How Rich People Think: Why Penny Pinch When You Don’t Have To?

Ever wonder where the penny-pinching millionaire trope came from? Or how rich people think about frugality when they don’t have to be frugal?

In her usual guileless way, Soap (a good friend of mine) asked me something I’ve wondered myself before. 

Why are there wealthy people who are still frugal?

Soap continues, “It admirable but it doesn’t make sense to me. I know if I had that money, I would go shopping and I wouldn’t be rich for long but you ARE frugal. We both know you’re not going to go crazy one day and spend $3,000 on a dinner plate so why work knowing you can swing it lean? If a person is still working and making good money, do you even have to be frugal?”

Who exactly are those that do not need frugality but still so stubbornly choose to practice frugality?

Good ol’ Billionaires Warren Buffett, Bill Gates, and Chuck Feeney – who is this girl’s frugal hero.

(By the way, if you think those wealthy frugal people are rarities…you should probably read and meet some of the commenters below this post.)

So why are millionaires still so frugal?

Why do they continue working, saving, and investing even after their FI date?

The usual reply is something I consider…a little snarky and convenient guesses than anything else. Most of the time, the answer other people give is one of these three:

#1 “The rich understand it’s not how much you earn, it’s what you save.”

Not a great answer. I’m not talking about what anyone thinks poor people don’t know vs the rich knows.

Personal finance is not a hard concept. You earn money, spend less than what you earn, save what you don’t spend and you invest it in something less stupid than your brother-in-law’s new restaurant.

Money is a hush-hush topic because it’s so easy to understand that if more people knew about the basic principles, no one would be dumb enough to fund the immediate economy at 16% APR unless they were genuinely destitute. Everyone would be penny pinchers and our market would spiral into depression* until new baselines are set again. *That theory depends on which economist you ask but yeah.

#2 “They don’t go to Starbucks and drop 5 bucks on a cup of joe every day. They don’t buy expensive cars and swap them in for an upgrade once every few years.”

That answer is unsatisfactory too. Funny, this was one of the top answers as to why millionaires and billionaires are frugal even though it doesn’t really answer the question of why.

Another thing, getting coffee every day is probably not going to prevent you from becoming a millionaire. You would have to blow $25,000 a year on liquefied cocoa beans for 30 years in order for that to happen.

I’m literally still wondering which millionaire has gone bankrupt from a coffee habit. I also can’t wait to meet the millionaire whose monthly $2,000 grocery bill for 2 leads to their bankruptcy hearing right around the corner. I don’t see that happening ever. Even just 1 million dollars is still a lot of money to blow on coffee and cars.

Most of the time, frugal people are naturally frugal. Why would I choose the economy class when we could afford first class cabin plane tickets? Yet we don’t? 

(Because the value to me isn’t worth the money I have to spend.)

What is the resistance of buying name brand ketchup if you already have more than enough money to buy all the name brand products you want without compromise?

(Because generic ketchup tastes just as good as Heinz to me.)

⭐ Related Reads:

• 3 Signs When Being Frugal Doesn’t Work & What To Do About It
• Why Rich People Penny Pinch When They Don’t Have To?
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#3 “They have to be frugal or they wouldn’t be millionaires.”

This is what my husband said. I can’t say I completely agree with this answer as there are some high earners who could have pulled through with a millionaire status even if they had a comfortable, cushy middle-class lifestyle.

Earnings can outpace frugality because earnings do not limit you to a set sandbox of numbers.

For example, we know our lowest cost of living is baseline around $300. Typically, that number is closer to $1,000 per month. We can save $700 by living with extreme frugality. That may not be anything to sneeze at but there’s nothing left to cut. The gravy train stops here. But if an internal transfer and promotion netted an extra $2,000 a month and opened up career-advancing pathways then you’re better off optimizing for a higher income than being extremely frugal.

Why *I* think millionaires are frugal long past financial independence

1. Habits are hard to change

You and I both know that our frugal habits will be lifelong even post FI. If you guys are reading our family income reports and expecting things to change much in a decade in terms of spending…good luck. It is not happening!

I’ve even got a piece of science as proof. A young 20-something-year-old brain is still in the phrases of a young adult’s development but the choices and actions we make are strengthening the neuro-connections and that is solidifying our behavior and stabilizing our personality and future identity (compare to our teenage brain) for the long-term. These neuro pathways being exercised constantly will make most of us stubborn creatures of habit. If you’re a price comparison shopper like I am, it would be a hard fight to not comparison shop.

2. Frugality as a past time

Some people think skiing is fun, some people love a good 5,000 piece puzzle game. I know a lot of millionaires who think it’s simply fun to find a bang for your buck in a sea of things for sale. I know when I hit the grocery store, I’m in game mode, I have a target budget to keep under and with self-limitations, I am allowing my creativity to flow.

“Frugality includes all the other virtues.”

I know to some it may sound crazy but limitations bring a sense of challenge, meaning, and creativity. I am a firm believer that living a simple frugal life brings you closer to thy real self and real happiness.

⭐ Related Reads:

• How Much Money Does Our Frugality Save? (Spoiler: $56,000+/Year)
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3. Giving back means more than anything else

Not everyone craves a 5,000 square foot mansion (too much cleaning!) The natural progression of being according to Erikson Psychosocial life stages, GIVING is the favorable stage of a middle age and elder being. A portion of the wealthy who have already reached financial freedom will come to the last stage and realize there is nothing that money could possibly do more for them – so they generously give it away and live without lavish abandonment for a selfish lifestyle.

