Are Rich People Really That Different From the Rest of us?

Rich People

Last week Jason over at Frugal Habits wrote a nice post on The Frugal Habits of the Rich and Famous, which got me thinking about rich people and what it means to be rich. I then read this interesting article on Yahoo Finance and thought it dovetailed nicely with Jason’s post. The article discusses points that Steven Siebold, author of How Rich People Think, discovered in his profiling and interviewing of numerous rich people. While I don’t necessarily agree with all of the points, some are very true.

You can be rich in love or many other things, but what I am talking about is rollin’ in the dough. I am also intrigued by rich people because my hometown, little old nondescript Omaha, Nebraska is home to the highest number of millionaires, per capita in America and is the home of the Oracle of Omaha…Warren Buffett. In fact, Mr. Buffett lives about 15 minutes away. Maybe I should pop on over for a visit sometime, what do you think?

You Don’t Become Rich By Being Frugal

Say what? I thought this was a blog committed to living frugally! It is, but trying to be frugal will only take you so far. I never met anyone who became rich because they ended their morning coffee habit, cut their own hair, bought second hand clothes, or used coupons. While those things are great, and I do many of them, they’ll only carry you so far. I know what you’re thinking…well rich people are frugal too. You’re right, but rich people did not become rich solely from frugality. They also saw the power of earning more money and chased that without abandon. To me, it’s the difference between having a dream that you keep in your head and taking action to turn your vision into reality. It is that search to earn more that makes them rich and the act of living frugally is only a small part of their lives.

Rich People Live Below Their Means

One of the tenets of getting ahead financially is spending less than you earn. I know, it’s simple math but many of us can still get tripped up by it. I did in the past, and am glad that I have learned from my mistakes. You might be saying that for rich people it’s easy to live below their means. I cede that point, but I also know, or have heard of, many well off people who make bank only to throw it away. They do so to the point where they’re swimming in debt with no real way of getting out.

Rich People Are Smart With Risk

Fear can be a powerful thing. It can cause us to make poor decisions, or hold us back from realizing something spectacular. Risk is no different. Rich people, in general, see risk and are wise with it and use it to their advantage. They’re more apt to use leverage for their benefit. Sure, it might come back to bite them from time to time, but in the long run they’re ahead because of it. Ultimately, rich people will use that leverage and act when others are less apt to and see it as an opportunity to benefit themselves.

People Become Rich Through Logic and Following Their Passion

For many of us money is an emotional issue. It can be a very difficult thing to separate money and your emotions. Rich people become rich because they’re not emotionally tied to money. They remove emotions from the equation and look at money logically and are able to discern their available opportunities. They also find what they’re passionate about and chase it down. They find what they love and look for a way to get paid for it.

So, to answer my initial question, rich people really aren’t that different from the rest of us. While relatively few people are born into wealth, we all have things we’re passionate about. We all have dreams. The difference is how we pursue them. Do you dream about running your own business? As one speaking from recent experience of making the petrifying plunge into the world of taking action on my dream (and the possibility of unlimited, yet inconsistent income that comes with it) I can say that I’m not rich yet but I know I never would have had the chance if I’d kept my dreams in my head. The key is taking action on our dreams and relentlessly chasing them down until they become reality.

What are your thoughts on rich people? Maybe you’re rich and we don’t know it? Do you think we’re really that different?

Photo courtesy of: Brian Nunnery

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About the author:

I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. You can connect via Twitter / Facebook.

52 comments on “Are Rich People Really That Different From the Rest of us?

  1. Last time I did some reading on Warren Buffet, he was still living in a very modest house … with his ex-wife! I think being frugal can make you rich if the mindset that gets you into the groove of frugality is extended across the rest of your life – if you are constantly assessing value for money in investment decisions it should pay off in the long term.

    Being rich is also relative. If being frugal allows you to save up enough money to stop working at 30, then you’re rich in my books, even if you don’t drive a Ferrari.
    James @ Free in Ten Years recently posted..10 blogs I read this weekMy Profile

    • He does live in a very modest house James. It’s one he bought decades ago, in a very modest neighborhood at that. I’ve heard that about the ex-wife as well.

