A common desire many people feel is out of their reach is to become wealthy and to lead a leisurely life on their own terms. The unfortunate disconnect is that a lot of us also spend frivolously and do not have the mindset necessary to amass and maintain a fortune.
Frugality is essential if you want to build wealth and keep it.
Behavioral scientists define frugality as showing restraint when acquiring goods and services and amply using resources already in their possession before making new purchases.
With a closer look, you notice that business success and frugality are both based on focus and patience. With this in mind, it makes sense that wealthy, successful business professionals are often frugal with personal spending.
When you learn a few lessons from frugal millionaires, you may reposition your thoughts and actions related to spending and saving. By mimicking their actions, you may witness improvement in your own personal wealth.
1. Be Value Conscious
Some people see frugality as buying the absolute cheapest products available. However, it does little good to buy cheap items that need to be replaced quickly. If you need to make a purchase, choose a product you can expect to get ample use out of.
It is better to pay a little more up-front for quality than to make a cheap purchase that requires multiple replacements.
Self-made millionaires often search for products that have true value, beneficial features and which they can use for a lengthy period. Focus on the craftsmanship and type of materials used in the product. You should read consumer reviews to find what issues others have had with the product. Research items rather than buying impulsively.
You also should avoid buying brand name items for the luxurious reputation of the brand. There is no value in buying a product based on the label. Regardless of the brand, always focus on value.
2. Avoid Debt at All Costs
Carrying debt is more expensive than many people think. It is a common belief that cost of debt equates to the monthly payment or the amount you originally financed. However, the actual cost of debt relates to the purchase price of the goods financed and the finance charges. Finance charges are assessed monthly, and sometimes, they can cost hundreds of dollars per month. This finance charge is the cost of debt, and it affects your ability to save and invest.
To avoid debt, you must save money and fund a rainy-day savings account. Once this account is financed, continue to save and invest. You cannot save if you splurge on unnecessary items, so try to avoid themat all costs.
In the business world, entrepreneurs face many setbacks and life lessons that some may view as failures. However, it is not reasonable to expect your business to grow without some shrinkage from time to time.
Just as business professionals must adjust to the punches and be patient rather than discouraged, it is also important for you to manage your finances with patienceand to be ready for setbacks.
Some debt may be essential, such as if you want to buy a house with a mortgage. However, spend the time saving for a large down payment rather than financing as much of the purchase price as possible. In addition, choose a modest house that is affordable and comfortable. When you take on debt, minimize the amount of debt as much as possible.
3. Do What Works for YOU
Maybe you dream big dreams to get rich, and you are ready to jump headfirst into your saving and investing efforts. But, it is not workable to make a huge financial change, such as by saving 30 percent of your income all at once. Start small, and plan to increase the amount that you are saving over time.
Visualize your wealth as a bucket. While you want the bucket to be full, you cannot expect someone fill it up. Instead, you need to place drops in the bucket yourself until is full. In addition, dipping into that bucket for splurges and unnecessary expenses will prolong the time it takes to fill it up.
When choosing investments, avoid unnecessary risks by making sure you understand what the investments are. Follow the sage wisdom of successful investors such as Warren Buffett. He kept his wealthfor over fifty years and his advice is to invest in what you know. Remember that any investments you are not knowledgeable about are riskier than those you may be comfortable with.
4. Stay Modest
The old saying “live below your means” may be worn out and trite, but it has staying power in the world of personal finance because it is a support pillar for financial independence. When you live up to or beyond your means, issues with limited savings and even increasing debt balances are common. The only way you will have moneyto save and invest further is to not spend it.
Many millionaires and billionaires still live below their means.
For example, Warren Buffett lives in the same home he purchased in 1958, and it is his only home. Mark Zuckerberg wears jeans and hoodies, and he drives around in a Volkswagen with a manual transmission. The founder of Ikea, Ingvar Kamprad, drives a Volvo that is several decades old. He also takes the bus around town and flies economy.
The bottom line is – you will never have money in the bank if you spend it.
My Final Advice
Even if you win the lottery, without proper management, your wealth will disappear. Develop mindfulness and discipline about managing your finances. Expand your knowledge through books and blogs if you need advice about managing or investing money.
Michelle Laurey produces stories on finance, entrepreneurship, and productivity. She is a virtual assistant for a few SMBs. Making a few mistakes with loans and credit cards forced her to expand her financial literacy and change her perspective on money. Outside of work and her keyboard, she enjoys a good book, healthy food and bike rides.Reach out to her on Twitter.