“Without frugality none can be rich, and with it very few would be poor” – Samuel Johnson
Wealthy people like Warren Buffet (Billionaire Investor) and Chuck Feeney (Co-Founder of Duty Free Shoppers Group) believe in living a frugal life. Interestingly, both these wealthy businessmen use their wealth to help people. Chuck Feeney said, “I try to live a normal life, the way I grew up. I set out to work hard, not to get rich.” Frugality is one of the virtues that are important for wealth building. When it comes to frugality, it is not that easy to teach how to live frugally or how to get into a frugal mindset. Frugality is all about being aware of how you are spending your money and how can you control your thrifty habits. There is no quick-fix to get into frugal mode. However, in order to save more and cut unnecessary expenditure, it is important to differentiate between
Needs vs. Wants
I have emphasized this in my previous posts as well. While we all know that in order to increase savings, we need to curtail our expenditure, what we need to know is what is not necessary. Well, there is no definitive answer. It depends on the age and life stage of a person. If you are in college, buying a notebook (laptop) is definitely a need and it is rather a good investment that can get you good grades. However, for a full-time employee whose job does not require working at home, buying a laptop is a total waste of money. Similarly, shelling out some extra bucks in Starbucks is avoidable for many of us, but if you are self-employed, meeting your potential client in Starbucks may be well worth the money. So, depending on your lifestyle and stage you are in, you need to make a list of needs and wants.
Now vs. Never
For those who have hard time deciding between needs and wants, here is a quick tip. If you really need to buy something, wait for a few weeks and if you still feel the urge or need for that particular item, go ahead and buy it. You need to be brutally honest with yourself. If for a moment also you have felt that you don’t need it, don’t buy. Take that item off the needs list and shift it to the wants list and if you are really better off without it, remove it from the wants list as well. Sometimes, we buy things that we don’t even want after a few days. So, this exercise will cure a syndrome called mindless shopping disorder. Remember, prudence is all about being conscious about your spending pattern and spending a few minutes on observing your spending behavior can reveal a lot about your extravagant habits.
Saving to Invest vs. Saving to Splurge
To get into a frugal mindset, one needs to set saving goals. While some of you are saving to invest, others are saving to spend. Some of you are working hard and setting aside a portion every month to enjoy a luxurious vacation in Hawaii, while others are simply saving enough for down payment for their first home. So, whatever is your goal, you are working hard to reach your goals and inadvertently getting into a frugal mindset to achieve that bigger goal. Again, whether you should save to splurge or to invest depends on your lifestyle and life stage you are in. But, to achieve a bigger goal, you have definitely given up your wasteful habits and streamlined your finances. For those who have not done it yet, set a bigger goal and sacrifice small comforts and luxuries to meet that end goal and whether you achieve that goal or not, you will win, because you will definitely change some of your habits.
“If you buy things you do not need, soon you will have to sell things you need”–Warren Buffett