Adopting a frugal mindset when it comes to spending money is not the same as a cheap mindset, and understanding frugality can help you be thriftier with your money, without being cheap.
People often ask me what shortcuts they can take to save more money, and while there is no direct shortcut, there is a way to save more money quicker – practice frugality. Adopting a frugal mindset when it comes to spending money is not the same as a cheap mindset, and understanding frugality can help you be thriftier with your money, without being cheap.
Frugal vs. Cheap
A cheap person has a short-term mindset, may be scared to spend money, and generally prefers to hang onto their money. They’ll try to get the lowest price on everything, even if that means passing up a good opportunity or deal. Cheap people often keep a running tally of what others owe them, and they probably won’t be shy to ask for the $4 they spotted you last time you went out for coffee together. In short, cost (or price) is what’s most important to cheap people.
Frugal shoppers, on the other hand, look for the best deals and understand that brand items aren’t always better. However, they will pay more for things they really care about. Frugal people have more of a long-term mindset (short-term loss for long-term gain!) and prefer to save their cash for better quality items or experiences. They understand being frugal is about prioritizing spending so that they can have more of the things they really want or need. In short, value is what matters most to frugal people.
It Pays To Be Frugal
While there are a number of benefits that come with being frugal, the biggest financial advantage is that being frugal can help you save more cash quickly. The more you save (and the sooner you start), the more you’ll be able to stash away for your dream vacation, children, retirement, and other financial goals. Also, for those of you with debt, adopting a frugal lifestyle can help you payoff your debt quicker. Here are some things to keep in mind when practicing frugality:
- Have a plan. Be it a grocery list, a back-to-school shopping list, or a sound financial plan, one of the basic principles of living frugally is to know how much money you have to save, spend, and invest. Having a shopping list can help you avoid impulse purchases, whereas an intelligent financial plan – that accounts for your financial goals, budget, and an emergency fund (and shifts as your life changes) – can help you stay on track. If you don’t already have a financial plan, it’s time to make that a priority.
- Remember, value over price. Cheap products could end up costing you more in the long run because they break more often and may not be as effective as the higher priced alternative, so they need to be replaced. For example, a friend of mine had a cheaper vacuum that wasn’t picking up all the dirt and cat hair. As a result, she had to replace the vacuum (she went for the better model the second time around!) and hire a professional cleaner.In situations where the only difference between two items is price (like at the grocery store), it’s better to buy the generic store brand over a name brand – you’ll get the same value, just without the fancy (and costly) label.
- Simplify! You don’t need tons of material “stuff” to be happy, do you? Reducing the clutter in your life can help you realize what you value most. Then you’re free to channel your energy (and money) to the experiences or things that you find most value in.
- Live within your means. I’ve written about “keeping up with the Joneses” before (and why it’s a load of hooey), and I can’t emphasize this point enough. Competition is a strong motivator for man, that’s why it’s important to remember what Theodore Roosevelt once said – “comparison is the thief of joy.”
- Cash is king. Ditch the plastic for your day-to-day expenses. Credit cards come with their own set of ridiculously high fees. Giving yourself a cash allowance (daily, weekly, or monthly – whatever you find most effective) can help you effortlessly stay on top of your budget because what you can spend is right in your hands!
- Fees make a difference. It’s simple – the more you pay out in fees, the less money you have in your pocket, the bank, or for your investments. Cut down on fees wherever you can (Netflix is a great alternative to cable these days, see if your banking fees can be reduced, or try paying a flat fee for investing instead of a percentage of your assets), and put that money into your savings or investments. Then let compound interest work it’s magic.