LESSONS FROM FRUGAL BILLIONAIRES

What do people like Warren buffet, Ingvar Kamprad and the Scions to the Walton family have in common? Well apart from the fact that they all are one of the richest billionaires on the Forbes list, it is their frugality that sets them apart from not only the rest of us common folk, but also their billion dollar peers.

 

For those of you who are new to the term, frugality is the act of meticulously saving or investing your fortune, rather than spending it on luxury mansions, sports cars, champagne spewing fountains or whatever else money can buy.   For now, let us look beyond the immense wealth and covetable lifestyle of these aforementioned people and take a look at the valuable lesson they teach us about frugality and living within our means.

 

Warren Buffet, for example, prefers to eat in fast food joints rather than gourmet kitchens and his current residence is worth less than a million dollars, which is vanishingly small compared to his net worth.  

 

Now what can you learn from this?

In my opinion it shows that no matter how rich or financial astute you may be, you are never immune to debt or bankruptcy and taking the current financial turmoil into account, you should learn to be more frugal.   However, this is easier said than done because you will come across a thousands of people and business entities who claim to have come up with a master saving strategy where they only have to spend or save $X to secure their financial future.

 

The reason for this failure is the fact that people always tend to overestimate the money they are going to have and underestimate their expenditures, thus causing a strong mismatch between their income and expenditures.   So here are 3 simple but often lessons these frugal billionaires teach us about balancing our finances  

 

Credit card abstinence

 

The most important rule of finance is that if you do not have the money to buy something, then don’t buy it. However, a lot of people seemingly ignore the rule and blatantly use their credit cards, instead of their debit cards, to do their holiday shopping.   It is high time people should realize that unlike a credit card, a debit card is used for shopping with your money, where you do not owe anything with interest by the end of the month. As a matter of fact a lot of billionaires are well aware of the fact and do not keep more than one credit card, so the sooner you realize that the better.

 


Prudent Investing

 

They say the difference between the rich and the poor is the fact that while poor people earn money to spend, the rich earn money to make more money. To put it in simple words, investing is the best way to make your money work for you instead of the other way around.   Fortunately, nowadays there are a lot of investment options, like mutual funds or ETFs, which are available for people who are risk averse thus allowing anybody to get in the game.

 

However, it is important to know your limitation and not gamble, which probably the reason why investors like Warren buffet shy away from day trading.  

 

Cutting down on Luxury

 


While it is easy to proclaim living within your means, you have no idea how much of unnecessary expenditure you may have incurred lately. I am no expert in saving money either, but here are some things I would consider to be too much spending-

 

  • Keeping up with the latest trends in the computer and mobile industry, by purchasing a product every time they hit the shelf, without looking at the actual value of the device

 

  • Using your car and wasting your gas for distances that would have not taken you more than 2 minutes, if you had just walked instead

 

  • Regular and unnecessary consumption of fast food and junk food, rather than just having it once in a while, thus saving more money

 

  • Keeping all the electrical appliances like the light bulbs, fans, T.Vs etc switched on, when you are not physically present in the room.

 

Of course there are a lot more things you can cut down on, but let us first start with the basics. While it is understandable that everybody needs luxury once in a while, it is the unwanted luxury that causes the problem.

 

I understand that the current economic conditions is making it impossible for some people to eat a decent meal, let alone luxury or fast food, but it certainly helps to maintain some level of positivity during such hard times.

 

But, keep your anxiety and your finances smooth and you will definitely get back on your feet again, because lets face it nothing is permanent, even this economic depression, so the choice it up to you

 

Reader Thoughts!

 

What are some frugal lessons you learned from the ultra wealthy?

 

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Comments

  1. mysticaltyger says:

    The biggest savings from not eating fast food comes from saving on your HEALTH CARE COSTS, and also may prevent you from becoming medically disabled. Also, reguarly eating fast food is more likely to make you overweight or obese. And we know that overweight people get paid less on the job than those who aren't. (I'm not saying this is fair, but it is reality).

    • I didn't know people who are considered overweight made less money. I know some pretty chubby people in high ranking / high pay positions. :-). But, I agree that fast food can definitely make the waist larger and increase health care cost. Did you know there is a taco bell / McDonald diet that is less than 2000 calories? The problem isn't fast food, it's over indulgence of fast food.

  2. Wouldn't it be wonderful if we emphasized these theories with kids and teens? They can certainly understand the concepts of saving, investing, avoiding impulse purchases and only buying what you can afford. They just need to practice while the consequences are minor as opposed to when they go off to college with their first credit card!

    • PAM I whole heartdly agree. Isn't funny how the younger you start the better you're off with finances. Your last sentence brought me back to my college days and my first credit card. They were offering 2 large pizza and a t-shirt for me to sign up. I was starving so you know I had to get a credit card. lol. ohhhh those were the days :-)

      • Too funny! My oldest child is 18 and will start college next year. She got her first credit card offer in the mail this week. 29.9% interest with a $25 annual fee. After my blood pressure returned to normal, we had a nice discussion and then promptly shredded the offer!

