Changing Your Perceptions of Wealth

warren-buffett house

Who do you think lives in this house?

It's stately enough, but still pretty modest. It looks like it's been around a while, right? Perhaps a lawyer or a salesman maybe? Maybe even the vice president at a company?

Would it surprise you if I told you it's owned by the 3rd richest man in the world?

I'm sure you've heard the stories of Warren Buffett and his frugal ways. The home you see here was bought for $31,500 in 1958 and he still lives there (of course, it's now worth a whopping $700k!).

Mr. Buffett is not alone in his wealthy frugality. In his book, Millionaire Teacher, Andrew Hallam writes that the median price paid for a car by U.S. millionaires in 2009 was $31,367. Is something wrong here?

Now, compare that with some of the fake wealthy. You know the ones – fancy cars, huge homes, and the latest everything. But are they really rich? And who really wants to be fake rich?

The more I read of the truly wealthy folks – like Buffett – the more I see modest lifestyles (relative to their wealth, that is). They aren't really concerned with impressing folks and money doesn't seem to be their main motivator.

So how is it that a guy with so much wealth, lives so modestly?

→ [You might also be interested in reading Know Your Money Mindset] ←

Your perception of wealth

When I was first getting out of debt, I went from over-spending and living pretty comfortably in a decent sized-home with another roommate to sharing a 20 x 10 bedroom with another fellow, eating ramen almost everyday and hardly spending a dime.

Ironically, the more I lived like this – the more I saw how little I missed some of my favorite things (cable tv topping the list). I made due – and it was almost like a detox or a cleansing experience of sorts.

However, when I did cut back and then I started to make more money at my job – I tended to want more and more. Once I was making $17/hr, I wanted $21.. then $25 and so forth. But I can't say I was really any happier at these stages (I've learned this ability for us folks to keep a relatively stable level of happiness – no matter how much we make or little is called the “hedonic treadmill“).

I found this article on Christian Science Monitor, entitled, “Does Money Make You Happy?”. The author writes:

One study shows that people report needing 40 percent more to reach a level they consider sufficient. If you earn $50,000 per year, you'll “need” $70,000. But if you get a raise and make $70,000, you'll soon “need” about $98,000. The more you have, the more you find you need.

 But is it really about the money? The article continues:

In [another] study involving faculty, staff, and students at Harvard, participants were asked to choose between earning $50,000 per year while everyone else made $25,000, or earning $100,000 per year while others made $200,000.

It was stipulated that prices would be the same in both cases, so a higher salary really meant being able to own a nicer home or buy a nicer car. But that didn't matter much: 56 percent chose the first option, hypothetically forgoing $50,000 per year simply to feel richer.

 I think this is key. It really isn't about how much money we make – but how successful we feel.

Perhaps this is one of the reasons why the really wealthy – like Buffett – can maintain such modest lifestyles and not flaunt it. Maybe their perception of wealth is largely tied into the feeling that they are successful in what they are doing – and that fuels them. NOT the admiration of others perceiving them wealthy.

What are your perceptions of wealth and can you see the ability to feel successful at your job a contributor to help you save more money – and spend less?

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  1. The only reason I knew was because he’s just a few blocks away from my work and I occasionally drive by heading home.

    We can learn a lot from good old frugal values like Warren, my parents and my dear grandmother lived by! My wife and I, of course, had to make our generations financial mistakes with living beyond our means, revolving debt, etc. We are now on a journey to eventully reach “Financial Peace” and teaching our kids along the way. The buck stops here! Can I get an Amen?

    • Amen! ;)

  2. Great post Aaron!! I was especially fascinated by the study of Harvard students and faculty. I think this really does drill in your point that overspending is about feeling successful in relation to everyone around you and about being “fake wealthy”. If someone makes more money than their neighbor, they are more successful in their own eyes.

    This was a refreshing view on wealth today! Thank you again for sharing!

    • Thanks for stopping by Nivene!

  3. This is a good post Aaron,

    As for Buffett’s house, Ryan wrote, “I can’t believe it’s gone up that much in value.”

    When you do the math on the house, you can see that it hasn’t gone up that much at all. First of all, the house has had a few additions. And he built a handball court in there.

    But even if you don’t count the additions, and play with the $31,500 purchase price, you can see that it has only appreciated by 6.26 percent each year. Counting the costs of the additions, I would guess that the house has appreciated by roughly 5 percent per year. In the stock market, since 1958, that same $31,500 would be worth more than $4.2 million.

    To switch gears a bit, I think success is based on how much we smile or laugh, not on the stuff we have or the money we have. If we are so poor that we can’t fill our bellies, we don’t smile or laugh much. But once our basic needs are met, adding extra zeroes to the bank account does very little. Owing money, I think, causes plenty of worries. And many “big hat no cattle” types owe plenty of money on their material things. That’s a shame.

    • Good thoughts on the appreciation of Buffett’s house. Interesting! And, speaking from experience, owing money is one the biggest happy drainers!

  4. What a refreshing post! Thank you Aaron. I think it’s amazing how some people need to be wealthy – and let everyone else know they have money – yet others can focus soley on themselves and their families to determine if they are wealthy. If we stop comparing ourselves to others, then we can truly appreciate what we have and realize that we just may have enough, after all!

    • Thanks! Comparison is a real killer to happiness – I agree.

  5. I have to admit, Warren Buffett was the last person I thought of when I saw that house! I can’t believe it’s gone up that much in value.

    We all have different perceptions of what it means to be wealthy. For some, it’s being able to afford a $40,000 car and brand name clothes. For others, it’s being able to spend time each day with our families. In some cases it has nothing to do with money. For me, wealth has about 10% to do with money and 90% to do with reaching my potential for being a good husband, father (eventually), Christian, and in my career. I want to measure myself by how many lives I’ve improved, not how much money I have.

    • I know, right?

      Have to agree with what you’ve said about being wealthy. “What does it profit a man to gain the whole world – yet lose his soul?”

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