The frugal millionaire

To me, part of being chic is being good with money. In my opinion it is not chic to be irresponsible or unreliable with finances. Carrie on Sex and the City joked that she would be the old woman literally living in her shoe, because she had spent all her money on Manolos rather than investing in a pension plan. I don’t find that cute at all, in fact it makes me cringe.

I’ve always enjoyed motivating myself by reading personal finance books. If you make something fun to do, you’re more likely to do it. Forcing yourself to save money in a bank account rather than go shopping sounds dire, but turning it around and thinking ‘I’d rather save for something special than waste my money on that magazine/top like 20 others I own/book to cram onto my overflowing bookshelf’ makes me happy not to shop.

I read The Millionaire Next Door book years ago and loved the fact that most actual millionaires don’t get around in Dolce and Gabbana clothing with Rolexes on their wrist. They are normal looking people who are financially secure. They are basically frugal sorts who are married to frugal spouses (it’s very important that you are on the same page. If one is a spender and one is a saver, it won’t be easy).

They say ‘sure, enjoy a big home and expensive car, but after you’ve earned the money and not before’. And many millionaires they have interviewed don’t even do that (the after part). By and large it tends to be the wannabees who wear True Religion jeans (très expensive in NZ) and drive a Land Rover or Audi 4wd, and actual wealthy people who are more unobtrusive.

I love nice clothing and looking stylish, and so does my husband. We enjoy daydreaming about luxury items and travelling around the world staying at five-star hotels. But we are just as happy with our everyday lives, and build our stylish style on a budget, shopping when places have sales and wearing our clothing more often than others might.

I still think I have too many clothes. But whereas in another, previous life, where I had regular cleanouts of good clothing that was sent to the op shop, only for me to replace it again (that’s why I lived off my credit card), now I simply don’t shop for a long while, using and enjoying the clothing I have. It only is decluttered if I decide I have bought wrong, or downgraded to home-wear if it’s no longer good enough for going out.

I wear a Cartier watch that I paid a small fortune for brand-new ten years ago. Clearly I lost my mind then and thought that one needed a good watch to look the part. I do enjoy wearing it, and I like that fact that it is understated and not flashy, but if I was offered a cheque for the same amount I paid for it tomorrow, I would sell it in a flash. I just don’t need stuff like that to make me ‘feel’ wealthy. I would rather ‘be’ wealthy.

I have discussed with my husband whether I should look into selling my Cartier, as supposedly some brands hold their value. Usually it isn’t worth selling designer goods second-hand as you get a pittance back for them. He said even if I got the amount I paid for it, that much probably wouldn’t make that big a deal to our long-term plans, and I may as well wear it and enjoy it.

So I do. And it’s not to say we’re so rich that that amount of money doesn’t matter to us, but if I had my time over, I may not have bought the watch. Not only do you have to fork over the money, you also have to look after it, maintain it (there is only one Cartier repair person in the whole of New Zealand and it needs to be sent to him to even have the battery changed, you can imagine he’s not cheap), insure it (the watch is itemised on our insurance) and worry about it.

One of the authors of the Millionaire Next Door has written a new title, and I have been listening to the audio book in the car. It is called ‘Stop Acting Rich’ which is an updated version and pretty much advises us to stop ‘acting rich’ to ‘be rich’. Don’t spend your hard-earned cash on status items to look rich - save and invest that money for your future. Only when you are rich should you buy these items.

He tells us that many people in our neighbourhood that look wealthy are likely barely scraping by. ‘Neighbourhood’ is actually his main piece of advice – don’t live in a fancy one if you can’t afford it. Stretching yourself financially to afford a big house in an upmarket neighbourhood could mean compromising your financial future. It’s one of the fastest ways to go broke.

Not only will we get the biggest mortgage we can to afford the house, but then we consciously or subconsciously want to keep up with the Joneses, or the next-door neighbours with new cars, toys, trips overseas, private schools etc. A movie I saw recently - ‘The Joneses’ with David Duchovny and Demi Moore - was a really illuminating look into this.  It's actually one of my favourite movies, I've watched it a number of times now.  Even though you know their life is fake, it's really, really appealing.  I'm being sucked in and I know it's fake!

To ‘Stop Acting Rich’ (and start being rich), the author advises to buy in a moderate neighbourhood where you might be wealthier than the neighbours, but live at their level. Live below your means. You will be less likely to conspicuously consume if your neighbours aren’t. This is especially interesting for us as we have just starting looking to buy a house. I initially thought I wanted to buy a small townhouse or an apartment in an upmarket and expensive area, just because it would be nice to live in a nice area.

I am now changing my mind and thinking we want a normal house in a normal but still nice area, and we have been visiting properties within our price budget. And our house budget is one that we have decided we want to spend on a house/mortgage, not the maximum that our bank will let us have.

As tempting as it is to buy a bigger home fully renovated, or a bigger home requiring lots of work, we are committed to a low-stress European style (whatever that means nowadays, but I take it to mean the ideal Euro person who values experiences over things), we are looking at lower priced homes.

The millionaire next door authors reckon you shouldn’t have a mortgage more than twice your annual household income. When I work it out for us it is slightly less than the small house we are budgeting for. Scary, but that’s what it takes to be financially responsible.

It is quite exciting visiting houses for sale and imagining that we could own it, pay it off, decorate it in faded vintage French style amidst tones of off-white, cream, soft-beige, black and rose-brown. I can even see a bistro table and two chairs on the patio out the front.

Happy living within your means everyone!