Although you can’t control the economy at large—if you can, reach out to us for a chat—you can control how you spend your money. Frugal living is one of the best ways to gain that kind of control, allowing you to save more, spend less, and invest the rest—building financial growth and potentially retiring early.
So why not give it a try?
What is frugal living?
Frugal living boils down to making deliberate choices about how you spend your money. It’s about mindful spending, simplicity, and living below your means. Mindful spending aligns your spending with your values, simplicity reduces clutter and unnecessary expenses, and living below your means avoids debt and boosts savings.
Ultimately, it’s about being economical, not cheap. Just because you don’t spend lavishly doesn’t mean your only option is clipping coupons and scouring for sales. There’s plenty of middle ground.
By finding ways to save wherever possible, frugal living can direct your money, time, and attention toward the aspects of life that hold true value to you. For some, that means living debt-free. For others, it’s all about traveling the world or pursuing a passion project.
In either case, frugal living and deliberate spending will help. In the wise (and pithy) words of billionaire investor Warren Buffett, “If you buy things you don’t need, you will soon sell things you need.”
The benefits of frugal living
A frugal life of mindful spending and simplicity not only improves your psychological well-being but also has a host of other financial benefits. These include:
- Reaching financial goals faster: Whether your financial goal is to buy a new home or fund a new business the practice of spending less and saving more will get you there faster.
- Achieving financial wellness: Alongside reaching a specific financial goal faster, you can achieve a more general sense of financial wellness by living frugally and gaining more control over your finances. That may include building an emergency fund, paying off debts, or saving for a comfortable retirement.
- Building net worth: Your liabilities will decrease as you cut spending and pay off debt. With the added savings, you can invest and grow your assets. Reducing liabilities while growing your assets will build your overall net worth.
- Early Retirement: If your goal is to have enough to retire early, living below your means and saving or investing the rest will help you build up a nest egg that, fingers crossed, allows you to retire early.
How to start living frugally
With a simple definition and clear benefits down, the next step is the practical one: How do you live frugally? Here are four tips to start:
#1: Create a budget
Just as location is essential to real estate, budgeting is essential to frugal living.
Budgeting helps you see where your money is going and identify areas where you can cut back. Start simple by tracking your spending for a month to see where your money is going. Then, create a budget that includes your income and all your expenses. Include savings and debt repayment categories.
Once developed, stick to your budget or adjust it as needed. For example, if you spend more on groceries, adjust your budget to reduce spending in other categories, such as entertainment. Or, if you get a raise (congrats!) adjust your budget so you save more—if you don’t, you may fall victim to lifestyle creep which, as Buffet warned above, results in you buying things you don’t need only to sell them for things you do need.
#2: Cut expenses
After creating your budget, look it over to see where you can reduce expenses. Common areas to cut expenses include housing, transportation, food, and entertainment. For example, downsize to a smaller home, or find a roommate to share expenses with. In addition, consider carpooling or public transport to reduce transportation costs. For food, clothes, or entertainment, cut costs by clipping coupons, looking for sales, and buying generic brands.
#3: Avoid impulse purchases
Although you may really want—and convince yourself that you really need—the latest gadget you just learned existed a minute ago, those kinds of impulse buys are the exact opposite of frugal living.
Instead, take a breath and allow time to reconsider. Wait 24 to 48 hours between the impulse and the purchase to really see if it’s warranted. Will that new gadget become an integral part of your daily routine, or will it end up sitting in the corner collecting dust within a week?
In addition to waiting a day or two, come prepared to shop. That is, bring a list of what you need and stick to it.
# 4: Invest wisely
As you increase your savings and avoid impulse buys, you’ll have extra money around. Invest it wisely.
“Wise” investments differ from person to person because they depend on your risk tolerance, time horizons, financial goals and other factors. That being said, for those who want a diversified portfolio with a hands-off approach and low fees, passively managed low-cost index funds are a great option.
In addition, by contributing to a tax-advantaged retirement account, such as a 401(k) or IRA, you’ll reduce your tax bill and save more for retirement.
What frugal strategies do you use?
Frugal living promotes financial growth in various ways. By being mindful of spending, and aligning it with values and priorities, you can achieve financial goals faster, enhance net worth, and even retire earlier. It reduces stress, increases security, and builds a brighter financial future.
The best news is that frugal living isn’t about luck. It’s about habits and skills that anyone can develop. Start by budgeting, cutting expenses, saving, avoiding impulse purchases, and wise investing. Over time, you’ll witness its positive impact on your finances. Spend money wisely, or it will end up costing more than it’s worth.
Have you tried out any frugal strategies for your life? If so, which ones and how did they impact your financial well-being?