Becoming rich isn’t just about the dollars and cents, it’s about having the mindset that you are willing to make sacrifices in your life in order to amass more wealth than the average person. One of these sacrifices is saying no to living a materialistic lifestyle and instead practicing the art of frugality. In fact, for most people, being frugal is one of the main contributors to financial success so as such, let me share with you 7 frugal tips I use in my own life to get ahead.
But, before we get into the 7 tips that will help you save more money and ultimately increase your wealth, I think it’s worth asking the question, what is frugality and why is it important?
One of my favorite quotes about frugality is the following:
“Frugal living is designing a life that outputs the same level of happiness on a fraction of the cost.”
In essence, being frugal means having the proper balance between your spending and level of contentment and this is an important point because spending any more without receiving more happiness is just plain wasteful. I’m sure you’ve had the experience before where you buy a material good like a new phone or a nice shirt and within a day or two the high of the purchase wears off and you are right back to where you were before the purchase but with less money in your pocket.
And this is an important point because any extra money you spend that doesn’t yield an appreciable amount of happiness will ultimately detract from your ability to save money and use it productively by investing it or funneling it into your business. Sadly, there is a stigma around being frugal. The majority of people allow themselves to be enthralled by the consumer culture and will call anyone who doesn’t spend beyond their means “cheap” or “money tight” but when you really think about it, being frugal just means being efficient and if you ask me that’s perfectly okay! So let’s now look at 7 tips for living a frugal lifestyle!
Tip #1: Adjust Your Mindset
In the field of agriculture, there is something called the Wheaten Eco Scale and the basic idea of the scale is that we all sit at different “levels” along whatever area of optimization we’re after. While this scale relates to people’s involvement in improving the environment it can also be used when adjusting your financial mindset. You see, if you currently have an annual living cost of $50,000 then someone who lives on $100,000 a year will be perceived as a living a lavish lifestyle while someone spending $25,000 would be living a more basic day to day life.
In order to fully embrace a frugal lifestyle you must shift your mindset to see your current spending as being lavish and scale down your expenditures as appropriate. In the previously shared example, this means that you should start to see an annual living cost of $50,000 as being lavish and re-baseline your current expenses to a figure that will allow you to spend less while maintaining an acceptable level of happiness in your life!
Tip #2: Use A Stress Free Budget
Being frugal means spending less but this isn’t going to happen without having a budget in place. Sadly, many people cringe at the thought of budgeting and I think there is a general dislike for this financial management process for two primary reasons. The first reason is that people find budgeting take a lot of effort. When people think of budgets they think of pages and pages of excel spreadsheets to have to fill out and manage every month but this simply isn’t required. After initially setting up your budget, it takes just 10 minutes a month to review your actual costs compared to your budgeted amounts to see how much you saved.
The second reason people shy away from budgeting is that they have never been taught how to build or manage a budget. For these people I always recommend the 80/20 budget as it is probably the most-beginner friendly of all the budgeting approaches out there. In the 80/20 method, you allocate 20% of your income towards saving and the rest is up to you how you spend it. This way, you ensure you are saving a moderate amount of your income every month while not having constraints on how you spend the other 80% of your income.
But just because your budget is complete doesn’t mean your work is done. The next step is the continuous tracking of your expenses. Nowadays, many people connect their credit cards to apps like Mint that automatically categorizes their purchases into their budget categories however it’s okay if you want to take a more old school approach. For instance, you can track your expenses on the notes app in your phone and manually add the totals at month’s end. Either way, as long as you have an account of all the money you’ve spent at month’s end then you will be able to identify how much you saved and how well you adhered to your spending categories.
Tip #3: Assess the Big 3
When trying to adopt a more frugal lifestyle, many people gravitate towards the quick wins when it comes to saving money. For instance, they cut out their $10 Netflix subscription or the handful of coffees they buy from Starbucks a month and while these efforts do help save money, they are barely moving the needle. If you’re familiar with the 80/20 principle then you will know that 20% of inputs causing 80% of outputs and when trying to live a more frugal lifestyle, you should be asking yourself, what 20% of my costs are taking up 80% of my monthly budget?
