I had a very depressing epiphany the other day. It suddenly dawned on me that there is a good chance I'll never get rich -- because of my character, of all things. I think I'm just not cheap enough.
Don't get me wrong -- I have a sizable cheap (er ... "frugal") streak in me and deny myself plenty of luxuries. I have no wide-screen, high-definition TV (yet). I drive a four-cylinder 1999 car. I have yet to take an Alaskan cruise or fly first class. Still, I do every now and then indulge myself. At a Christmas Eve service, for example, I heard such a lovely anthem sung in church that I immediately ordered a recording of it off Amazon.com. More significantly, I had some landscaping work done in my yard that I could easily have lived without. The money that cost me would have bought at least 100 shares of many wonderful companies, such as Avon or Cisco Systems or Microsoft.
I also spent some money on a little remodeling project in my bathroom. Necessary? No. Worth it? Well, the jury's out. It's certainly lovelier, but if I'd invested that money instead, my retirement might end up more comfortable. In 25 years, maybe I'll be thinking that those blue tiles and tub weren't so bad.
Small decisions now, big differences later
Think of it this way. Let's say I have $5,000 in disposable income that I can spend on landscaping and/or a bathroom remodeling. The payoff is immediate (or near-term) enjoyment that will last a long time. But I could delay that gratification by investing the money instead, and that would also offer me a compelling end result. For example, if I invested $5,000 in some more shares of Johnson & Johnson
Let's take this thought a little further now. Robert Brokamp, who oversees our Rule Your Retirement newsletter service, has pointed out that a safe withdrawal rate from your nest egg is around 4%. That means that if you don't want the money to run out, you shouldn't be withdrawing much more than 4% of it annually. So if I ended up with $85,000 in 2030 because I decided against some landscaping and white bathroom tiles in 2005, I could expect to withdraw around $3,400 per year, or $280 per month. If I ended up with the $150,000, I could withdraw $6,000 per year, or $500 per month. Notice that these annual sums aren't far from the entire amount I initially invested. It's like deciding not to spend $1,000 once, and later receiving $1,000 every year for many years. Not a bad trade-off, when viewed this way.
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How the rich live, sometimes
Still, the truth of the matter is that I already spent that yard and bathroom money, so I can't invest it. That ship has sailed. My recent epiphany was that a lot of wealthy people I know would not have spent that money, and that may be a big reason why their financial picture looks healthier than mine.
In fact, when you look closely at many wealthy people (or at least those with net worths considerably more than average), you'll find that they make some surprising financial decisions. Here are some examples:
- A two-lawyer couple I know enjoys a household income well in the six figures and has lots of equity in a nice home. They have just two televisions, though, each 19", and when the VCR/DVD player connected to one broke, it wasn't replaced, even though such items can be had for less than $100. Instead, the working player was moved to the other TV.
- Another couple I know runs a successful small restaurant together. They seek out the lowest prices they can find (while not compromising much or at all on quality) for items such as bottled drinks, potatoes, eggs, onions, meat, and canned goods. This means they spend a lot of extra time each week frequenting a bunch of different vendors instead of just getting everything from one or two places.
- A professional friend who lives in a dwelling worth more than $700,000 and earns perhaps three or more times the average salary in his region was excited to have a $20 coupon to a retailer and didn't want to leave the house to go shopping until he found it. I recently noticed that he dries and reuses paper towels.
These little episodes often have me muttering to myself something like, "How cheap can you be?" Me, I'd just buy another VCR/DVD player, and I'll grab a new sheet of paper towel when I need one. But when I stop and think about it, these are the kinds of mindsets and actions that help people get rich -- without extreme pain and suffering. As we've been told many times, there are ordinary people all around us who are much richer than we'd think -- because they live below their means, clip coupons, shop carefully, and invest prudently.
We can learn, and change
Fortunately, all is not lost. Even if we don't have these instincts, we can cultivate them. I'm planning to spend very little on landscaping for the rest of my homeowning life. I've become more interested in gardening and will be growing my own seedlings in my basement this winter, as I did last winter. I'm also going to try to lay floor tiles in my bathroom on my own -- once I save up enough to buy the tiles.
By putting your mind to it, you can prioritize your financial needs. After dreaming for years of being a PepsiCo
Learn more about how to think and act like a millionaire in these articles:
- Become a Millionaire -- Automatically
- Be the Millionaire Next Door
- Are You Joe Millionaire in the Making?
Selena Maranjian 's favorite discussion boards include Book Club, Eclectic Library, and Card & Board Games. She owns shares of Johnson & Johnson, PepsiCo, and Pfizer. Formore about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.