How to Get Rich? Make a Lot or Save a Lot?
It’s some of both, though the lockdowns make it clear that many of us can easily do with less.
By Nir Kaissar and Barry Ritholtz
Bloomberg, May 21, 2020
Since the lockdowns began, the national savings rate has increased dramatically. Which led to an interesting discussion between myself and Nir Kaissar: Is it spending and saving or earning and investing that leads one to wealth and financial security.
Nir Kaissar: Anyone lucky enough to earn a steady, living wage — and there are tragically too few — can attain financial security, and maybe even get rich, by saving and investing their money. It doesn’t require deprivation, contrary to popular perception. But it does require sustained and disciplined frugality, a state of mind anyone can cultivate and I would argue everyone should.
Frugality, as I mean it, is the pursuit of a full life with the minimum consumption necessary to achieve it. It’s a habit of always asking whether less is more, or at least good enough. Is life any worse without a daily $5 latte, or a new car every two to three years or a 6,000 square-foot house? The answers will necessarily be different for different people; the important part is asking the questions.
Barry Ritholtz: I am not, nor have I ever been, a fan of “sustained and disciplined frugality.” With that said, here’s what to keep in mind:
1. Focus on the big things; the little things will take care of themselves
2. We all only have so much internal discipline, a consequence of limited mental bandwidth. Don’t fritter it away on things that don’t matter very much.
3. Spending should always be a function of what you can afford, not a slavish devotion to some puritan ideal.
4. Money can bring security, comfort and happiness, but beyond a certain point returns on having more of it diminish rapidly.
5. Experiences tend to beat material goods in terms of money well spent.