      I agree that the similar mindset of frugality can translate into other areas, but frugality itself will not make you rich. I agree that rich is, in general, a relative term. I was being specific though about those that are just crazy rich with money.

  2. As you said, I think being smart with risk is one of the keys to becoming wealthy. If you want to make more money, there is almost always some risk involved with that opportunity. Those who become wealthy are able to make that jump. On the flip side, the wealthy often do not take unnecessary risks that some non-wealthy people do. They are able to manage risk (and fear) well on both ends of the spectrum.
    Greg@ClubThrifty recently posted..Sir John Templeton’s Definition of DiversificationMy Profile

    • I totally agree Greg. I think, in general, they do have a healthy appetite for risk. But, like you said, many will only take it if it’s to their advantage and have a good upside.

    • I think that’s a thing we miss many times in the PF community. Being frugal is great and all but can only take you so far. If you add it to bringing in additional income then you’re hitting the sweet spot.

  3. How exactly you define rich is also a question. We are just barely over the median income line, so not rich by most ways of defining the word, but compared to my parents, we are fantastically well off. We own a home, while they still rent. I have an emergency fund and a retirement account. My parents are in their mid-50′s and all off their money combined doesn’t require a comma to list.
    Edward Antrobus recently posted..Places I’ve Been: Week Ending Oct 27My Profile

  4. I agree 100%! Living below your means is the number one thing anyone can do to increase their wealth no matter how much money they make. Being deployed on several occasions you instantly realize the only thing you need to survive is food, shelter, and clothing. Not to mention when you strip your life down to the “bones” as I call it, you start to appreciate things FAR MORE than you did before. Great post!
    Brick By Brick Investing | Marvin recently posted..Market Conditions (10/28/2012)My Profile

    • I would tend to agree Catherine. I think many times we can focus just too much on our bank accounts to determine our value and wealth. You can be rich in many things and not be a billionaire.

  5. I agree that it takes being frugal and understanding how to manage your money in investments that leads to becoming rich. And like someone else commented, being rich is all relative. WB still lives in a modest home and I’ve heard of other billionaires who still drive economy cars. I also read somewhere that a lot of the oil tycoons dress and live so normal you wouldn’t be able to tell they got money flowing out their ears. ha!
    John recently posted..Toyotomi Hideyoshi | 15th Century Warlord Unites The Land of the Rising SunMy Profile

    • Good point John, I totally agree. Buffett does live in a modest home and in a very modest neighborhood. I think I might enjoy my money a bit more if I were an oil tycoon, but who knows?!? ;)

  6. The part about leaving emotions out of it is spot on. I’m not rich. But when I was getting into affiliate marketing, some days I’d end up spending $1000-2000 to turn a profit. I’ve known many affiliates who were just too scared to part with their money and never made more than $50 in profit.

    Being attached to your money whether through emotion or out of necessity makes it that much difficult to use it in creative ways. When I spent $3,000 on a website, was I scared it would never turn a profit? You bet! Did I spend it anyways? Yep. Did it work out? Luckily it made back 5x the amount I spent.

    I’m not rich, nor do I qualify to give advice in this area, but I can attest to how emotions impact our spending and our investments. It’s a risk, but some risks have to be taken to get ahead financially.
    Veronica Hill recently posted..Why You Will Never Be RichMy Profile

    • Great points Veronica. You have to spend money to make money in my opinion. If you allow that emotion to dictate your decisions, then you’ll probably not progess very far.

      I think a huge key is being wise about that risk. Make sure there’s something in it. Risk for risk sake will come back to bite you. There’s a balance to be had I think. I hate spending that kind of money too, but I will get nowhere if I don’t roll the dice.

  7. Frugality is an excellent foundation to wealth building, but it will only carry one to a certain threshold. Money tends to be attracted to itself, and (just as a conservative example) there is a huge difference in passive interest earned between a savings account with $1,000 balance, for example, and a savings account with a $100,000 balance.

