I’ll admit I used to think frugality was a distasteful lifestyle forced upon the poor. I believed “frugal” was synonymous with never buying new clothes and dumpster diving under the cover of night.
Boy, did I have a lot to learn. And learn I did—and continue to learn—that is the path to building wealth on any income.
I’d say the most fun I’ve had learning the fine art of frugality has been in reading The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko.
Webster’s defines “frugal” as behavior characterized by or reflecting economy in the use of resources. The opposite is “wasteful,” a lifestyle marked by lavish spending and hyperconsumption. Wealth has nothing to do with how much you earn, but what you do with it and how much you keep.
Even the mention of words like frugality and thrift send some people over the edge because, for them, those words conjure up thoughts of poverty and deprivation.
They assume that cutting costs is tantamount to diving into dumpsters to find one’s next meal. No wonder so many people prefer a life of debilitating debt to one of frugality.
Let me set the record straight. Please.
There is nothing undignified about spending less than you earn. That’s called living below your means, and it’s a fabulous way to live! When you spend less than you earn, you have some to save. And to give away, too. When you spend less than you earn, you are not dependent on credit to get by. It is a very good thing.
So you may be wondering how you can move from overspending to spending less, without giving up your quality of life. It starts with prioritizing everything according to how important it is to your life. Then only spend on things at the top of the list, ruthlessly cutting your spending on the things that don’t matter.
Face it. Living below your means requires a good bit of creativity from time to time. You have to get pretty clever to stretch a buck.
But just how far can you go in matters of etiquette before you cross the line?
Ask yourself these questions when making a decision having to do with gracious living and etiquette:
- Is my choice to be cheap going to harm or insult another person?
- Will my behavior leave a fragrance or an odor?
Rule of thumb: Be cheap with yourself and generous with others.
Don’t, for example, require a service person to forego a tip so you can live below your means. If you cannot cover a decent tip, don’t eat out. Or order less.
Cutting expenses is the way to spend less so you have money to save. But unless you are actually putting that money into a safe place to be held for some future use, you’re not really saving at all. You’re just spending less.
Even if you cannot save a great deal of money right now, that’s okay. It’s not the amount you save that matters as much as the fact that you make saving money a regular habit.
Grab all the discounts. Many mortgage lenders and student loan companies offer incentives for their customers who set up automatic payments for their monthly payments. It’s worth knowing you’ll never be late, and if you can get even 1/4-point reduction in the interest rate over time that will really add up to be something significant. Automobile insurers give discounts to good drivers, non-smokers, good students, cars with particular safety-equipment and any number of other situations. But you have to ask. Make the call.
Set dollar limits. Okay, so this sounds curiously like “budgeting.” It is. Deciding ahead of time the amount you are willing to spend for anything is to impose important limitations on yourself.
Fee yourself. Banks and credit-card companies don’t seem to have much trouble socking us with unbelievable fees, so take a lesson from them and fee yourself. Every payday impose a self-tax equal to one-hour’s pay. Consider it the price for having a job and put it straight into your savings account. Give yourself ample warning that upon your next raise, the fee will jump to two-hours’ pay. Every time you make a withdrawal from the ATM or you write a check, charge yourself a set fee of $1 by recording the actual amount plus a buck. Deposits? A $10 fee for each deposit sounds about right. When you’ve collected $50 or $100 in fees from yourself, settle up and transfer the whole amount straight to your savings account.
Face it. People are simply living longer than ever before and health care costs are climbing higher every year. Which brings me to the subject of long-term care. You might assume that’s just about nursing homes, but it refers to more than that. Long-term care means getting the assistance you need at home as well.
You could live to 100 and never need long-term care. You could end up needing assistance in daily living long before retirement, or you could fit somewhere in between. Maybe your knees go. Or your eyes. Or you become a little too forgetful. No one likes to think about it, but the human body is not built to live forever. You need to be informed and prepared.
Long-term care insurance usually covers the costs for care that aren’t picked up by regular health insurance or Medicare. If you need assistance to properly feed, clothe or bathe yourself, long-term care insurance could pay the bill, depending on the type and amount of coverage you buy. But because it’s expensive, long-term care insurance isn’t typically a product lower-income individuals are able to afford.
It was an honor to be invited to spend a few days on the campus of Indiana Wesleyan University to speak to the students on money matters—specifically the student loans many students will take with them as part of their college experience.
Remember the days when to get a loan you had to qualify and prove you had the capacity to repay the debt? Well, for college students those days are history. They do not need to have a job or a co-signer to get huge amounts of money both in federal student loans. From what I discovered on my visit, students (and their parents in many cases) are more than willing to accept as much as they can get in federal student loans because these days that’s just the normal way to pay for college.
But here’s the good news. These young adults are willing to listen to advice from someone who’s been around the block with debt. Seizing the moment, I told them:
Accept the least amount of help possible not the most available. Just because you can borrow enough money each semester to pay for tuition, room, board and books doesn’t mean you should. You’ll never believe how difficult it is to pay back. Check yourself out of governmental outpatient care. Get a job. And in the summer get two jobs or three. Finish your degree as soon as possible instead of taking it slow and easy. Make your own way as soon as possible and you’ll reap the benefits for the rest of your life.
You need more money. You need it now. So what are your choices? You have two: You can increase your income or you can reduce your spending.
Get a bigger paycheck. Ask for a raise, land a new job that pays a lot more than your current job or get a second (or third) job to supplement your current income.
Win a lottery. Do keep in mind when considering this option that your chances of being struck by lightning are much better than winning a lottery.
Sell assets. Finding a cash buyer for your grandmother’s sterling silver, the boat or other asset you own is another option for increasing your income.
Last year, Mitch and Jenn had a string of bad luck. Mitch broke his leg in a skiing accident, Jenn’s car broke down requiring major repairs and their home’s aged roof decided to fail right in the midst of a major storm.
The timing for all of this wasn’t ideal—four weeks before Christmas. The financial and emotional toll of these events continues to be huge, but nothing like it might have been if they hadn’t been diligently building their Contingency Fund—more commonly known as an emergency fund.
Mitch’s health insurance is covering most of the costs of his surgery and follow-up therapy. Still they’ve had to come up with more than $2,400 to cover his deductible, co-pays and prescriptions. The car repairs were just shy of $2,700—not surprising given their Subaru’s age and 140,000 miles.
It was the roof that really threw them for a loop. The estimate to repair it—with no assurance that said repairs would last for longer than a few months—was $750, with a new roof coming in at $12,000.