How Rich People Handle Money

January 28, 2014 — 10 Comments

Check out this great story from a reader, Drake, on how his rich father handles money.  Sometimes we like to think all rich people are driving around in brand new BMW’s and Mercedes… when in fact, most of those new cars are driven by people who can’t even afford them!  Here’s the story:

How rich people handle money

Does this look like the kind of car a decamillionaire would drive? Well guess what, it is!

I’m not personally wealthy, but my dad is moderately affluent and I’ve learned the power of frugality and living below one’s means from him over the years. He’s been driving Japanese econoboxes and minivans for as long as I can remember. He’s driven 3 cars in his lifetime (all of which he wrote a check for in full at the time of purchase except for his very first car which he financed) – an ’84 Toyota Camry, a ’95 Nisan Quest, and an ’06 Honda Pilot. That’s it. He write checks for cars in full and drives them until they break down.

Currently he’s 55 and will pull in, oh I don’t know, anywhere from $550k to $700k per year (AGI – federal income tax takes a hefty $150k-$200k of that each year. I’ve seen the checks to the U.S. Treasury!) or so and yet he spends maybe $6k-$7k per month on total living expenses in a relatively low cost of living area (Texas). As a result his overall net worth is between $5M and $10M and yet he doesn’t harbor any notions of ever driving a luxury car. In fact, he doesn’t even consider himself to be wealthy. If someone were to ask him what social class he’d consider himself to be in he’d probably say “middle class” and then begrudgingly add “upper middle” as a qualifier if pressed.

After his Pilot he’s already told me that he has plans on purchasing a Prius as his next vehicle.

Granted this is not to say that he’ll never spend money on anything. He values experiences more than material possessions. For example, one of his dreams is to ride that Virgin Atlantic aircraft to space ($250,000 per ticket!).  But really, more than anything else he values financial freedom. He says the feeling of working only because you want to and not because you have to is just amazing and is worth working towards.

But, I mention this because I’ve noticed a trend where a lot of people seem to doubt the pentamillionaire and decamillionaire statistics (not in the comments section of this article, but just in general), but they definitely ring true in my dad’s case. The ’06 Pilot is the most expensive car that he’s ever purchased and it was in the high 20s or low 30s I believe. He also never gets navigation with his cars because he thinks a handheld $100 garmin does the job just fine and you can save a good $3000-$4000 this way. For what it’s worth he wears a ~$200 Seiko, wears $~100 dress shoes, and the most expensive suit he owns is maybe $400 or $500 (because to my knowledge Stanley’s books mention pentamillionaire/decamillionaire stats for various items like these in addition to large purchases like cars and homes).

Pretty great story, right?!  If your parents are decamillionaires and you want to share a story, please send it my way 🙂

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10 responses to How Rich People Handle Money

  1. Well I suspect Drake’s dad is really upper class when it comes to money, but his lifestyle and attitude is very middle class. We need to hear more stories about people that choose to live below their means so that when emergencies arise they are prepared.

    Do you notice how many emergencies some people have, while their friends that don’t? They don’t spend their entire paycheck the day they receive it and have so many fewer emergencies and are able to cope with life’s little upsets. I knew a family once that their life almost always had an emergency of the week. We didn’t have much, but sure weren’t having the same problems as they were. Yet even though it wasn’t the custom any more, on Easter Sunday their little girls had new dresses, a hat and a spring coat. Money that could have been spent on their other needs. My boys got new clothes when they needed them, not when the calendar said that there was a day that it was necessary for new clothes.

    • Gailete – that’s such a great point that when you are prepared for emergencies and have the money set aside to handle them, they aren’t nearly as frequent. Thanks for adding the story about your acquaintances – we can learn from the poor just as well as the rich!

  2. This is a great perspective on money and possessions and makes perfect sense to me. My wife and I talk about stuff like this fairly often. You could say we are dream building for what can bring value into our life. Cars are rarely something that comes up, they are something to get us from point a to point b. But our house is important. We like the house we live in. The things we can see doing for the house are things that will add value in the long run.

    You can’t invest in something that will only lose value over time (like cars).

    • I’m with you Jon, our house is (was) very important to us as well. After we found the kind of house and neighborhood that we loved in New Orleans, we have certain things we’ll have to have when we buy our next house.

  3. I love the story Dan. As you know I have lived way below my means. I didn’t start that way but somewhere along the line I figured it out. It really does matter to have the ability to work because you want to not because you have to. As for my parents, they were both educators, not the highest of income professions but they did instill in us the value of frugality and common sense. 🙂

  4. It took me some time to figure this out as well. My father was a saver and my mother was a spender. You already know what most of their arguments were about, right? My husband and I have been working hard to keep our expenses at a minimum without depriving ourselves of actually living – going out to eat once a week, for instance. We have been adding as much to our retirement accounts as we are allowed to each year. Neither of us plans to ‘retire’, but we don’t want to fall into that category of ‘have to work’ in order to ‘live’ later in our lives. These are great stories to share Dan. 🙂

    • Cheryl, I’m glad you like the story. It’s so important to be on the same page financially with your spouse – as you witnessed personally from your parents! It’s great that you and your husband are on the same page.

  5. I come from a lower middle-income family. We were truly a waste not, want not household. My father could stretch a dollar further than anyone I ever met. I’m not a spend thrift but I do feel it’s important to spend money on things you enjoy — within your budget. I pay my credit cards every month. I have no debt. It’s a great feeling.

  6. I stumbled upon your website and I completely “get” your articles. 🙂

    I’m 23, a recent college graduate (December 2013), I have a full-time job I love and over three months of emergency funds tucked away (and growing). I also have $0 credit card debt but 100% credit access, if I need it.

    I am so big on personal finance and I aspire to be “The Millionaire Next Door” type. I was “Googling” about only buying a mortgage that’s two times your annual salary or less and that is how I found you. That is actually advice from “The Millionaire Next Door” book.

    “If you’re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s total annual realized income.”
    ― Thomas J. Stanley, The Millionaire Next Door

    Cheers!

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