    Earning that initial $100,000 is what is the true pain in the arse, from what I have heard, but after that, things tend to get much easier. Frugality is merely the beginning baby steps to true wealth creation.
    Jennifer Lynn @ Broke-Ass Mommy recently posted..A Few Indulgences for Frostier WeatherMy Profile

  8. I enjoyed your first point a lot: pinching pennies through clipping coupons and being frugal is a great thing, but it doesn’t do any good when we’re blowing through hundreds of dollars every day by buying too expensive of homes, financing vehicles, and living life well beyond our means.

    The Millionaire Next Door by Thomas Stanley really gave me a great appreciation of how the average person can become a millionaire. It’s not hard…you just have to make a reasonably decent income, life on far less than you make, and save and save for many years.
    WorkSaveLive recently posted..1-Year Blogoversary Giveaway! Apple iPad Mini, $100 Amazon GC, $50 Paypal Cash!My Profile

    • I completely agree Jason. There a great thing, and I do many of them, but it will only take you so far.

      I need to read that book. I’ve heard great things about it. I just need to break down and buy it.

  9. I find it very hard to be frugal and take risks, as most of them involve spending money. But certainly if you believe in your dream and take the plunge, you may be on the way to riches. We often hear stories about modest workers who die donating millions to the local charities too, because they lived frugally and invested most of their income in stocks, but that is rare.
    Pauline recently posted..32 random factsMy Profile

  10. Unless you were born a trust funder, I find that people with lots of weath are a bit different from the status quo. You can make a good salary with lots of different occupations or jobs, but you have to own something people want to buy to be really rich in most cases or invest a ton in cheap real estate that goes nuts. I guess a little luck is involved as well. but it certainly takes that specific kind of personality.
    Kim@Eyesonthedollar recently posted..What Happens Before and After Foreclosure?My Profile

  11. I’ve read the same thing about rich people being better at mitigating risks rather than taking them, and also about being truly passionate and ambitious. I have to agree too with the frugal part. Although I consider myself to be pretty frugal, I do find myself seeing certain things as being silly the more rich I become. Do you ever watch America’s Cheap-skates? That show is pretty funny with how ridiculous some people get to save a buck!
    My Money Design recently posted..What’s Your Scariest Money Story?My Profile

  12. Great post. Emotional ties to money can cause all sorts of fears in people especially when it comes to releasing it to chase those dreams. We focus so much on all the failures of others that we forget that there are successful people out there that have gotten risk by taking the plunge. Now that we have the money to pay our mortgage off we can start to figure out what dreams we want to bring to life and whether we can make money from our life’s passions. It’s all about doing instead of trying. When you do it you jump right in, when you try you just get your feet wet but procrastinate. The rich get richer you bet because they leave the emotions at the bank and focus on the overall picture.
    Canadian Budget Binder recently posted..How We Renovated Our First House For Under $25,000My Profile

  13. I completely agree that being frugal won’t make you rich. However, I think it’s what you do with the money you save that can make you rich. If you pay off your home early and invest your old mortgage payment over 20 or 30 years you’ll probably become wealthy.
    Most people who remain wealthy don’t try to keep up with the jonses. The people who spend it on a crazy lifestyle all are usually heirs, like Paris Hilton ect…. And just because you make a good salary doesn’t mean you’re going to stay rich. How many pro athletes and celebs have made millions a year and ended up in bankruptcy because they lived a lifestyle they couldn’t afford.
    justin@thefrugalpath recently posted..Three Things I am Glad That My Parents Taught Me About MoneyMy Profile

    • I totally agree Justin. You have to make your money work for you and not be stupid crazy with it. I think a key is just keeping your head down and working, working, working on making your money work for you.

      I like your point about celebs and athletes wasting their money. I saw a show a few weeks back about pro athletes who made millions of dollars over their life to just become flat broke. It was quite sad really. A lot of it came down to them, in general, having no money sense and being taken advantage of.

