“If I earn so much more money, how was he so rich?” wondered Ari Vortel sometimes. “He” was his Zaidy, who had been in the Oilum Ha’emes already for over fifteen years. Ari’s maternal grandfather had earned a modest salary as a staff accountant for a small manufacturer, yet in his later years was known as a generous Ba’al tzedaka. He had also paid for half of all his Einiklach’s weddings, and Bobbie was still living comfortably on Zaide’s estate. While Zaidy and Bobbie had been savers and lived an otherwise simple life, Ari could not understand how this would allow for an accumulation of great wealth. He and his wife earned a lot more than Zaide ever had, yet could barely make ends meet.
What was the secret to this quality yet ordinary man’s wealth?
Small Costs=Big Deal
Rabbi Elimelech Bluth Shlita describes a revelation he gained from being around HRH’G Reb Moshe Feinstein Zt”l. Beforehand, Rabbi Bluth assumed that Gedolim only dealt with significant issues, but he quickly learned that Gedolim also dealt with small matters. Over time, however, he realized that to great people, small things might actually be big matters. Similarly, the big deal that Ari was overlooking was the small matter of his grandfather’s frugality. Wealth creation is usually not the result of some dramatic invention, windfall, or business innovation. Most high-net-worth people tend to have unspectacular incomes but are great savers. Becoming rich is not only about how much you earn but how much you can save.
(Note: We are talking about the wealthy (with millions), not the super-wealthy (worth tens or hundreds of millions+).
Ari’s Grandparents accumulated millions through a lifetime of scrimping pennies in a way the Vortels may consider old-fashioned or even petty. For example, where Bobbie and Zeidie enjoyed only home-brewed coffee, Ari and Ranya each indulged daily on a $5 latte. While the Vortels consider this an insignificant expenditure, over 40 years, this $10 a day habit costs about $230,000 (including inflation). If that six-digit figure alone doesn’t astonish them, what will impress is the sum that would have accumulated had the coffee spending been invested systematically in blue chip stocks as Zaide’s savings were: an astounding $3.2 Million! While Zaidy was lucky, as the stock market grew 12.3% annually from 1960-2000, but regardless, the Vortel’s coffee habit is tremendously wasteful in the eyes of frugal old-timers.
No Saving Means No Compounding Wealth
The brain is a poor calculator so it struggles to absorb that consistent small extravagances can equal large sums over a lifetime. While Zaidy’s home-brewed coffee won’t account for all of his gathered wealth (lattes didn’t cost $5 in the ‘70s), but it does hint that modest lifestyle choices can make a surprisingly big difference in long-term wealth. Beyond lattes, the Vortels travel more, drive two new cars, live in a large suburban home, and also pay extra interest to pay for all of the above. It is the combination of all of these lifestyle “upgrades” which eats up their larger incomes and then some, leaving them no savings. Without saving there can be no investing and without investing there is no compounding of wealth.
Saving Slow and Steady
Budgeting is like healthy eating: everyone knows they should do it, but no one likes to. Also, things have changed a lot over the decades, and a daily latte and occasional vacation may be an actual necessity to the Vortels’ hectic dual-income household. Ari and Ranya can still try to review their spending to see if they can implement some cost-cutting and awareness of the importance of saving is the first step to encourage change. Low hanging fruit can be trimming the services and subscriptions which are still being charged automatically to credit cards long after anyone’s interest in them. One excellent idea is to set up an auto-savings feature to move even a few dollars a week into an investment account. They may not even miss the small sums, but like consistent lattes, it can accumulate more than they would imagine.
If the Vortels just can’t cut anything from their budgets, at least they should hold the line and avoid expanding into new ongoing expenditures which then become necessities. If costs do not grow then future income increases at least can be allocated into savings. Many families experience lifestyle creep, and as new revenue comes in, expenses rise to meet it. This phenomenon explains why even many high-income earners often have skimpy bank accounts. While they may drive nicer cars and live in fancier homes, their net worths are simply unable to grow without the power of compounding investments. If the Vortels hope to build their wealth, they will need to find ways to save and invest money. When they’re considering a new type of lifestyle creep, they should ask themselves: “What would Zaidy say about this?”
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