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 has shifted due to a combination of realizations and observations. Recently, I’ve had the pleasure of interacting with different types of wealthy individuals in various settings, from casual encounters to business transactions. These people were a mix of 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. 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” This portrays the delusion that a lot of wealthy people have on the inequalities that exist in society. On top of that, social classes usually interact with those who are similar to them, or in many cases, of a higher class than them. This may be one of the leading causes of them feeling poor; no matter how much money you have, there is always someone with more. This is the idea that money is relative. Everyone has a different relationship with money which is influenced by your net worth, income, experiences, spending habits.

There are many different types of rich people. Often, individuals coming from new money tend to spend more, seeking status and consumer items. Luxury companies understand that their audience isn’t just people who can currently afford their items, but also the groups of 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 by showing that you get a status boost by owning their product. These future consumers grow up with the idea that buying these luxuries means “you’ve made it” and make you desirable. So when they can finally afford it, they end up being a loyal customer, spending a lot on these luxuries.

Another genre of Millionaires is the cheap kind. They are usually self-made but can also be born into money, and are now protecting the family wealth. Some can be so cheap that they are more economical than people with average or below-average incomes. These cheap millionaires know the value of a dollar. They worked hard 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 consumer/new-money millionaires, cheap millionaires tend to have a lower tolerance for risk. These guys and gals 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 statistics 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 this exclusive course that costs 5-figures just to get a membership. On one of the holes, you tee off near a cliff where you need to drive the ball 150+ yards to clear a crater and land on the fairway. Ironically, these guys bring a couple of range balls with them for this hole in case they hit their ball into the crater. They justify paying 5-figures to play golf at this course but refuse to lose their $10 golf ball. To them, it all comes down to value. What may look cheap to some, is actually being smart with your money. They will pay a massive amount of money for something that provides value, but don’t confuse that for throwing money away. By paying 5-figures to get 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 on one of the best courses in America. On the other hand, throwing away a perfectly good golf ball would be equivalent to burning a $10 bill that they worked for. These millionaires don’t mind looking cheap to save money and 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’s a smarter purchase than a normal person paying $100 for a jacket. This is because they’re often spending a smaller % of their income, and they’re receiving more value (holds value, convenience, highest-quality).

When you judge a rich person on their spending without first knowing their net worth or their income, you’re judging oranges to apples. 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 items, but they are spending less of their income than the average person does. Their choice to opt for the more expensive luxury items isn’t always for the status, but the convenience. Luxury items usually last longer, have better quality, hold their value, and provide convenience. This is the harsh truth; often, a rich person spending an exuberant amount of money on something is actually ‘cheaper’ and more beneficial than the average spending a ‘normal’ amount on that same item.

Before you start comparing yourself to a billionaire, let’s divert back to the idea of relativity. Nearly half 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 also ridiculous. Your $500/month rent would take half the population a quarter of a year of work just to afford that. It’s all relative. As I mentioned earlier, we tend to associate with those in a higher class than us which is why we always feel poor even when we are doing pretty well financially. Once you realize that your perspective towards a millionaire/billionaire is no different than half of the world’s population looking at you, your mindset shifts as you realize it’s all relative.

Zong Qinghou, former richest man in China

It goes without saying that no one should be judged on how they spend their earned money. I believe that everyone who is a part of society has an obligation to donate part of their time and resources to improve our world because any income-generating business wouldn’t exist without everyone else.

“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

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. This just isn’t true. There are many clients I’ve personally met who are so humble and down to earth that nobody would 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 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 neighborhood, you have buildings, houses, cars, technology, food, infrastructure, and services available. Each of these things didn’t just magically appear—they were created, transferred, owned, and modified by people. People 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 many different ways, so don’t think that just because they aren’t a CEO of a Fortune-500 company working in a high-rise or a celebrity living in a mansion in Beverly Hills that they don’t have a lot of money. Wealthy people are everywhere, and they’re more common than you think.

As a result of my experiences and encounters with the different kinds of millionaires, and a series of revelations, my relationship with money changed. For my own personal finance, I’m more conscious about my spending habits. Every time I have an impulse to buy something, I question if I want it for status and external validation or for myself and intrinsic pleasure.

I have also learned that there is no shame in trying to save your hard-earned money. I’m ashamed to say that I used to be embarrassed to use coupons or shop at a second-hand store. People go broke trying to look or act rich, while the rich stay rich by acting and sometimes looking broke. On the flip side, don’t be afraid to spend a lot of money on something that is valuable or will yield some sort of benefit—and never throw away a single dollar.

For a healthy relationship with money, consumption shouldn’t be your main goal; but 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.

Having a healthy relationship with money is the first step to attracting it and is the blueprint for maintaining it.