  14. Thanks for the mention John!

    I agree, rich people become rich usually because they are entrepreneurs and take a risk that pays off. In addition they also live below their means and don’t spend everything that comes in like some pro-athletes. Being frugal, won’t make you rich, but hopefully will help you live below your means. You will need to find a good source of income and save it to become rich. Usually this means a business, or becoming an executive at a company. I’m not sure what else can make you “very rich” besides that. You certain can do “ok” in many different fields, but the mega rich are usually business owners. (unless you’re an actor or a pro athlete)
    Jason Clayton | frugal habits recently posted..12 Smartphone Apps that will Save you MoneyMy Profile

    • Not a problem Jason.

      I would agree, being frugal will only take you so far. If you implement it wisely it can develop into a holistic approach of looking at money and living wisely with it. I think that also includes risk and being comfortable with it and using it wisely to up your income.

  15. Its an excellent point to highlight that frugality will never get you “rich” in the traditional monetary sense of the word, but frugal living can certainly make you feel rich in comparison to where most people’s finances are sitting when they initially decide to start living a more frugal lifestyle!
    Its all relative I suppose!
    Great article, thanks for sharing:)

    • Great point. I think frugal living just allows us to form a mindset of living below our means, which hopefully can be combined with increased income over time. Thanks for stopping by!

  16. I would agree about your points on the limits of frugality. I think it’s important to get to a point where you are living below your means to a level that works for you, and then ramping up and focusing on earning more money.

    Brian and I are pretty happy with our level of frugality right now (eg. we bring lunch to work, but we don’t make our own soap) and we’re both committed to increasing our sources of income.
    CF recently posted..Using Planwise to create a money planMy Profile

    • I totally agree CF. We do many of the same things. We don’t make our own soap either. I don’t have the time to do it and I like my Ivory too much. :)

  17. I like this post and all the comments. Just like the book The Millionaire Next Door, wealthy people are down to earth, genuine, and don’t need to flaunt their wealth. I think it all comes down to education. If we were educated in high school about the benefits to intelligent spending and careful spending, we could be a much wealthier society.
    Suzanne recently posted..39 Financial Advisor Marketing Ideas That RockMy Profile

    • Thanks Suzanne. I’ve heard great things about the book, I really do need to read it some day.

      I completely agree on education, I think it’s something severely lacking and would definitely be a benefit. Thanks for stopping by!

  18. Right on, man, right on. Living below their means is key. Skipping one morning coffee from STarbucks is probably not key. Couldn’t agree more! I think the ‘smart about risk” and “logical” is key too. I think sometimes people get all emotional about their finances and investiments and stop thinking with their heads. When it comes to money, there’s no room for emotions. None. It’s hard numbers and trends. Get out your calculator or come to terms with never getting rich.
    TB at BlueCollarWorkman recently posted..Tips From a Former Car Thief on How to Protect Your CarMy Profile

  19. Since moving to San Diego I’ve become acquainted with two people you wouldn’t assume were “millionaires.” Now, that type of money doesn’t go as far out here, or anywhere, anymore. So maybe they’re not “rich” by American standards, but certainly are by standards around the world.

    The things I’ve noticed about both of them is this: THEY HATE ENTITLEMENT THINKING. Almost ruthlessly. I don’t like how they view some government programs, but they also don’t view themselves as entitled to anything. I think they’re thinking is so fierce, applying it even to themselves, that they don’t wait for anyone else to act, do, or say anything on behalf of them. They’re quick to act and take advantage of opportunity.
    Todd @ Fearless Men recently posted..What Dreams Mean: How To Know What Your Dreams Are Saying To YouMy Profile

    • Great points Todd. I would agree with that about taking on opportunity. I think “rich” people are often more willing to take it head on and have more comfort with it.

      Where do you live in San Diego by the way? My wife was born and raised there, until I drug her to scenic Omaha! Her parents are still there, in University City. I’ve been to La Jolla and they certainly like to throw their money around there.

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