Personal Growth

Warren Buffett and Mark Zuckerberg Live Below Their Means — Here's Why You Should Too

Warren Buffett's net worth is more than $84 billion, and yet he drives a used car and still lives in the house he bought before he amassed his fortune. It was only 2010 when Apple CEO Tim Cook moved out of his small rental home into a 2,000-square-foot condo, and 2011 when self-made billionaire Mark Zuckerberg moved out of his rental into a 5,000-square-foot five-bedroom house — both still modest for Silicon Valley standards. These frugal billionaires might be onto something. When it comes to smart financial advice, "live below your means" may be one of the best tips there is.

Rentals of the Rich and Famous

Most people imagine that being rich and famous pretty much requires buying oversized mansions, luxury sports cars, and 11 yachts. The richest people in the world could afford all of that and still have plenty to spare, and let's be real: many do. But many billionaires — especially those who climbed the wealth ladder themselves, like Buffett and Zuckerberg — maintain modest lifestyles. One reason for that is so they can use their money for other things that make them money; both Buffett and Zuckerberg are big investors. Buying shares of a startup can pay off if you can swing the expense, but not everyone is able to. Still, there are plenty of other reasons to live beneath your means that the average person can relate to.

You Can Invest in What's Important

Driving a fancy car and wearing the hottest brands might win the admiration of strangers and acquaintances, but they don't mean much if you don't have time to spend with your loved ones because you're too busy working to pay down debts.

"Many of the people you see with big houses and fancy cars are up to their eyeballs in debt," writes Catherine Hawley of NerdWallet. "They aren't rich at all." Lavish appearances now lead to financial consequences down the line. Living modestly, on the other hand, can give you the freedom to visit long-distance friends, splurge on someone's birthday or your anniversary, and retire debt-free.

Overspending Adds Up, But So Does Saving

According to Experian, the average credit-card balance in the United States in 2017 was $6,354. If someone allotted $200 a month to pay that off (assuming a 17 percent interest rate, and that they had tightened up their budget and managed not to spend anything more), it would take them three and a half years to become debt free.

That's kind of depressing, but let's keep imagining that our newly debt-free person celebrates by maintaining that habit. Instead of paying $200 into their credit card, now they're putting it straight into an interest-bearing savings account. Three and a half years later, they'd have more than $8,600.

You don't even need to save that kind of cash to see significant gains, though. Financial advisor David Bach, author of "Smart Couples Finish Rich," created a simple chart showing how much you'd have to start saving at your age to retire with $1 million. At age 25, it's less than $4 a day — the price of a cup of coffee.

You'll Be Happier

Studies show that the likelihood of having depression or anxiety is three times higher among people who have debt. It appears money really does buy happiness — but only to a point. One study showed that day-to-day happiness improves with income, but only until you hit around $75,000 a year. After that, it levels off, making people who make $75K just as happy as those with a six-figure income. Why is this? Researchers think that it's because once you have enough to weather any storms — car repairs, medical expenses, divorce — the rest is gravy. That suggests that actually having enough to weather those storms will make you happier, regardless of the number on your paycheck.

Other studies have found that people who choose time over money are happier overall. If you must splurge, scientists have some suggestions. Duke University research shows that people are most likely to regret spending money on food and digital subscriptions, and least likely to regret spending money on education, healthcare, and arts and entertainment. Research from Cornell University supports that last part: It showed that spending money on experiences makes you happier than spending it on things since the joy of a material purchase is fleeting but the memories of a vacation abroad last a lifetime. The less you spend on material goods — that is, the more you live below your means — the easier it'll be to take a vacation.

How to Live Below Your Means

All this is likely easier said than done. Once you get used to a certain lifestyle, it can be hard to go back to a life of frugality. Here are a few tips to live below your means without feeling the squeeze:

  • Budget ahead of time. Use the 50/20/30 rule to divvy up your income into needs, wants, and savings before you ever have to make a decision in the moment.
  • When you're tempted to buy something you don't really need, thinking about the possessions you already own is a research-backed way to resist the urge.
  • Make saving a regular habit like brushing your teeth, rather than a nebulous, long-term goal.
  • Think about the money in your bank account as hours of your life — you spent hours making it, after all. How many hours of your life are those new shoes worth to you?

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For more smart money tips, check out "100 Starting Points to Make Money in the New Economy" by Chad Grills, presented by The Mission. We handpick reading recommendations we think you may like. If you choose to make a purchase, Curiosity will get a share of the sale.

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Written by Ashley Hamer August 24, 2018

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