Suze Orman: Rich people all do this one thing that makes them even richer
But while the super rich can afford to purchase expensive luxuries, the most successful people know that living within their means is the path to sustained wealth.
“Here’s the key question all of you should ask: When do you buy what you can afford versus what you need when what you need is less than what you can afford?” former CNBC host and personal finance maven Suze Orman explained to CNBC Make Itat the eMerge Americasconference in Miami, Florida, in June.
In other words, just because you can afford the more expensive option doesn’t mean it’s always the best choice. As the saying goes: A penny saved is a penny earned.
Orman remembers a time in 1998 when she learned she’d be spending a significant amount of time in New York and it made sense to purchase a home there. “I could afford a $1 million penthouse at that time, but I didn’t need it, so I purchased a $240,000 apartment because that’s all I needed.”
If you spend simply because you can, you can end up with an empty piggy bank. “Buy what you need no matter how wealthy you are,” says Orman, “because there does come a time when you have a lot of money and all of a sudden you bought a plane, you bought a boat, you bought five homes … and all of a sudden you look and you go, ‘Oh my God, I don’t have any money.’”
Whether you’re making six figures or scraping by, this idea is the cornerstone of building wealth. Live on what you need and put the rest to work.
Billionaire investor Warren Buffett is a prime example. Buffett still lives in the same house he purchased for $31,500 ($260,000 in today’s dollars) in 1958, uses coupons and never pays more than $3.17 for breakfast.
Buffett’s not alone, either. Even though Dallas Cowboys running back Alfred Morris earns millions, he still drives a 26-year-old Mazda 626 sedanfrom 1991 that he bought for $2. Washington Redskins quarterback Kirk Cousins earned $20 million last year, but he chooses to live in his parents’ basementwith his wife during the summer and drive a dented GMC Savana passenger vanthat he bought from his grandma for $5,000.
It can be difficult to resist the urge to spend, but once you make it a habit, it sticks. “You want to know what’s so funny?” Orman says. “You’re not going to want anything other than what you need.”
Compiled by Olalekan Adeleye