If you’re dreaming of building that million dollar retirement nest egg, or accumulating enough cash to retire early, there’s more than one way to get there. That’s the beauty of personal finance! While earning more money is certainly one side of the coin, adopting frugal values can also help you build significant wealth over time.
You may have noticed that the behavior of frugal folks tends to line up pretty well with the habits of most wealthy people. That’s because frugality and wealth-building go hand in hand, and it’s those same frugal values that contributed to wealthy people becoming (and staying) wealthy!
In this post we’re going to explain why 80-85% of millionaires are self-made, and the frugal values they all have in common. We’ll also add in some tips on how you can use the frugal values of the wealthy to build a sizable nest egg of your own.
1. A focus on quality (not quantity)
Sometimes, we think we’re doing the financially responsible thing, but it’s really hurting our finances in the long run. Saving money and getting deals is important, but focusing on buying only on the cheapest things possible can actually backfire. It’s way more important to consider quality vs. just saving the most money possible in the moment.
For example, let’s say you need a new pair of slacks for a new job. In order to save the most money, you purchase the cheapest pair of black trousers from the clearance aisle at Forever 21. You snag them for just $10.
“What a steal,” you think to yourself as you wear them into the office on your first day. But, after wearing and washing them just three times, they shrink to an unwearable size. Ten bucks seemed like a good deal, but calculating the price per use works out to cost $3.33 per wear!
Instead of heading back to Forever 21, your frugal values kick in and urge you to focus on quality. After some research online, you buy the next pair of slacks from a reputable clothing brand. And while these pants are more expensive ($100 for 1 pair), according to the reviews they live up to the hype! That new pair lasts two full years, wearing them weekly. The price per use drops dramatically to just $0.96 per wear!
Always opting to purchase the cheapest item can be shortsighted. Instead, by focusing on quality and value, frugal and wealthy folks are able to decrease their consumption, saving more money and building more wealth in the long run!
Try this: Next time you’re about to make a purchase, think about the bigger picture. Is it worth spending more upfront to have a higher quality and longer lasting item?
2. Advocating for yourself
Another one of the most powerful frugal values is continually advocating for yourself. Wealthy people negotiate prices when they purchase things, ask for discounts, and request salary raises at work. They don’t mind having hard conversations about money! This leads to making and saving a lot more money, and not allowing themselves to get taken advantage of.
Negotiating your bills
Sadly, getting discounts for just “being a loyal customer” doesn’t really exist these days. Most companies are doing the opposite… Internet, phone and insurance providers will lure you in with a lower introductory cost, then they raise your bills over time! Those companies are banking on you staying put, continually forking over more money as they raise prices.
That is why you need to take it upon yourself to negotiate your bills on a regular basis.
Set aside an afternoon to call up all your service providers and ask them if there are any new customer deals or promotions you can take advantage of. If they tell you that they are unable to offer them to you, politely ask to be transferred to the customer retention department. Remember to always keep your cool, and be firm yet polite. Be willing to walk away and shop around for other companies and services if needed.
It may seem like a hassle, but it is 100% worth the effort. Think of your savings as payment for the few hours you spent working to get your accounts switched over to a company offering significantly lower rates.
Negotiate pay raises at work
Both frugal and wealthy people value their time. Which means that they’re not afraid to advocate for themselves in the workplace. They know their worth, and aren’t afraid to ask for what they deserve. Especially folks who have spent years developing and honing their skills and craft. They understand that they should be compensated accordingly.
If you feel you may be undervalued at work, and can find some research to back that up, consider asking for a meeting with your boss to discuss your compensation package. While it might be scary to negotiate a raise, it can have a tremendous impact on your wealth-building efforts and ensure that you retire with more money. Even just being able to save $2,000 more each year can amount to a difference of over $226,000 when invested over a 30 year period!
