June 16, 2021
We all heard about stealth wealth, i.e., being wealthy without being flashy! Live below your means! There are blog posts about it (Physician on FIRE, Retirement Manifesto, and many more). A large part of The Millionaire Next Door book is about Stealth Wealth. We certainly have been practicing that principle while accumulating wealth, and especially now that we live our comfortable life in early retirement.
But we never overdid the stealth wealth either. In other words, when I announced my retirement in 2018, not a single relative, friend, or colleague blurted out “Yeah, you’re such a cheapskate, no wonder you accumulated seven figures!” Quite the opposite, people wondered how we were able to save and accumulate so much without looking cheap to the outside world. Very simple, we were frugal, but we were able to hide that frugality very well. In other words, we were practicing…
Stealth Frugality = frugality without looking and acting like a miser!
And Stealth Frugality doesn’t rule out Stealth Wealth. It’s more of an extension, a less extreme form of stealth wealth. Being a math wonk, let me make the point with the diagram below. If we plot on the x-axis the perception of wealth and on the y-axis the reality, then really everything above the 45-degree line, i.e., reality > perception, is stealth wealth of sorts. But the trick is to move out of that top-left corner (act poor, big bank account) and a little bit more to the right. Without dropping too close to the x-axis and certainly not all the way to the lower right corner (=Keeping-up-with-the-Joneses, drowning in debt). In other words, Stealth Frugality involves spending wisely without breaking the bank, i.e., try to find some spending categories to splurge on that follow a flatter path than the Minus-45-degree line!
So, why and how did we practice Stealth Frugality? Let’s take a look…
First, the “Why” of Stealth Frugality:
- Our plan to retire early was a secret for a long time. To the folks around us, we liked to exude an image of normalcy. We didn’t like to hear people asking us about an overly frugal lifestyle. Or even worse, talking behind our backs: What’s up with the ERN family? Do they have money problems? Working in finance, asset management of all places, you don’t want to look like you got money trouble. I certainly didn’t want to look like I’m planning an early exit from the industry. Just like I was “invested” in my company – literally and figuratively, I wanted my company to invest in me. And they would have done less of it had they known my 2018 exit date!
- I wanted to signal to my employer that I depend on my paycheck! Specifically, every year I wanted to signal to my employer that I needed a pay raise. And a bonus. And if I didn’t get it I’d be out of there and move to our competition, literally two blocks down the street. I didn’t want my employer to realize that I can indeed survive (and survive really well!) on about half of my paycheck and that I used the other half to build up a massive stash of F-you money. Of course, I didn’t want my employer to think that I am completely irresponsible with money either. Moderation is key! I don’t want to look too flashy and I don’t want to look too frugal either!
- Corporations are in the business of consumerism! Let’s face it, many of us work(ed) for large corporations. Our employers are in the business of selling stuff, so how can I be a credible representative of Corporate America if I have sworn off the “benefits” of conspicuous consumption? Maybe in the public sector and certainly in academia one could get away with living and looking frugal. But my personal situation asked for at least some participation in the consumerism racket! Related to that issue brings us to item 4…
- Extreme frugality is a job market liability. I’m reminded of the Seattle lawyer who eats only brown bananas and “borrows” Netflix account logins from friends. Forget about the weirdo label due to the bananas. If someone is oblivious to the civil and potentially criminal issues involved when “borrowing” account logins, that’s an attitude a bit too nonchalant for a lawyer. I wouldn’t hire her to represent me against a speeding ticket, much less anything really important. Not just in the legal profession but in many other fields including Medicine, Finance, and Engineering we simply can’t afford people cutting corners like that. Think about what kind of signal your frugal antics will send to your employer and your current and prospective clients!
- I am not a preacher. Well, OK, I am preaching about the dangers of the 4% Rule (it’s too aggressive for some and too conservative for others) and occasionally I am catching myself getting into heated discussions on personal finance topics. But that’s my blogger persona. I never had much of an urge to convince people around me that they needed to change their ways about money. When I see folks flashing their new toys on Facebook and Instagram, I would certainly say to myself “I hope you made matching contributions to your retirement savings and your kid’s college savings account!” But I’m too polite to actually say or write that and spoil the party. Likewise, being overly frugal sometimes insinuates that you’re trying to convert others to the cause. I never had that urge.
- It didn’t delay my FIRE journey much, but it certainly made it more fun! Could I have retired a little bit earlier if I had pushed my savings rate to 70%+ or 80%+? Sure, but the journey would have been dull. It reminds me of that slightly macabre joke where the Doctor tells a patient that he has only three months to live. The patient asks “what can I do now?” and the Doctor replies: “No alcohol, no cigarettes, no sex, no TV, no internet!” The patient asks “will I live longer then?” and the doctor replies, “No, but the three months will seem longer!” So, in other words, being a cheapskate I probably could have retired after 5 or 6 years instead of 10 years at BNY Mellon. But what good does it do if the 5 years would have felt like 15 years? Not worth it! I had a nice run while working in San Francisco and I enjoyed all 10 years of it!
How to practice Stealth Frugality
Again, just to make sure, Stealth Frugality does not preclude Stealth Wealth. Quite the opposite, we are still stealth-wealthy. We merely just picked our battles: cut the most frivolous and inefficient spending but we left some token luxury items for people to notice so they didn’t think we were weirdos. It’s a similar philosophy to Tanja Hester’s “selectively hardcore” and everybody will pick different priorities on where to save, e.g., wear an extra sweater in the winter and lower the thermostat, and where to splurge.
