and find new interests and continue to enjoy yourself.

  • I don’t need a lot. I just want enough left over for a daily latte, a monthly mani/pedi, and a week-long vaycay somewhere. I’m never ever going to pay for a Birkin bag ever. Who cares? I don’t pay full price for anything, actually. I wouldn’t call myself frugal, just sensible. I guess I could save more if I wanted to pinch every single penny like a maniac. But I’m not interested in that. I’d rather make more money so I could save more and do more. If I were rich, I’d be spending my money the same way for the most part. I would travel more, eat better food, and I would have maid service a few nights a week.

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