Four Frugal Life Lessons
Hello all. A big part of my personal finance world is the general theme of being frugal. The four frugal life lessons outlined below help explain the genesis behind this, my evolution toward frugality, and the path toward saving over one million dollars in ten years (as outlined in last week’s post on my Net Worth Explosion).
I’d start by saying that I grew up in a cost conscious household. I wouldn’t say my parents were super frugal, but I was one of four boys and quite simply got my fair share of hand-me-downs. I didn’t get everything I wanted growing up, but I felt I had a great childhood, I had what I needed and wouldn’t change a thing. Fortunately, my wife had a similar upbringing, so when we started dating in college (and married shortly after college) it was fairly easy to mesh our views toward personal finance.
Lesson 1: Recognize Needs vs Wants
I remember when I was growing up, I would go with the store with my parents and ask for this or that and quite often the answer was “no”. If I didn’t need that new shirt, another pair of shoes, or new jeans, I usually wasn’t getting it. And by no means am I complaining, that is the way it should be. It helped me recognize and evaluate needs versus wants. This was the beginning of many financial related lessons I learned growing up.
These lessons stuck with me as I grew older. In high school I began working part time jobs to make extra cash. Of course my parents continued to provide for me and buy me things I needed. I elected to work and the money I made was for my own discretionary purposes. I thought I was rolling it in, making a few thousand dollars in the summer.
As these paychecks started coming in, I reverted back to the old lessons I learned to help me decide what to spend my new-found riches on. I could buy the latest video game or cool new clothes, but do I need these things? Were they worth the hard work and time I put in to earn that money? Would these purchases meaningfully add to my level of happiness? Are they necessary or are there cheaper or free alternatives that provide the same utility? I recognized everything I could spend my money on were “wants”, so I ultimately deferred my consumption, and that led to Lesson 2.
Lesson 2: Defer Consumption
My parents taught me the lessons of investing early and the benefit of compounding interest. They were smart with their money. They worked hard for it, they valued it, and they wisely invested for the future. Watching them manage their money sunk in for me. When you make money, you have choices. The most basic of which is to spend it now or defer consumption and spend it later.
Quite frankly, this is the problem with materialism and consumerism which permeates throughout American culture. Just because you have some extra money in your pocket or checking account, does not give you a license to spend it any way you want. Rather, defer consumption, invest that extra money and have more to spend later.
This was another valuable lesson I learned growing up and I saved practically all the extra money I made in the summers. What did I save it for? Upcoming college expenses of course. I didn’t know how expensive living the college life would be for me or how long the money I was making would last, but I knew college was coming and that I would need every bit of it. This eventually led to the next lesson I learned.
Lesson 3: Track Expenses
After college, there was a general anxiety and unease that I felt about not fully understanding how much money I would have coming and going out. I just did not know what to expect exactly. I got a job out of college and obviously knew what my salary was, but my paycheck was a lot less after taking out tax, health insurance, etc. And my cost of living changed as I moved and got my own apartment and was responsible for my own utilities, etc. From this I began to understand the importance of tracking my expenses.
This was another lesson I learned growing up, but now began to realize its importance. I saw my Dad balancing the checkbook every weekend. This was his way of tracking the ins and outs of our family’s cash flow. I took it a step further by tracking each expense individually, categorizing it, and tracking total expenses month by month and year by year in an easy to use spreadsheet. This allowed me to not only track the ins and outs, but also compare my expenses over time to see how they changed and evolved. This eventually evolved into the fourth lesson.
Lesson 4: Reduce Expenses
After tracking my expenses on a monthly and annual basis, I was better able to budget for the upcoming year which led to more closely examining my expenses and cutting out unnecessary costs without sacrificing quality of life. This was relatively easy at first, but each year I focused on cutting more costs and used the savings to spend more meaningfully elsewhere or invest for future consumption.
Where was I able to cut expenses? Early on it was things like a gym membership. Alternatively, I bought a stationary bike (which quickly paid for itself) and ran outdoors. I hardly ate out at restaurants, and when I did I looked for coupons or deals. Alternatively, I focused on grocery shopping, packing lunches for work and making great meals at home. For date night, my wife and I would prefer having dinner and drinks at home and renting a movie which was much cheaper than dinner and drinks out and catching a flick at the theater.
More recently we’ve cut our cable subscription, consolidated our phones (opting to use business provided cell phones for personal as well), my wife cuts my hair, we bought solar panels to reduce our utilities and many others that we’ll discuss in more detail in future posts. These were easy lifestyle choices and ways to reduce expenses without sacrificing lifestyle.
The culmination of these four frugal life lessons led to greater and greater wealth accumulation. I was investing the money I saved and since I started early and often, this led to our net worth explosion. I eventually realized at my pace, I was not only saving enough to pad my retirement, but also enough to retire early. Really early! I hope to reach financial independence by age 35 (about 5 years from now) and retire by age 40.
The four frugal life lessons are part of The Green Swan lifestyle. Have you led a similar path toward financial independence? What lessons did you learn along the way? Let me know in the comments below.
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The Green Swan
Work Harder, Work Smarter, Retire Earlier and Find Your Beach