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?