        • Woah.. 29.9% interests yikes.. and the nerve to tack on a 25 dollar "just to have me " fee per year?!? That's just bogus! So how did you prepare her for the unlimited credit card offers in college?

          • Well…that's a work in progress! We have always be open about financial conversations with our kids. I think that is so-o-o-o important. We have also used mini-budgeting opportunities through the years, such as giving her a Christmas gift budget or having her keep track of her allowance & IOUs. She has had a debit card for two years and has been very good about keeping track of the balance. As for credit cards, we are talking about the details and explaining the good & bad. I am working on a blog entry about it right now!

            • I definitely would be interested in your article about kids and credit cards. I do not have children yet, but I do realize speaking to them early and often about their personal finances is key.

              • Cool! I am planning on this one going up the first of next week so I will email you a link. My blog focuses on kids, teens and money. I would love for you to check it out. http://blog.moneytrail.net/

                We have four kids, ages 8 – 18 and are very passionate about enabling kids to develop money management skills. My husband and I have been working on an allowance & money management system (MoneyTrail.net) for kids, teens & families for over two years. We love what we do!

  3. Frugality is often misunderstood. I look at frugality as a set of lifestyle decisions that allow me to allocate resources in a way that works for me. An example would be not dining out as much and using coupons for meals. I then choose to spend these savings on things that are important to me such as travel, education, or fund an IRA. As shocking as it may sound, you can live frugally and spend money at the same time. If I had to define frugality I would have to put it like this: Spending is deliberate not impulsive.
    Paul @ The Frugal To recently posted..Finance for Dummies – Credit ReportsMy Profile

    • I like your definition Paul. "Spending is deliberate and not impulsive" So, a person is more value focused than ostentatious. I like it!

  4. I'm a Buffett fan as well. I think we all need to value the amount of work and time it takes us to earn our money. I value my time too much to throw that effort away on things that don't mean anything to me.

    But if I want to go out for a nice meal, or take the family on a special trip, I go for it!
    Dr Dean recently posted..Friday Follies: Coke Can Canned Edition!My Profile

    • I with you on the going out for nice meals. I say if you plan for it in your spending plan / budget and the money is accounted for go for it. I personally spend lavishly on the things I care for and cheap on things I do not care for.

  5. Frugality is so important but often missed because it is so unglamorous. Still, it's very important. I highly doubt many would have achieved the same level of sustainable financial success without it.
    Roshawn @ Watson Inc recently posted..Is it Possible To Live Without Debt?My Profile

    • Being frugal is like saying "Hey I have a budget". Nobody wants to hear that.. they only care about end results. But, I think Buffet would still be successful if he wasn't frugal.

      • I think all of the people would have financial success regardless of frugality, but that doesn't mean that it would necessarily last. If Sam Walton hadn't laid the foundation of frugality, would his family still occupy so many of the top 20 positions in Forbes?

        The ultimate investor, Warren Buffet, would clearly be very successful without frugality, but his frugality is partially what has endeared so many to him and his ideology. There are "plenty" of Wall Street billionaires who many people don't want to hear from.
        Roshawn @ Watson Inc recently posted..Is it Possible To Live Without Debt?My Profile

        • You do make a great point about the billionaires that people don't want to hear from. But, I think people are attracted to Buffet because, he wins and he wins consistently in the market. The guy just has a knack for getting it done.
          YFS recently posted..TAX SOFTWARE DEATH MATCH!My Profile

          • You care because he get things done. I care because he gets things done. However, I believe most people care about Buffet because they know he cares. His legacy will be much more than a legendary record. His legacy will be his heart, his struggles, his triumphs, and his frugality. I think without some of those other elements, you have an uber-successful investor who is primarily held in high esteem by other investors. Personally, I think Buffet moved beyond that, and rightfully so!
            Roshawn @ Watson Inc recently posted..Is it Possible To Live Without Debt?My Profile

  6. I agree with the list you came up with on things considered to be too much spending!
    Marie at FamilyMoney recently posted..Are You the Next Suze Orman," internationally acclaimed personal finance expert"?My Profile

  7. Yes, I agree with prudent investing being the key. These billionaires are successful investors. But we need to be careful with investing as you can also lose all your money.
    UltimateSmartMoney recently posted..Risks Managment for Retirement PlanningMy Profile

    • That is why I believe you should only invest based on your particular risk tolerance. You only make gains or losses when you sell :-)

  8. I maintain a low profile lifestyle and still enjoy life. I spend money when I see enough value.

  9. I don't know any extremely rich people but know some rich ones. They seem to be frugal, you are right. One really rich person I know insisted that in a restaurant we pay for what we have had rather than split the bill in two. Embarrassingly she thought that I have eaten more.
    Maria@moneyprinciple recently posted..The Big British Walk OutMy Profile

  10. I think there is much more to be said for the simple life than people give credit for. When you want and need less you have less stress and often feel more satisfied. There isn't that pressure for more. Living the simple life is definitely something I am trying to embrace.
    Miss T @ Prairie Eco recently posted..The Christmas Tree – Artificial or Real?My Profile

    • I am also trying to live simple. But, it is tough especially if you're living simple by your own decision and not by force. I have a post coming up about the type of not so simple car I want but, won't purchase.

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