Calling someone a ‘frugal millionaire’ is nonsensical. It’s akin to saying ‘rich millionaire’ – the terms go hand-in-hand.
That’s because for the vast majority of people, being frugal is essential to being a millionaire.
In my experience working with people of a variety of financial backgrounds, I firmly believe 95% of self-made millionaires are frugal.
That is, you almost never become a millionaire without some level of frugality.
The millionaire lifestyle
When most people imagine what it’s like to be a millionaire, they imagine spending millions. That’s the exact opposite of what it takes to become, and what it’s like to be, a millionaire.
The people who you might perceive to be millionaires – with the big house and fancy car – are often in tremendous debt, perhaps even living paycheck-to-paycheck.
My uncle in the 2000’s earned an enormous salary from his job in finance but was always cash poor.
He lived paycheck-to-paycheck, spending every penny he earned, and was in considerable debt.
He lived, what most people envision as, the ‘millionaire lifestyle’.
He had a huge house (and mortgage) and a Jag on his driveway (with associated financing). He traveled and was generous with his money.
He had an enviable life from the outside. But he was not a millionaire.
I never found out how happy, sad, or stressed he truly was during this time. But for anyone living paycheck-to-paycheck (no matter what the salary) with big debts to pay, I can’t imagine it was a smooth ride.
When the crash came around in 2008, he ended up retiring with a modest pension. Accordingly, he lives a more modest lifestyle today out of necessity.
With some frugality and a sensible investing plan, it’s almost certain he could have grown his wealth enormously and retired a multi-millionaire.
But he did not, and still does not, know the first thing about money. He could not tell you how a pension works or what an index fund is.
I am no longer surprised when I find out that someone ostensibly living the millionaire lifestyle has almost zero financial literacy. We simply are not taught about it in schools, and must self-educate to have a chance at financial independence.
Being a millionaire is not about spending money. It is about staunchly defending and investing your income.
The Millionaire Next Door
A great book that illustrates this idea is ‘The Millionaire Next Door’, which contends that most millionaires live low-key, frugal lifestyles.
The authors carried out focus groups with millionaires and found that almost none of them live the cliché ‘millionaire lifestyle’.
You need to be, what they call, a ‘Prodigious Accumulator of Wealth’ (PAW) to become a millionaire. They found that most millionaires were:
- High earners, often through high-paying jobs or owning their own ‘mundane’ (but lucrative) businesses.
- Saved more than they earned.
- Invested a large portion of their income.
- Lead a modest lifestyle.
They have great ‘offense’ (earn a lot) and great ‘defense’ (staunchly defend their wealth – frugal).
This is the key to being a millionaire.
They drive used, reliable cars. They wear normal clothes. They spend money only on the things that truly matter to them, and they are not trying to ‘keep up with the Joneses’.
In fact, most people (even their friends) would not be able to tell that they were a millionaire.
There is a big difference between ‘living like a millionaire’ and being a millionaire. Choose wisely.
How to live your rich life
Being frugal does not need to be boring.
You can still spend lavishly, buy expensive cars, travel to the best 5-star resorts, drink the finest champagne.
But not all of them. You must choose.
Frugal millionaires have taken the time to think about what truly matters to them in life and concentrate their spending there.
They ruthlessly cut out spending in areas that don’t bring them enough joy.
Let’s look at two examples.
The Frugal Millionaire John Appleseed
The frugal millionaire John Appleseed decided his dream is to own a Ferrari.
Is a Ferrari a frugal purchase? No. But he can, and should, pursue that dream.
John Appleseed also happens to hate airports and flying. He likes his home. He loves to cook and rarely goes out to spend his wealth on overpriced food.
John knows that he can afford to buy a Ferrari and still save and invest a significant amount of his income, because he does not spend lavishly in other areas of his life.
The Frugal Millionaire Lynne Perkins
The frugal millionaire Lynee Perkins is an explorer. She wants to travel the world in first class and experience 5-star resorts.
Is 1st class travel a frugal purchase? No. But you need to enjoy life. If she can afford it whilst still maintaining her saving and investment plan, she should do it.
Lynne has never been a fan of cars. It’s something that gets you from A-to-B. She has a 2003 Toyota Carolla that has never failed her.
She is not interested in designer clothes or fine dining except for special occasions. She puts all her time and wealth into planning the best travel experiences money can buy.
Being a millionaire is not about having it all. It’s about having what you truly desire.
The frugal secret to getting rich
In a sentence, you need to earn a lot, and only spend money on the things that truly matter to you.
It sounds easier said than done, I’m sure you’ll agree. Here are some practical steps to get started:
- Check you’re on track with our personal finance flowchart.
- Follow our passive investing guide to grow your wealth.
- Never stop learning. Start by educating yourself with financial books from people who have walked-the-walk.
One of the fastest ways to grow your wealth is by following the principles of FIRE (Financial Independence Retire Early).
Our FIRE guide touches on frugality, extreme saving, investing and common pitfalls to avoid.
Finding a balance
Being frugal is a key ingredient to becoming a millionaire, but not necessarily the key to having a rich and fulfilling life.
It’s very easy to become obsessed with scrimping and saving money. Some may go to great lengths to sacrifice their lifestyle for the almighty dollar.
They do it for the pursuit of wealth, with no idea what they need it for. Worse still, they may become cheap.
Most millionaires I speak to are frugal, not cheap. There is a difference.
They are still generous among friends and family. They buy expensive items that last a long time. They are far from cheapskates.
All of this is to say: find a balance. Choose a budget that allows them to live a rich and fulfilling life, whilst not spending every penny you earn to live unnecessarily lavishly.
The rat race and the hedonic treadmill
Maybe you’re set on becoming a millionaire, and that’s ok.
But let me leave you with this:
Remember to think long and hard about why you are so keen to become a millionaire.
- Is it fear?
- Is it vanity?
- Is it because you grew up poor?
- Is it because a financial guru told you it’s the smart thing?
- Is it because you think material goods will bring you happiness?
I ask this not to judge you, but because our capitalist society conditions us to put great importance on becoming wealthy, possibly at the expense of our happiness.
Make sure you understand why you are in the rat race. Make sure you’re not stuck on the hedonic treadmill.
These two running metaphors epitomize the way most of us live life:
- The rat race, where most of us are working in jobs we dislike, for people we don’t want to be around, to buy things we don’t need.
- The hedonic treadmill (that frugal millionaires avoid), where we continually adapt to the new normal level of comfort, and therefore continually desire increasing stimulation & possessions to derive incremental happiness (to no end).
Instead, consider alternative ways of pursuing a fulfilling life.
For example, consider the ‘Die With Zero’ philosophy, which wrestles with the idea of pursuing endless wealth that we never get to enjoy.
Whichever financial philosophy you choose, make sure it leads to a rich life – in more ways than one.