Here are a few areas where we splurged without breaking the bank – all the while preempting any rumors about being overly frugal:
- Apparel: look well-dressed without spending much: Fancy fashion minimalism! Depending on who I’d be meeting at work I had to look my part. A union-run pension fund? Look professional but not too sharp! Private Wealth clients? I will look as sharp as I can: a custom-made suit, fitted shirt, Hermes or Ferragamo tie, Ferragamo or Cole-Hahn shoes. You basically want to look as well dressed or maybe one notch better dressed than your counterpart. If you don’t your boss will notice. And in a corporate environment, if you look like a weirdo wearing clothes not appropriate for the situation your career prospects might suffer. Every dollar you save on clothes will cost you 10x in foregone promotions and bonuses. And again, it doesn’t mean that my entire wardrobe was Ferragamo and Hermes, but I had (and still have) a few token items that I deployed when necessary. 80% of the time when I didn’t have to meet clients and prospects, I was wearing jeans or khakis and the Costco Non-Iron dress shirts. For writing Matlab code that’s all I needed. Matlab doesn’t judge you for what you wear!
- Generosity without breaking the bank. Generosity doesn’t even have to cost much. You can get away with a whole lot of frugality if you are generous with your time, your advice, your friendship, and your hospitality. Instead of buying drinks for friends at fancy bars, which can quickly run into the hundreds of dollars in San Francisco, we normally invited friends over for dinner for a fraction of the cost. Blaming that on having a toddler also helps as a cover story! There is no more generous gesture than inviting folks to your home. And we still do this today. Here in Washington State we frequently host potluck lunches and dinners with friends and our house is again one of the favorite “party pads” in our circle of friends.
- Don’t sweat the work lunches and the Starbucks Coffee. OK, let me correct that; we were coffee snobs in San Francisco, so we went mostly to Peet’s Coffee and Philz Coffee, but you get the idea. And I should stress that balance is key here. If you live in San Francisco or NYC and make $50k a year, you may not want to “waste” $2k-$3k a year on work lunches and another $600-$1k on coffee. But mid-career, highly-compensated professionals might consider the social and networking benefits of hanging out with the office crowd for lunch and coffee. I always enjoyed our lunch/coffee discussions because people were open to chatting about the things they are working on, interesting research they came across, investing ideas, both for personal portfolios and our professional applications. And let’s not forget: the newest office gossip. Sure, in a perfect world I could have just accomplished the same interaction by knocking on people’s doors, but people are always more amenable to small-talk in a lunch and coffee break setting. I consider the lunch and coffee money a form of tuition. Skimping here strikes me “penny-wise and pound-foolish”!
- Overspend on housing? Worked out OK for us! One of the central tenets in the frugal community: spend less on housing. Homeownership is likely an OK investment. But going overboard with your home will hamper your asset accumulation. So, buying a 2 bedroom plus den, 2 bathroom condo in San Francisco in 2008 while still single, was certainly pushing the limit a little bit. But then I got married and we had our daughter, so we “grew into” the place eventually. And it made a great party pad, see item #2 above. Owning that condo gave me some cover without hampering my fugal plan too much. Could I have achieved FIRE faster? Of course! I could have lived in a studio apartment in the SF Tenderloin district, as an actual former colleague did (and probably still does). But nothing screams “cheapskate” or “weirdo” more than living in one of the worst neighborhoods in the city with almost nightly muggings and shootings just to save a few hundred dollars each month. Not understanding risk management looks bad for a finance professional!
- Drive a car that looks like a million dollars without spending that much. Yeah, sure, my first car – right out of graduate school – was a 2001 Honda Accord and we currently drive a 2018 Honda CR-V. All totally stealth-wealth-approved rides. But I have a confession to make: Between 2005 and 2018, I also owned two not-so frugal rides: In 2005 I bought a used 2001 Jaguar XJ8 for $21k. I sold it for $15k when I moved to San Francisco in 2008. And in 2009 I got a good deal on a used 2006 Jaguar XJ8L. I got it at just under 20,000 miles and for $29k (=$26k plus taxes and fees), i.e., it cost about as much as a brand-new Honda Accord or Toyota Camry at that time. Could I have squeezed out maybe $2,000 or $3,000 in additional savings and investments every year by driving a less-flashy car? Sure, but saving for FIRE was a lot more fun driving around on California’s Highway 1 in style with 8 cylinders, 300hp, and 19-inch chrome wheels! It was even in British Racing Green, the quintessential Jaguar color! It didn’t break the bank but I was sending the signal to everyone around me that I’m keeping up with the consumption rat race. All the while saving 50% of my net income. Mark another win for Stealth Frugality! And I hope I don’t get any hate mail about the gas guzzlers! Especially while living in San Francisco, we really only drove about 6,000 miles per year. I walked to work every day and we used the Jaguar mostly on the weekends!
The lesson from today’s post: be frugal all you want, but most people also benefit from splurging a little bit and leaving at least a few strategic “breadcrumbs” to the outside world to signal a degree of “normalcy.” We certainly did that successfully and I presented some ideas here. Might not work for everybody, but maybe you’ll find some of them useful!