Dec 2nd, 2007
Frugal is not a dirty word
Frugality is one of the common threads of the self-made financially independent. In his book The Millionaire Next Door, Thomas J. Stanley makes the point that it’s critically important to spend less than you earn or you will never increase your net worth, and that of self-made American millionaires (rather than those who came into money due to their family’s wealth), frugality was a common theme.
Frugality isn’t always fun, although it -can- be fun to hunt for great prices on things you need and to try to see how long you can make that $20 you got out of the ATM last. Sometimes it’s not fun when all of your buddies get new iPhones and you don’t, or they all go out to an expensive restaurant for dinner and you decide you can’t afford it.
Frugality, however, is the primary principle of sacrifice and delayed gratification that is needed to practice the kind of financial discipline that leads to financial independence. The exercise of determining your expenses and income helps to determine if you actually are practicing frugality or not and points you in the direction of areas that might need addressing to become more frugal.
When looking at your month to month income and expenses, there are really only two things that can be done to improve your financial situation:
1) Increase your income;
2) Decrease your expenses.
Yes, it’s also possible to do both, but there really aren’t a lot of other options. Of the two, it’s more likely that you can do the latter quickly. Additionally, if you can decrease your expenses, you can also put the money that you no longer spend into some kind of savings plan, whether it’s to increase your retirement savings or build (or start!) an emergency fund or targeted savings for a particular goal.
Now that you have your budget in front of you, can you identify areas where you’re spending more than you think you need to? Where in your budget can you cut? Are you spending more than you want on your electric or gas bill? How about your cellular phone or cable bill? Can you reduce or eliminate some of your expense in these areas? Do you really need both your cellular phone and your landline? Would it be a hardship to use the public library for your music, video, and book supply?
Where do you think you can reduce your expenses to become more frugal?
