When you think about the world’s most wealthy people, you may think of their lavish lifestyles and free-spending ways. But in 1996 a book drove all those images out of our minds. In The Millionaire Next Door: Surprising Secrets of America’s Wealthy, Thomas Stanley and William Danko busted all those myths.
Many millionaires and billionaires are not as we thought. Their spending habits mirror those of the frugal. So one myth has been replaced with another. The F. Scott Fitzgerald millionaire has been replaced with Scrooge McDuck. Or maybe, to use a more modern analogy, Warren Buffett.
If you read The Millionaire Next Door, you’ll find that most of the people described in the book are business owners. They earned their money the hard way – by starting and running a business. Few inherited their wealth or sit around collecting dividends.
While the book is about how they live their lives, it’s also about how they run their businesses.
Frugal Life/Frugal Business
A couple of notes about these wealthy people. You’ll note that they didn’t get wealthy working for someone else. They are their own bosses, owning a business that started out small and grew.
Is being wealthy a cause or an effect? In other words, was being wealthy intentional, or did it just happen? My theory is that these people set out to take on the habits of a frugal business, not to become ridiculously wealthy, and their wealth grew over time as their habits continued.
What Does a Frugal Billionaire Look Like?
Probably like Warren Buffett. Mr. Buffet lives in a modest house in Omaha, Nebraska (that’s his house above), he doesn’t own a lot of expensive toys (he calls them “a pain in the neck”), he drives an older car, and he patiently waits for sales, buying quality businesses when the price is right.
What Do Frugal Rich Business Owners Have in Common?
Let’s look at the frugal secrets many wealthy business owners possess, and how you can adapt them to your Frugal Business:
Being intentional about what you’re doing.
Everyone who succeeds starts out with intention. Andrea Bocelli, the opera singer, says,
“All that counts in life is intention.”
Here’s a Warren Buffett quote that I think zeros in on what intention is all about:
Mr. Buffett says,
“You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making.”
If you want to live a certain way, you have to be intentional about it. You must consciously set out towards the future you intentionally set out for yourself. And it must be intentional in everything, every day.
Understanding the “Time is Money” concept.
Building wealth and a successful business means consciously dealing with the trade-off between time and money, and finding the balance between them.
These frugal business people have learned how to do things themselves to save money. Several of them, for example, pack their own lunches. Others drive themselves to work.
Living below your means.
You live below your means by not spending all the money you bring in. Here’s an important point many business owners forget: It’s much easier to keep a hold on spending than to keep a hold on income. You can control spending, but you can’t control what other people (your customers) do.
Keeping track of cash, as I’ve talked about, helps you see how much you are spending. Then you can intentionally (there’s that word again) decide what’s important and what’s not, and adjust your spending so that you have something left over at the end of a month.
I like to keep track of weekly spending and income and do an analysis of my budget at the end of each month. Many bills come in monthly, and some client income is monthly, so this is a reasonable time for a gut check.
Having Frugal Buying Habits.
Buying used and buying instead of leasing. Buying a business car, for example, means buying used and buying instead of leasing.Mark Zuckerberg, CEO of Facebook, reportedly drives a Volkswagon GTI.
It means finding ways to entertain clients without spending a lot of money. It means buying office products at wholesale clubs.It means finding coupons and deals, getting a bargain. Yep. Frugal business owners love bargains.
A Shared Commitment to Frugality.
In a household, both partners must be committed to the same frugal habits. The same is true for a business.
Something I don’t talk about much is that you can’t be a frugal business owner on your own. If you have a family business, every family member should be committed to the same things. If you have a business with employees, you will need to train them to be frugal in their spending and their thinking. If you want to run your business along frugal principles, everyone you work with must be ready to do the same.
Having a budget.
The majority of self-made millionaires budget and track every penny.
Making and sticking to a budget is part of what makes a business successful. It’s part of that intention thing. Don’t wait – ask your financial advisor about creating a business budget.
Frugal Business Habits – The Power of Intention
In Yahoo’s Aabco Small Business, Owen Linderholm says that “a frugal mindset is part of what seems to make up wealthier people.” Adopting these frugal business habits can help your business grow and be more successful. And that will help you become more successful – and more wealthy.
- Live – and run your business – below your means.
- Spend more time and less money.
- Watch your spending.
- Live by a budget.
- Get a shared commitment to frugality from everyone in your business.
Here’s to the Success of Your Frugal Business!