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 cover of night; that it meant cheap and slovenly.
Boy, did I have a lot to learn. And learn I did—and continue to learn—that frugality 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 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.
Ask most people to name a financially savvy American and a regular guy like 41-year-old Paul Kieffer, profiled several years ago in Money Magazine, wouldn’t even be in the running. At that time, Kieffer lived in St. Charles, Minn. (pop. 3,735), spent about $38,000 a year to support his wife and two kids, drove a three-year-old car he bought used, refused to sign-up for cable TV, and worked six days a week at the local Red Wing shoe store. Oh yes. Kieffer also happened to own the store as well as five trailer parks in the St. Charles area, which gave him, at the time, a net worth of $1.4 million.
The reason folks like Kieffer are financially independent is that they live understated lifestyles. They live frugally. They aren’t showy but are careful how they spend and invest their money.
Stanley and Danko identify the self-imposed rules of self-made, wealthy Americans:
7 Secrets of the Frugal Lifestyle
1. Live below your means
Spend less than you earn. Reduce your spending as necessary so that you eventually save 15-20 percent of your annual income before taxes.
2. Meticulously budget your spending
Make a belt-tightening plan for everything you spend and do whatever it takes to stick to it.
3. Take on secured debt sparingly
Every dollar you pay in interest is one less you have to invest. Unsecured debt is not in the vocabulary of the authentically wealthy.
4. Participate in serious tax sheltering
Pay as little as legally possible in income taxes by maxing out on contributions to tax-deferred retirement accounts.
5. Launch a disciplined investment plan
As important as the amount of money you put away now is establishing the habit of regular investing.
6. Get help from a sharp fee-only financial advisor
Such a professional can assist with a wide range of financial needs for a flat fee. To find a good one, go to the National Association of Personal Financial Advisors website, NAPFA.org. Another useful resource is Garrett Planning Network: GarrettPlanningNetwork.com.
7. Work hard—ideally in your own business
Salaried workers are pretty much limited to what an employer will pay them. Savvy business owners can grow their business and thereby increase their income.
Keep this in mind as you consider what role frugality will play in your household and your life: Many of the people who flaunt the trappings of success often have little wealth. I’m told that Texans describe these people who live flashy lifestyles in a straightforward yet colorful way: Big hat, no cattle. And that about says it all.
MORE from Mary:
- Living Below Your Means is the Only Way to Live
- Give Yourself an Extreme Money Makeover
- Frugal Food and Grocery Shopping 101
- 12 More Frugal Laundry Tips That Will Save You A Fortune
- How Not to Feel Poor on a Fixed Income
- The Truth About Joy and Living Well, Below Your Means
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