4. Influences of parents/poverty

Many wealthy frugal people have quoted how seeing their parents lived through the Great Depression in the 1930s changed how they viewed money and spent money. Even though my Chinese family was nowhere near the United States in the ’30s, I can understand growing up with that feeling of scarcity. There are people who have to work like dogs day in and day out to keep food on the table and bills paid on time today. I knew that about my parents because they openly complained about it constantly as to motivate me to do better in school. Seeing them work hard to get absolutely nowhere but kicked down was not pleasant and affected my perception of spending money.

5. Stealth wealth is easier + safer

The safest hiding place from a lynch mob is to be part of the lynch mob. Forget the McMansion Hells; stealth wealth is here to save the day! Everybody wants to call themselves middle class because, in that disappearing gray zone, you get to embody the neutrality of a disappearing, humbling, victimized class. There is no one to impress, no one to catch up to, no giant green lawn to maintain and upkeep…AND you save more money by being stealthy. That’s a triple deal for the post-FI frugal millionaires.

There are some money guilt-ridden people out there, like my husband who is guilt-ridden because he’s white, male and made good choices in life. Can you imagine the level of imposter syndrome he suffers from most of the time? If you think you’re a fraudulent person, would you really dress to impress?

6. Simply a greedy cheapskate

Sometimes, it’s just not enough…it’s never enough.

Soap’s first response to the frugal millionaire trait was “admirable” because she associated frugality with almost a zen-like quality of inner peace that she’s been trying to crack.

There is all this cool stuff and adventures in this world you can exchange for money but…you’re not tempted by anything? Wow, that’s some degree of nirvana!

But there’s another flipside to that. Sometimes, they could just be greedy for actual money. Greedy enough to not feel temptation other than keeping the money on their persons because it’s the first and most precious thing. The green papers represent money, security, and status which is more direct than any other material possession. 

Maybe that hero frugal millionaire (like us?) are just a bunch of money greedy cheapskates. Never put any blogger on a pedestal. They’ll just break your heart and leave you to raise the babies all alon….wait what.

7. Chronic overachiever

Do you know what’s a million times better than a million dollars?

2 million.

What’s better than 2 million?

Take a guess 🙂

So sometimes, it just never feels good enough…it’s never good enough. Now I don’t consider myself an overachiever but according to Valerie, I am? I thought being an overachiever meant you had to achieve something first…

The biggest sign of being an overachiever is feeling highly competitive, never feeling good enough, always needing to be the best and expecting too much out of everythi………AWWW heck what. So I really am one…?

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8. Diminishing returns on higher prices

The savvy shoppers who have spent an entire lifetime chomping down and pinching pennies will be price comparison shopping for experience and overall result for the price. The easiest example of diminishing returns is the economy vs first class flight pricing. Both kinds of flights will land you safely at your destination, except your 14-hour flight would be varying degrees of pleasant in the first class select cabin. But the first class select cabin also cost exactly twice as much as the economy class ticket. Unless I could write it off as a business expense, I would feel very guilty about paying essentially another ticket for 14-hours of rented sky luxury comfort. That is justtttt the way I am and it’s made worse by my nihilism (more on that below.)

Random bonuses reasons:

1. Seeing the money grow is addicting and rewarding.

2. You run a successful finance blog and your scared readers will judge you for spending $550 at a spa.

3. And lastly — you look forward to giving it all away one day. For now, you are playing the guardian of compounding interest.

This is *my* personal reasons for being frugal past the 7 figure mark… 

1. Building generational wealth

I’m not sure if this is a common reason as to why millionaires choose to live frugally but it is a big reason for me. If imposter syndrome is my husband’s issue at work with himself then this one is mine. I have clear intentions of leaving a reasonably large chunk to my husband’s future kids. I have made this very very clear to hubby and it is not negotiable.

That is why our FI/RE number is so high. They should never have to worry about money, ever, for generations.

Dreams of being an artist are what puts your family in financial danger. I had to give up art because my family’s poor. But I’ll be able to protect them from that!! 🙂

Whatever life we engineer someday won the genetic lottery because they get to breeze through life after we’re dead, doing whatever they please from studying art, singing, underwater basket weaving or just being a brilliant and underpaid research scientist. They will never have to worry about money or supporting old parents like I had to worry. They don’t have to say no to their talent and dreams. That’s the best gift I can give them and that’s why generational wealth is not negotiable with me.

⭐ Relevant Reads:

• What Is The Real Cost of Raising a Child (Done Frugally and On The Cheap)
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2. Paranoia

Nobody likes to lose money or entertain the thought of it. Frugality could stem from fear and insecurities about your wealth. Sorry to rat out my husband again but this is more him than me. LeanFIRE is the principle of retiring at or under $1 million dollars and trying to live lean within a safe 4% market return. This usually comes with no debt (not even mortgage) and branded together in a typical digital nomad lifestyle. Generally, it’s either a childless or a single offspring couple who best fit the ideal of LeanFIRE.

You can see why I’m tempted by this idea, right? We’re mad frugal and we can swing this. I bought up the topic of LeanFIRE with hubby before but he actually blubbered at me. “Pffffff, we’re not doing that. I’m not doing that for the rest of my life. That’s too close to the edge for me.” Hmm, well, it takes two to tango so LeanFI isn’t in our plans.

3. Existential Nihilism ?

Nihilism, extreme skepticism maintaining that nothing in the world has a real existence. Well, this has our brand of frugality all over it. Maybe we’re all just a little depressed?

>See cute outfit in mall.

>Debate price and necessity in mind.

>“Do I really need this outfit for the money?”

>“Why do I want this?”

>“…and who cares that this speck of dust has a new outfit among the other gigabillion specks of dust.”

>*Existential crisis and nihilism sets in.*

>Gives up, goes home empty. /shrug