Is the Frugal Millionaire a Myth?

We’re often told we can save our way to wealth, or at least that being frugal can have a huge impact on our finances. It can be frustrating when we know that a lot of the people we see with money didn’t get it by being frugal. They often got it via inheritance, or simply by being born into a wealthy family, which gave them a lot of other advantages, but no reason to ever be frugal with their money. So is the idea of the frugal millionaire a myth? Or is frugality really a way to become rich?

How Millionaires Really Live

To this day one of the most interesting books I’ve read about money is the 1996 classic The Millionaire Next Door. As you can probably guess from the title, it addresses the fact that many people living in ordinary neighborhoods live next door to a millionaire. This is because many millionaires would rather have a million dollars in net worth than look like they do. They’d rather have the liquid assets than the mansion. The freedom that comes with financial security rather than the fancy car, clothes, and other trappings.

The book points out that many people living in million-dollar homes don’t have a particularly high net worth (and certainly don’t have a million dollars) just a high income that allows them access to a huge mortgage. Conversely, many people with a million dollars in net worth live in modest homes, valued at significantly less than a million dollars. Meanwhile, research shows that 57% of the most affluent households shop at Home Depot, 46% at Walmart, and 45% at Target. Not the type of stores we might frequent perhaps, if we were hoping to bump into a millionaire.

So yes, many millionaires are fairly frugal, but is there maybe a good reason for this?

Are Millionaires Even Rich Anymore?

One thing that strikes me every time I re-read The Millionaire Next Door is that a million dollars just isn’t what it used to be. Inflation combined with consumerism means that you can have a million dollars and still feel the need to avoid over-spending, especially if you’re uncertain about future expenses or want to leave a legacy for your kids.

The uber rich we see in the magazines aren’t millionaires, they’re billionaires or multi-billionaires. I’ve talked before about what a huge difference that is, putting a millionaire, statistically speaking, (much) closer to a homeless person on the street than he is to a billionaire. Rich is relative, and in a world where a sudden disaster such as a healthcare crisis can wipe out a million overnight, being a millionaire just doesn’t mean what it used to.

Millionaires are, of course, very privileged, compared not just to the poor but to the average middle-class household. However, it’s not ridiculous or surprising that they are still often frugal enough to shop at Walmart, at least some of the time.

What Being a Frugal Millionaire Really Means

It’s also important to note that being frugal as a relatively high net worth individual is different from being frugal because you genuinely have no other choice. Frugality can be fun, satisfying and even entertaining when you have money. The people bragging over what a bargain they got buying something on sale are not the ones who could have afforded to buy it full-price.

If you grew up poor, and thought you’d buy every item of clothing from Gucci, once you ‘made it’ in life, you’ll probably surprise yourself when and if you do have a significant net worth. Bargain hunting is fun, when it’s not driven by desperation. It’s about having money in your pocket when you find the right bargain, not debt around your neck if you don’t.

So Can You Save Your Way to Financial Freedom?

The short answer is yes, but with a lot of caveats. Frugality was one of the commonalities found when surveying millionaires for The Millionaire Next Door, but that was defined as a commitment to saving, spending less, and adhering to a budget. Whether that’s frugality or simple good financial sense is perhaps a matter of opinion.

Ultimately, those forced into extreme frugality by poverty or very low wages aren’t going to end up as millionaires, whereas those with good jobs and higher than average incomes, who exhibit “a commitment to saving, spending less, and adhering to a budget” might well manage to amass a 7-figure net worth over time, depending on other factors, of course.

It’s worth noting, for example, that confidence in financial management and investing is another thing that millionaires have in common. Building wealth isn’t really about saving money, it’s more to do with how you put that saved money to work for you. However, according at least 100 millionaires recently interviewed, they aren’t making particularly unusual, or risky, investment decisions. They’re more likely to be simply investing in solid, low cost index funds, over long periods of time.

The frugal millionaire is certainly a thing. You probably know one. Maybe you are one. With a good income, and low cost of living, along with perhaps a few other things in your favor, living modestly can certainly result in a high net worth. The problem, of course, comes when we assume that ‘being frugal’ is enough to make anyone, under any circumstances, wealthy. This is why we tell people their daily latte is the reason they’re not a millionaire, when it’s actually their low wages, or extortionate healthcare costs.

Many factors play into whether you can really become a millionaire through frugality and simple living. That doesn’t mean we shouldn’t embrace these things, just that any impact they have on our net worth will only be apparent in the long-term. And frugality alone, without wise investing, isn’t going to make any of us truly wealthy.

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen