Being Frugal

There are certain financial truths that, when applied in our daily lives, can help us build wealth. In my last two blogs I looked at short and long term investment accounts to realize the truth, invest early and often. This week I want to explore a truth that is more personal attribute than wealth building tactic. It is probably one of the hardest financial truths to accept, but in my humble opinion, an absolute imperative for the average American worker to achieve millionaire status in a reasonable amount of time (20-25 years). Being frugal.

Being frugal is in my DNA. I learned early on by observing my family how to determine between needs and wants. It’s challenging sometimes to be frugal in this instant gratification world we live in, but frugality remains one of my favorite financial truths!

I was very fortunate to meet a partner who grew up with a similar upbringing and views on finances. We’ve mutually decided over the years to live below our means. “Keeping up with the Jones” is a real phenomenon in our society and there have certainly been some rough patches when we didn’t think we could keep living frugally.

In the end, we look at what we’ve amassed together over the years and are happy we will be comfortable in our golden years and not a burden on our kids. But it certainly wasn’t easy. Finances are a leading cause of relationship issues. Before living frugally, ensure your partner is of like mind and talk about it often.

Frugality has been a part of my life a long time, but I also love this truth because it is a personal challenge to implement. Access to goods, services and entertainment is easier than ever in our modern, digitally connected world. Denying oneself of conveniences is somewhat unnatural. I can’t say it enough, living frugal takes incredible discipline and sacrifice.

But when you become hardwired to assess the utility and value of every purchase, it truly is the most rewarding truth and the sense of satisfaction is tremendous. In a way, when reducing expenditures, you are creating another source of income.  At the very least, you are making every hard earned dollar work more efficiently.

So what does it really mean to live frugal? Well first and foremost it means making a needs vs. wants assessment before every purchase. If you think about it, at the base level, we really need very little. Good shelter, durable clothing, reliable basic services, transportation and nutritious sustenance. Yet, we often find ourselves confusing what we need in our daily lives with what we want.

Car buying is a great example. Sure the leather seats, navigation and premium sound system are absolutely awesome but do we really need those items in daily life? Or would it be wiser to skip the options and invest the $2000-$5000 in savings?

Are my shoes still serviceable or do I need a new pair? Does this house fulfill our basic needs or do we need a bigger one? Should we go see this movie or wait until it comes out on the streaming service? We could go on for days but you get the point, before spending any hard earned income, perform a needs assessment.

Of course, there will be a few times when we absolutely should give into wants and buy the candy bar or go to the movies. We need to indulge our wants on occasion. But by pausing to determine if an item is a need or want every time, you will condition yourself to make deliberate decisions. In today’s instant gratification world it’s very unnatural, but this step is absolutely critical to a frugal lifestyle.

Second, being frugal comes down to what I like to call avoiding champagne taste with a beer budget. Probably more appropriately stated, right size your life and live within means!

While this tip goes hand in hand with determining needs vs. wants, it goes a step further. I’ll concede, you need a TV, but do you need a 72” or will a 42” work fine? No reason why you shouldn’t enjoy a glass of wine with dinner, but do you need the top shelf vintage? Keep table wine for day to day and a couple of nice bottles for guests!

Another great example where we can right size is our vehicles. Reliable transportation is most definitely a need and one of our biggest recurring expenses. This is certainly an area where we can’t skimp on quality or safety.

The secret to “rightsizing” a vehicle is not just the features or make of vehicle but also the time of ownership. It will be difficult to get ahead if buying or leasing a new car every two to three years. Vehicles must be bought and held for as long as they are serviceable and safe in order to realize true value.

Right sizing really manifests itself in services. I am a chronic channel flipper and noted the few times when we got the deluxe cable package, I ended up flipping channels more than enjoying the shows. What a waste of cash every month!  We cut the cable some time ago and started using digital antenna as well as low cost streaming services. We have all the entertainment we need!

What’s the difference between free music streaming and paid? Commercials. Develop the patience to listen to 60 seconds of commercials before the music starts and save $5-$10 per month! One of my favorite right sizing tactics is cell phones. How many folks do we see walking around with the latest phone that is costing them at least $30 per month for the next 36 months? I still use a $250 phone. It is a bit slower, but at the end of the day makes phone calls and I can check my email.

Similar to performing a needs assessment before every purchase, right sizing your life means taking the time to determine the best value for the things you need. Being frugal doesn’t mean always defaulting to the cheapest available, buying junk doesn’t pay off. It does mean, when the TV craps out, take the time to do the research and purchase a quality TV with the features needed at the best price.

Frugality takes discipline and some sacrifice for sure, but it is a necessary truth for the average household to build wealth. What do you do with the savings from living frugally? Invest of course and watch those dollars compound exponentially over the years!

Living frugally doesn’t mean being cheap. Join me next week as I take a look at one of my favorite life hacks, using rewards credit cards to pay for everything!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

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