Imagine a person who has successfully navigated the world of investing and now has a nest egg worth around two million dollars. For most people, this is the kind of financial success most only dream about. It’s a fortune, one that could easily provide a comfortable life for several generations. But here’s the twist: many people who find themselves in this position, particularly those who align with the Mustachian lifestyle, don’t go on wild spending sprees or indulge in extravagant luxuries. Instead, they maintain a lifestyle that could seem surprisingly modest to the untrained eye.
Despite having this considerable wealth, many of these individuals live on less than $40,000 a year, often in homes with no mortgage and with side incomes from small businesses or various investments. These are people who have mastered the art of living efficiently, and their lifestyle reflects that mastery.
Understanding the 4% Rule
For a person in this hypothetical scenario, the conventional wisdom would suggest that they could easily afford to spend up to $80,000 a year from their two million-dollar nest egg, using the well-known “4% rule” as a guideline. This rule suggests that you can safely withdraw 4% of your savings each year without significantly impacting the longevity of your wealth. The idea is that 4% is a sustainable withdrawal rate that allows your investments to continue growing while providing enough income to support your lifestyle.
But what if you wanted to be even more conservative? Well, if this individual chose to withdraw only 3% of their nest egg each year, that would still leave them with $60,000 annually—an amount that many would consider a very comfortable income. On top of this, they likely have other sources of income: side businesses, future inheritances, and perhaps social security, all of which add to their financial cushion.
Given all of this, it’s easy to see why their minimum spending level might be closer to $60,000 per year, rather than the $40,000 they are currently living on. The math is solid, the money is there, and yet they continue to keep their expenses low. So, why don’t they spend more?
The Paradox of Frugality
This is where the paradox of frugality comes into play. Despite having more than enough money to enjoy a comfortable lifestyle, many of these individuals still cling to their frugal ways. They understand that they have a financial safety net, yet their natural inclination is to keep the spending as low as possible. They’ll forgo things like the occasional nice bottle of wine or the convenience of buying pre-packaged bread, even if it’s just a few extra dollars.
It’s not that they don’t want these things—far from it. It’s just that their ingrained habits of thriftiness and the thrill of accumulating wealth often outweigh the desire for immediate gratification. This is especially true when it comes to purchases that might seem unnecessary in the grand scheme of things, like the $6.99 loaf of artisan bread or the $14.00 bottle of Cabernet. In their minds, these small indulgences don’t seem worth the cost, especially when they’re already living comfortably on far less than they could afford.
And this is where the money flow diagram comes in. Imagine a simple chart where the wealth flows steadily into their savings and investments, a big red arrow marking the continuous accumulation of money. Meanwhile, the “fun stuff” arrow—the one representing discretionary spending—looks small and underdeveloped, a mere flicker of the potential that could exist.
The Psychology of Saving
At its core, this behavior is driven by a few key psychological factors. For one, many people who reach financial independence have deeply ingrained values about money, prioritizing saving and investing over spending. Their habits were built over years, if not decades, of being disciplined with money. The idea of “wasting” money on anything beyond the essentials feels counterintuitive, even when they have more than enough to live a comfortable, even luxurious, life.
Moreover, the process of accumulation itself can become addictive. There’s something rewarding about watching the numbers grow, seeing the portfolio increase in value, and knowing that you’re on track to secure not just your future, but potentially the futures of your children or grandchildren.
However, this constant focus on savings can sometimes lead to a situation where the person becomes so obsessed with piling up wealth that they forget to enjoy the fruits of their labor. Yes, their bank account is healthy, but their life isn’t necessarily enriched by that wealth. The thrill of having more becomes the goal, overshadowing the actual enjoyment of what that money could bring.
Rebalancing the Money Flow
The key, then, is finding a way to rebalance the equation. It’s not about abandoning frugality altogether—after all, the person in question didn’t amass a fortune by being careless with money. But it’s also about recognizing that spending money on the things that truly enhance your life is not a betrayal of your financial principles. In fact, it’s a recognition of the very reason you saved in the first place: to enjoy the peace of mind that comes with financial security and the ability to enjoy life’s pleasures without guilt.
This is where the idea of the “Minimum Spending Budget” comes into play. Instead of perpetually cutting back, a person can establish a reasonable spending threshold—one that allows for enjoyment without going overboard. Whether it’s a little extra for food, travel, or experiences, setting a minimum spending level helps to ensure that you’re not so focused on accumulating wealth that you forget to live.
The next time you find yourself debating whether to buy that $6.99 loaf of bread or splurge on a nice bottle of wine, ask yourself: What’s the point of all this saving if I can’t enjoy a little bit of it now? After all, a balanced life isn’t just about how much you save—it’s about how well you spend and enjoy the life you’ve worked so hard to build
