Seven frugal habits of the self-made rich
Secret millionaires are walking among us.
You won't find them flaunting their wealth with flashy sports cars, giant mansions or designer fashions, because that is the key to their success.
These underground financial whizzes waltz through life in plain disguise, and could even be your next-door neighbour.
That is the central premise behind The Millionaire Next Door, a famous book written by affluence researcher Thomas J Stanley.
After interviewing and studying thousands of millionaires, Stanley came to the conclusion that people who look rich often are not, and vice versa.
As it turns out, glitzy displays of wealth and a penchant for prestige brands is mostly the domain of middle-class wannabes.
While they are trying to copy the ideal of a rich person, as fed to them by advertising, glossy mags, and TV, they are really just imitating each other.
Auckland financial adviser Susanna Stuart, of Stuart+Carlyon, remembers a client from many years ago who used a supermarket bag as a handbag.
This apparently destitute person was actually worth millions, Stuart says.
"You'd see them walking down the street, and you'd never dream they were very wealthy."
Of course, plenty of ultra-loaded glitterati do indeed indulge in the hedonistic excesses of luxury shopping and designer brands that you might expect.
But many of the self-made rich, even if they are now worth billions, stick to the penny-pinching habits which helped enrich them in the first place.
Here are the seven frugal habits of the self-made rich:
1. Forget about the Joneses
The most important characteristic is the ability to resist pressure from advertisers, peers, and society at large to always have the latest and greatest.
Whatever you think about Don Brash's politics, his personal finance credentials are impeccable.
After years as a top politician and Reserve Bank governor, Brash has almost certainly accumulated a few million.
Famously, he is the kind of man who would wash his undies and socks in hotel sinks in order to save taxpayer money.
In this interview with BusinessDay, Brash revealed some of his money-saving habits.
He still owns a watch he was given when he was 15, drives an 11-year-old Toyota, and lives in a small two-bedroom apartment.
As is often the case, Brash's money habits were ingrained through a humble upbringing, with his parents heavily influenced by the Depression.
"We never lived in dire poverty, but we didn't ever have much money," he said.
2. Buy a modest house
Through the course of his research, Stanley found that one factor with the greatest impact on wealth was a person's choice of house and neighbourhood.
Those who live in million-dollar homes are usually not millionaires, he wrote.
"They may be high-income producers but, by trying to emulate glittering rich millionaires, they are living a treadmill existence."
The best-known example of this is billionaire investment guru Warren Buffett, a regular advocate for sensible saving and investing.
Buffett is worth over US$60 billion ($68 billion), but still lives in the same Omaha home he bought over 50 years ago, for the paltry sum of US$31,500.
Stanley found that almost one third of millionaires lived in homes valued at US$300,000 or less.
Amazingly, some 67,000 were even cutting costs to the bone by living in mobile homes.
That would come as no surprise to Jacob Fisker, a former nuclear astrophysicist renowned for writing a detailed roadmap for early retirement.
Living in a RV before switching to a modest house was a key part of his own journey to retiring in his early 30s.
3. Drive a sensible car into the ground
Brash is in good company. Stanley found the number one car of choice among millionaires was not the BMW or Mercedes, but the humble Toyota.
In contrast, 86 per cent of "prestige cars" were actually being driven by non-millionaires, many of whom were underwater on payments.
Facebook founder Mark Zuckerberg is the richest person under 30 years old in the United States.
While he could afford to buy out Ferrari's entire factory, he instead drives a $US30,000 hatchback, reportedly "because it's safe, comfortable, not ostentatious".
If that was not proof enough, Zuckerberg's wedding to girlfriend Priscilla Chan was a simple ceremony in his own backyard with 100 guests.
4. Forget following fashion
Zuckerberg is famous for his closet full of plain grey t-shirts and hoodies.
Even first lady Michelle Obama does not turn her nose up at cheap chain store clothes, rocking a US$35 dress from Target on national television.
5. Embrace minimalism
Stuart says there is a newer line of thinking coming from some of her younger clients, pushing back against consumerism and material possessions.
It often comes from people with spiritual values, or concerns for the environment, she says.
"Even though they have the wherewithal to spend, they will be modest with their spending," says Stuart.
You won't catch tech entrepreneur Graham Hill endlessly purchasing new cars or toys to try and fill his life with meaning.
The multi-millionaire founder of Treehugger.com lives in a small apartment with a fold-out bed, and believes that less stuff leads to more happiness.
Check out his TED talk with three of his life-editing strategies here.
6. Hunt for bargains
Failed US presidential candidate Mitt Romney has a net worth estimated at US$200m.
But that does not stop him from hunting out cheap flights, buying his golf equipment from Kmart, and even hiring a trailer to shift house.
A family friend has revealed one Mitt mantra: "Just because you can afford something doesn't mean you should buy it."
Award-winning actress Hillary Swank grew up in a trailer park, and briefly lived out of a car before making the big time.
She famously revealed she still sticks to her frugal ways, buying basics household goods in bulk and clipping coupons.
"When you open up the paper and you see those coupons, it looks like dollar bills staring you in the face," she said.
7. Lotto is not a retirement plan
The other common trait of the self-made rich is that they take charge of their lives, and actively spend more time planning their financial future.
That means not buying into the myth that the only way regular folk can get rich is by winning the Lotto.
Statisticians frequently remind us that playing Lotto or other forms of gambling should are an enormous waste of money, other than the "fun" value.
Brash clearly has a good head for numbers, and has never bought a Lotto ticket in his life.
"I think most of those gambling activities are really a very regressive form of taxation," he said.
"They are particularly hard on low-income people, who cherish the myth that they'll have all their financial woes fixed if they can just win Lotto."
Going too far?
It can be difficult to relax the purse-strings once wealth has been accumulated, especially for those raised in austere circumstances.
Stuart's mother was born in China in 1930, and lived in extreme deprivation while trying to escape the second Sino-Japanese war.
To this day, she still hoards plastic bags, refuses to turn on the heater, and sets aside some of her NZ Superannuation payments.
"I keep telling her she can spend it all, she doesn't have to worry. But she can't help it," says Stuart.
"I've got clients who are very similar," she says. "They don't spend on anything."
For some it is an ingrained habit, while others are under pressure to protect an inheritance for their children.
Thankfully, most of the self-made rich are easily able to strike the right balance between Scrooge-style hoarding and a full on blow-out.
"Most of my clients have worked hard, and they are happy and fulfilled and enjoy themselves," says Stuart.
"They have no problems spending their money."