Healthy Relationship With Money

Millionaires are more common than you think. They can also be so cheap. Here is how my experiences with wealthy individuals altered my perspective and relationship with money.

Over the past few years, my relationship with money shifted due to a combination of realizations and observations. These came from me interacting with different types of wealthy individuals in various settings, from casual encounters to business transactions. They varied from retired multi-millionaires, business owners, heirs of multi-millionaires, and self-made barons.

Through my interactions with them, I noticed distinguishable similarities in their character, personalities, and ideologies. By understanding their relationship with money, I subconsciously modified mine to better tend to my goals and to have a healthier relationship with money. Here are some of the things I learned.

Millionaires are cheap

A shocking study found that 57% of people who own 2 homes consider themselves to be poorer than average; only 3% accurately put themselves in the top 2 deciles “many respondents who were almost certainly among the wealthiest in their country thought their incomes below average.”

A lot of wealthy people aren’t fully aware of the inequalities that exist in society and they feel poor despite being among the wealthy elite. The reason is that people of a social class usually interact with others who are similar to them, or in many cases, of a higher class than them.

Who doesn’t want to associate with people wealthier than themself? You get to play with their bigger and better toys, and maybe get larger opportunities just by knowing them. However, this is one of the leading causes of people feeling poor; no matter how much money you have, there is always someone with more. When you hang out with people who spend more on a single vacation than you make in a year, you might feel financially inadequate. This plagues people that don’t realize that money is relative. Everyone has a different relationship with money, different budgets, different incomes, different spending habits, and different wants and needs.

There are many different types of rich people. I’ve found that often, individuals coming from new money tend to spend more on consumption status-seeking than their old-money peers. Luxury companies understand that their audience isn’t just people who can currently afford their items, but also people who are expected to afford them in the future. Their sales cycle lasts years or even decades as they advertise to their future consumers. Gucci’s marketing convinces their future consumers that they can be special by owning an overpriced Gucci t-shirt because only the elite can afford it. So future consumers grow up with the notion that buying a Gucci t-shirt means “you’ve made it” and puts you at elite status. Years later when they can finally afford $600 t-shirts, they end up being a loyal customer, spending thousands of dollars to fulfill their desired elite status.

Another genre of millionaires is the cheap kind. They are usually self-made but can sometimes be born into money. Cheap millionaires are actually more economical than people in the middle class because of their financial literacy. They understand the value of a dollar; they worked hard for it their whole life. They were smart with their money when they were poor and retained that habit now when they’re rich. Their prudent habits allowed them to focus on investing and compounding their wealth rather than spending. Unlike the new-money millionaires, cheap millionaires tend to have a lower tolerance for risk. These guys love a deal and have no shame in saving an extra dollar wherever they can.

According to Millionaire Corner, one in three people with a net worth of over $5 million shop at Walmart regularly. More than 40% of multimillionaires shop at Target and nearly half can be found in the aisles of Costco stores. People making over $100,000 a year are more likely to use coupons than people making less. These are just a few numbers on their frugality.

True story: Once every few years my grandpa plays golf with an old colleague and his group of wealthy friends in California. They play at an exclusive course that costs 5-figures just to get a membership. On one of the holes, they tee off over a cliff about 100 yards from the fairway. Ironically, his wealthy friends bring a couple of range balls with them for this particular hole in case they hit their ball into the crater. They can justify paying 5-figures to play golf at this course but refuse to lose their $5 golf ball. To them, it all comes down to value. They will pay a large amount of money for something that provides them value, but won’t throw away a perfectly good $5 golf ball. By paying 5-figures for a membership at the golf course, they become a part of a community of other successful people where they can make connections, conduct business, and play golf at one of the best courses in America. But to throw away a perfectly good golf ball is a waste. They did not get rich by wasting. It’s been ingrained in them to spend on value and save whenever possible. These millionaires don’t mind looking cheap to save money but will spend large amounts on things that bring them value or at least can be justified in their eyes.

I used to get surprised when I hear rich people spending tens of thousands of dollars for a watch or thousands of dollars for a piece of clothing. But now, I realized that when we put things into perspective, their spending is actually no different than ours. In fact, sometimes when a rich person spends thousands of dollars on a jacket, it may be a more economical purchase than your average person paying $100 for a jacket. This is because they’re sometimes spending a smaller percentage of their income, and they’re receiving more value (luxury brands often hold or increase in value, highest customer service, convenience, highest-quality).

When you judge a rich person on their spending without first knowing their net worth or their income, you may as well also judge your spending habits. The median household income in the US is $59,039 a year, according to the U.S. Census Bureau. The median fortune of a Forbes list billionaire is about $2 billion. A conservative 4% annual withdrawal rate would bring their income to about $80 million a year. At that rate, the value of $1 to the average person is the same as $1,355 to a billionaire. So if you spend $100 on something it’s equivalent to a billionaire spending $135,500.

