I recently wrote a post about frugality.  There was an article on a millionaire who is extremely frugal and I saw a lot of comments from people criticizing frugality.  Some were not just criticizing this one person, but criticizing the concept.  I pointed out that these people have a lower class mentality.  They cannot plan for the future.

One other thing I pointed out in that post is that most people are stuck in their jobs.  I asked, “How many people under the age of 65 do you know who could just quit their job at any time and be fine, financially speaking?”

For this post, I want to expand on this point.  I want to compare the lives of two people.  One person has accumulated a net worth of $500,000 and the second person has a net worth of $5,000.  These amounts do not include equity in their primary residence.  While their age doesn’t matter much, let’s say they are both 40 years old.  Let’s also say they make about the same income from their job, say around $65,000 per year.

There is a big difference in the amount of wealth these two people have built up.  The person with half a million dollars has 100 times the amount of money.  Their actual day-to-day lives may not seem that much different.  They may live in similar neighborhoods and drive similar cars.  They both get up early 5 days a week to go to work.

Yet there is a big difference between these two.  One difference is obviously their mentality.  The person with $500,000 to his name is future oriented.  While the second person will have some future orientation, he is much less so in a financial sense.  He does not see the need to save money.  He does not see the point in being frugal.  He figures retirement is a long way away anyway (and on this he is correct).  He figures he may as well enjoy life now and not worry about saving.

The guy with $500,000 cannot retire with his current lifestyle.  Perhaps he could go live in a remote area of Thailand and his money might last for the rest of his life.  But to keep his current lifestyle, half a million dollars will not last him for the rest of his life.

Yet there is still a big difference between these two people and it is not just that one will be able to retire earlier than the other (if the other is ever able to retire at all).  The guy with more wealth has far more flexibility in his life.

You could come up with any number of scenarios where the guy with much greater wealth will be at an advantage.  Let’s say some great once-in-a-lifetime opportunity comes up that requires him to leave his job.  The wealthier guy might be able to take the opportunity.  He could quit his job, knowing he has a cushion.  Or maybe he could just take a leave of absence.  The guy with only $5,000 to his name probably couldn’t even take a two-month leave of absence from his job.  He wouldn’t be able to pay his bills.

Maybe both guys get tired of their jobs and want to make a career switch.  But in order to make that switch, they will have to take a pay cut.  The wealthier guy can easily do it.  He already lives below his means and he has plenty of savings to soften the blow of a much smaller income.  The poor guy doesn’t  really have this option, unless he is willing to drastically reduce his standard of living, which is highly unlikely.

There are also other opportunities that may become available.  Maybe there is a great deal on the house next door.  Maybe you have a friend that has a great new business that needs capital (although I would caution you to be careful on this and to minimize your potential losses).  Maybe you have an opportunity to start your own business and need some cash in the bank to hold you over until you start increasing your profits.

The whole point is that building wealth offers you more freedom and flexibility in your life.  Money doesn’t guarantee you health or happiness.  But it can often allow you to take advantage of certain opportunities that you might otherwise have had to turn down.

My recommendation is that you have the mentality of the upper class.  You should plan for the future.  People who save some money are often happier than those who feel they have to spend everything they earn.  Money doesn’t buy you happiness, but having money in the bank can help with your happiness.  It can also help you get out of bad situations in many cases.