Are You Too Frugal?

Bill Parrott |
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The person who dies with the most toys – loses!

John Bogle, the founder of Vanguard, recently passed away with a net worth of $80 million. By Wall Street standards, $80 million is pocket change, especially for someone who founded one of the world's largest investment and asset management firms. Vanguard has $7.6 Trillion in assets under management. By comparison, Stephen A. Schwarzman, CEO of The Blackstone Group, has a net worth of $37.7 billion. Blackstone's assets under management are $1 trillion.

Mr. Bogle is known for being frugal, probably to a fault. He once said, "I don't like going into stores. I don't like the whole process of buying things." He didn't like spending money on himself, but he did donate to charities and schools, including The John C. Bogle Center for Financial Literacy, Blair Academy, and Princeton.

It's good to be frugal and watch your budget, but can you be too frugal? I believe so. For example, dropping your daily Starbucks habit could save $152,000 over the next 30 years, but would you be happy? I've seen individuals who look to save a dollar or two on small ticket items but hold 100% of their assets in cash, CDs, or T-Bills. Move some assets to stocks to make more money over time rather than trying to save a few nickels by kicking your coffee habit. Since 1945, stocks have averaged 11.2% per year while T-Bills have returned 3.8%, a difference of 7.4% per year! You can afford multiple lattes with the money you make from stocks. Mr. Bogle's asset allocation was 60% stocks and 40% bonds in his retirement accounts. His taxable allocation was more aggressive, allocating 80% to stocks and 20% to bonds.[1]

Here are a few suggestions for you to spend more money and be less frugal.

Spend. The goal is not to die with the most assets but to use your net worth to live, enjoy life, and bless others. If you're concerned about spending money on things, spend it on experiences. A family trip to a national park is not only a great experience, it's economical.  

Give. Are you blessed with abundant assets? If so, give them away. Donate your resources to charities or organizations you support. Your gift will help others, and you'll benefit from a tax write-off.

Retire. Retiring allows you to travel, spend more time with loved ones, mentor others, or volunteer.

What if you're not worth $80 million? How do you know how much money you can spend before running out? A financial plan creates a spending plan based on your assets and goals. It also recommends an appropriate asset allocation and risk tolerance level to maximize your return.

So, go ahead, buy the latte, and enjoy your life!

A nickel ain't worth a dime anymore. --Yogi Berra

February 9, 2024

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.

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