The Importance of Being Earnest (In Saving)

The following is a guest post from Estrategias Financieras.

I finally got around to reading the infamous The Millionaire Next Door by Thomas J Stanley. I haven’t gotten to half way through the book yet, but something that has pinched my interest and just won’t let go of it, is the characteristic that was found among the great majority of millionaires surveyed. This characteristic is: Frugality.

They interviewed 10 deca-millionaires (people worth at least 10 million dollars), and being frugal was the most noticeable shared characteristic among them. They are big time savers; they don’t spend money on non-sense and they give this habit a great deal of credit for their success. I have always been an avid advocate of saving; everyone needs a financial cushion, everyone has to have a financial cushion, but maybe there’s more to it than that.

All this leads me to ask this question: Is saving a better way to riches than everyone thinks? Maybe it’s way underrated. Do you know someone who has done it this way? It’s not unlikely, saving is a great habit and it can have very many awesome side effects. A lot of financial consultants will say that savers are losers (due to inflation and taxes), and because they want people to buy their funds.

I used to think in this manner, but the more and more I learn about multimillionaires; the more I am beginning to think that saving is getting the ugly duckling treatment in the world of money making and it’s time to revisit it under a different light. I really believe that saving can lead to riches, if only because by saving you can eventually come up with the money for that million dollar idea you’ve been keeping a secret.

It could also be that by saving you can accumulate enough cash for when that awesome real estate deal shows up – there’s nothing worst than the feeling of: “I’d know exactly what to do if I had the money for it.”

Maybe by saving, you can accumulate enough cash to partner up with a friend to start or buy into the business you’ve always wanted. There are many ways in which saving up can lead you to riches. We all know that in most occasions it takes money to make money, and if you want money you either go get it or don’t let it go so freely. I suggest that the latter can be a bit easier.

Hey, if all these deca-millionaires are so big on saving, maybe we ought to start paying attention. The easiest way to achieve success is to copy someone who is successful.

Comments

[Pop]

"It could also be that by saving you can accumulate enough cash for when that awesome real estate deal shows up – there’s nothing worst than the feeling of: “I’d know exactly what to do if I had the money for it.”

That's precisely what I've been doing for the last 4+ years in California. I won't be waiting much longer. I was too young the last time to take advantage of the deals; not this time.

[Autumn]

It's important to note that he didn't pay alot to the people he asked to take his surveys, nor to the millionaires that they interviewed. So that skews his data quite dramatically.

[JB]

It's also good to remember correlation does not imply causation.

Great savers are great managers of cash-flow, which is absolutely essential in running a successful small business. Perhaps frugal savers are wealthier because that skill translates into a greater income in their working life.

[Jonas]

I think Millionaire is a millionaire, regardless. So the data can't be that skewed after all. I agree, saving does give you great cash-flow managing skills and these are a must to have financial success.

[Chris]

I tend to lump both my savings and my automatic mutual fund investments into the same category. Obviously there's no guarantee that my investments will be productive, but I'd say its a pretty safe assumption. To me the real key to gaining wealth is to use your money towards appreciating assets instead of depreciating ones.

[Success Professor]

Thanks for the reminder. The Millionaire Next Door is a great book, and I love the idea of being frugal as a starting point. My favorite is the philosophy of John Wesley, the English preacher from the 1700s. He believed you should 1. Make as much as you can, 2. Save as much as you can (frugal), and 3. give away as much as you can.

[observer]

A person earning $100K and a person earning $15K disagree on the operative definition of frugality. The latter can be far more frugal than the former yet die poor.

[Lindsay]

“I’d know exactly what to do if I had the money for it.”

That was the way I felt when Google had its IPO, heh.

I need to reread that book and get inspired to be a little more frugal. I don't have any debt (aside from a mortgage), but I've definitely noticed that as my income has increased over the last few years, my spending has to. I'm all for increasing one's income, but what's the point, if you don't increase your net worth as well? :)

[ProsperityJunky]

The millionaire next door to me is one of the best book about personal finance. He talks about two things: 1. making money 2. saving money The people that can do both are PAW's (prodigious accumulators of wealth). Saving money is as important as earning money. It is when you can do both really well that you will get very wealthy. However, even if you don't make a lot if you can save very well for a long time eventually you will get wealthy also. It's not that saving is a better way to wealth than earning a lot but it helps to ensure you will be wealthy and it will be the path to wealth for most people.

[Steve in Overland Park, KS]

I think the 2 key factors to becoming a self-made millionaire are

1) owning your own business

2) frugality and sensibility with money & investments