Annual rent for a Manhattan apartment at $40,800/year would have a relative cost of a billionaire spending $30.11. A $90,000 roundtrip cross-country private jet rental is relative to a billionaire spending $66.42. Spending $140,000 on a New Tesla Model X P100D is equivalent to a billionaire spending $103.32. Not only is it affordable for them to spend more on premium/luxury products, but they are spending less of their income than the average person does. Their choice to opt for the more expensive product isn’t always for status, but may be for the convenience, investment, or the experience.

Before you start feeling poor by comparing yourself to a billionaire, let’s divert back to the idea of relativity. Nearly half of the world’s population lives on less than $5.50 a day. If you’re reading this, you’re likely not in that category. Take this moment to realize how blessed you are. The same way you think a millionaire’s spending is ridiculous is the same way half of the population thinks your spending is ridiculous. Your $1,000/month rent would take half the people in this world six months of work and saving 100% of their income just to afford that. Imagine what they could do with just your one month’s rent. It’s all relative. As I mentioned earlier, we tend to associate with those in a higher class than us which is why we feel poor even when we are doing pretty well financially. Once you realize that your perspective towards rich people is no different than half of the world’s population looking at you, your mindset shifts as you realize it’s all relative.

It goes without saying that no one should be judged on how they spend their earned money. However, I believe that anyone who has made money has benefited in some way from society. Thus, we all have an obligation to give back whenever we can. No income-generating business would exist without everyone and the ecology of our society.

“No matter how much money you have there is a limit to how much you can spend and how much you can eat. The money ultimately belongs to society, so I invest incessantly—constantly creating new jobs and paying taxes to the state.”

Zong Qinghou
Zong Qinghou, former richest man in China

They are more common than you think

Most of society visualizes rich people in a certain way. We see it on TV, social media, advertisements, books, and stories. They’re supposed to be flashy and own a lot of expensive stuff. In reality, this just isn’t true. There are many clients I’ve personally met who are so humble and down to earth that nobody would ever suspect they had a lot of money. It wasn’t until I saw a bank statement or was involved in a large transaction with them that I then believed they had so much in the bank. These anonymous, low-key millionaires are a lot more common than you think. It could be someone you walk past on the street, or someone you see in Walmart.

According to Statista, there are over 12 million millionaire households in the United States. While this is still a small portion of the population, it is not a small number. Whether you live in a large or small city, around you are buildings, houses, cars, technology, food, infrastructure, and services available. Each of these things didn’t just magically appear—they were created, transferred, owned, and improved by people. It takes a lot of money to do so. People can make money off the rights, litigations, investment, equity, royalty, salary, inheritance, and compensation. Money doesn’t just flow linearly but in every single direction. According to the federal reserve, an average of $80 trillion in bank wire transfers was conducted monthly in 2021 in the US. The point I’m trying to make is that money and wealth are everywhere—especially in an economically vibrant country such as the United States. People build wealth in so many different and surprising ways. So don’t think that just because someone isn’t a CEO of a Fortune-500 company or a celebrity living in a Beverly Hills mansion that they don’t have a lot of money. Forget about the stereotypical rich person. Wealthy people are everywhere, they come in all different shapes and sizes, and they’re more prevalent than you think.

As a result of my experiences and encounters with the different kinds of rich people, my relationship with money has changed. For one, I’m more conscious about my spending habits. Every time I have an impulse to buy something, I question its value. What am I really getting out of this? Do I want it for status and external validation, or do I want it for myself, for intrinsic pleasure or value.

I have also learned that there is no shame in going out of your way to save money. I actually used to be embarrassed to use coupons or shop at a second-hand store. I used money as a status tool which is a very expensive game to play. People go broke trying to look or act rich, while the rich stay rich by acting and sometimes even looking broke. However, if you want to make the best use of your money, saving shouldn’t always be the top priority. Don’t be afraid to spend a lot of money on something that is valuable or will yield some sort of benefit. Just whatever you do, don’t waste it.

To have a healthy relationship with money, I learned that consumption shouldn’t be your main goal—freedom should. One of the major hindrances when building your wealth is interrupting the compounding by making large withdrawals for consumption before reaching your goal. As Charlie Munger once said, “The first rule of compounding is to never interrupt it unnecessarily.” When you see someone driving in a brand new Lamborghini, realize that they’re now one Lamborghini poorer. By focusing on freedom initially, and delaying the instant gratification of upgrading your lifestyle too quickly, you’ll actually be able to spend a lot more on consumption later on. Don’t fall into the trap of lifestyle inflation.

Lastly, don’t forget to give back to the world that nurtured you. Pay it forward—no matter how much or how little you have. It doesn’t have to be a financial donation. Donate your time by volunteering for a good cause. I guarantee it will leave you more fulfilled than overindulging in stuff. Having a healthy relationship with money is the first step to attracting it, the blueprint for maintaining it, and the path to a fulfilling life.