Based on a 2016 study conducted by the Bureau of Labor Statistics, the three most costly expenses identified in the study were housing at 37%, transportation at 18% and food at 14%. When you sum these together, you can see that it doesn’t quite equal 80% but it’s close enough to support that generally a few inputs result in the majority of the output which in this case are your total expenses. These are the areas you must focus on when trying to live more frugally. Find ways to reduce your housing costs by renting a cheaper apartment or renting out a room in your house. Take the bus rather than driving everywhere you go and finally assess how often you are going out to eat in order to reduce your Big 3 expenses and save more money each and every month!
Tip #4: Trick Yourself into Spending Less
For some, adopting a more frugal lifestyle will be easy but for others, dialing back their spending will not come easily. One of the biggest deterrents in the quest to saving more money are impulse purchases. Nowadays, we are constantly being bombarded by ads which make us all the more likely to pull out our credit cards and spend. For instance, one moment you could be innocently scrolling through Facebook and the next minute you find yourself with a whole new outfit in your shopping cart. To avoid these impulse purchases and unnecessary purchases in general, whenever you find yourself wanting to buy something new, write it down along with the date it will be in 30 days.
Now here’s the challenging part, you have to wait at least 30 days before actually trying to buy it. Doing this helps in a few ways. First of all as I previously mentioned, it helps you avoid falling victim to impulse purchases but more likely than not, having the time to mentally process the purchase will make you realize that you don’t want the item as much as you originally thought. Moreover, waiting 30 days may cause the item you want to go out of stock making it harder to purchase and making you more likely to save that money. On the flipside, if the item and it is now out of season, buying it 30 days later may allow you to get it on sale which is a win if you ask me!
The other way you can curb your spending is by using the Stranger test. If you’re unfamiliar with this money saving trick let me explain how it works. Every time you think about buying something, picture a stranger standing in front of you; in one hand, they have the item you want to buy, and in the other hand, they have its monetary value in cash. Which would you rather have? In most cases, the cash is probably more appealing. When taking this approach on a regular basis, you will start to see yourself continuously picking the money over the item which solidifies your position in not splurging and instead keeping that money in hand.
Tip #5: Stop Paying Interest
We have already established that living a frugal lifestyle means only spending money on things that bring us happiness and I can guarantee that making interest payments is not improving the quality of your life. However, many people find themselves handing over money to creditors every month because of the debts they have allowed themselves to accumulate. As of 2019, the average American pays $8,037 in interest per year. Now, some of this interest is reasonable such as paying the interest on your mortgage or student loans but many other forms of interest can easily be avoided. For instance, buying a used car in cash or avoiding credit card debt can significantly reduce your debt load and ultimately your monthly interest charges meaning more money for investing and a quicker path to riches.
Tip #6: Negotiate Your Recurring Expenses
Once you have your big 3 expenses minimized, it’s now time to focus your attention on your other monthly costs. Because most people automate the payment of their bills every month, it makes them less likely to really consider how these costs are impacting their financial position. For instance, every month, your cellphone bill comes in and without even thinking about it the payment is drawn from your bank and your cell service continues on for another month. However, these routine expenses offer more of a savings potential than you would expect and I’ve been the beneficiary of expense negotiating in the past when adopting my own frugal lifestyle.
For example, on a quarterly basis, I call my cellphone provider and try to negotiate a lower monthly rate. I basically explain to them that I am a long-time customer and that since I own my phone I can switch to any other provider and this is usually enough to get a discount on my monthly bill. This same strategy works great for cable subscriptions but if you are serious about cutting costs I would argue that you probably don’t need cable in the first place. When I cut my cable it actually made me use my time more productively by reading more or taking online classes so this frugality tip won’t just save you money but will increase your brainpower as well!
Tip #7: Opt for Used Instead of New
They say that one man’s trash is another man’s treasure and buying used is often an effective way to save yourself some money. One obvious item to buy used is a car but many people don’t realize why. The truth is that most new cars depreciate 40% to 50% during the first three years of ownership. With an average selling price of around $30,000, that’s $15,000 in depreciation cost. But, this same car that is now three years old will depreciate roughly 25% during the next three years of ownership meaning that if you buy a slightly used car you are going to avoid a large portion of the car’s overall depreciation.
Besides cars, some other popular items to buy used include appliances, furniture and electronics. As long as the item appears to be in good shape and can be demonstrated by the seller to be working properly then avoiding the new item markup and buying used will surely have you embracing the frugal lifestyle!
There you have it, 7 tips you can use to maximize the frugal life you live!