Pursue deals and discounts
When it comes time to make a purchase, frugal folks don’t just buy stuff without checking for deals first. They spend a few minutes perusing different websites for discounts to make sure they are getting the best price available. Comparison shopping can save small bits of money on small items. And it can save HUGE amounts of money when buying larger items!
If you’re shopping in a store, it may be worth quickly searching on your phone to see if other retailers have cheaper prices for something you’re about to buy. Another easy task that pays off is quickly searching online for coupons available for that store. Or, use a plugin like Honey that makes it easy.
Try this: Next time you’re shopping at a store, ask the sales clerk if they have any coupons you can use. It’s a low stakes way to flex that discount negotiation muscle, and you just might save a few bucks!
3. Not looking to get rich quick
One of my biggest pet peeves is those preroll YouTube ads that showcase some random dude you’ve never heard of flexing his fancy watch and car collection in front of a mansion that he probably just rented for the day to create the illusion of wealth. These ads then try to get you to buy a course that will “make you instantly rich!” The sad part is that people spend thousands of dollars on these courses, and struggle to make even 10% of the money they spent back.
However, frugal folks don’t fall victim to these kinds of schemes. They build wealth the proven way, slowly over time. They invest regularly and rely on compound returns to do the heavy lifting for them.
Compound returns, simply put, is when the interest you’ve earned on your investments starts to earn interest of its own. While this might start out small and slow, it accelerates greatly in the late stages of wealth building. Think of it like a snowball rolling downhill.
Small amounts of money invested over time can help you to build serious wealth for the future. But it takes time and patience. For example, if you just max out your Roth IRA for 35 years, you could end up with more than $1,242,000 in your retirement account! This is why it is so important to start investing as early as you can.
Try this: Set up an automatic monthly transfer to your investment accounts each month. Even if you only have $50 to contribute monthly, it will make a meaningful difference over time. Adopting the frugal values of saving consistently and investing steadily will build tremendous wealth over time. And not having to think about it by automating the process: priceless.
4. Simple budgeting
Frugality is all about being efficient with your money. It’s making sure your dollars aren’t slipping under the radar and are being spent in the best places possible.
Most wealthy people use basic budgeting to keep track of their money. They give each dollar they earn a job, keeping them in the driver’s seat vs. always playing catch up after money is spent.
The best part about budgeting is that it is fully customizable. Everyone gets to decide personally how they budget, and which system they use. As for allocating money, frugal people try to align their spending with their values. They spend less in the areas that only bring temporary happiness, and more on the items that bring them true long-lasting joy in life.
If you don’t love spreadsheets and dislike budgeting currently, we highly recommend checking out You Need A Budget. YNAB is an app that automatically tracks your spending, categorizes it, and helps you bucket all your money towards spending goals. It does cost some money, but new users save $6,000 on average in their first year of using it! And it’s always free for students!
It’s nearly impossible to save well if you don’t know where your money is going. So if you’re new to budgeting, take a quick minute to learn the basics.
5. Stretching money further
Being frugal means you can do more, with less. Here’s a little scenario illustrating my point…
John takes his son to Dave & Busters on Friday night. He spends $60 on game credits, and orders a few beers ($20) while his son plays video games. After hitting the gift shop on the way out ($20), they pick up some fast food on the way home ($30).
John spent a total of $130.
Stephen also does a father-son day at Dave & Busters. But he chooses Wednesday night because they have 50% off all games on Wednesdays. Stephen and his son ate dinner at home before they left, and brought water bottles to drink while they played together. They did spend $10 at the gift shop for a small treat, though.
Stephen’s night only cost $40.
By being frugal and thinking ahead, Stephen spent $90 less than John. And the best part is, Stephen can actually repeat that same outing with his son 2 more times and still spend less than John did!
The same frugal principle is true for all types of activities in life. Thrifty travel means you can take more trips because your budget stretches further. Discount grocery shopping means you can eat more and make more elaborate dinners!
Stretching retirement dollars
It’s not just about minimizing expenses in the present. Lowering everyday expenses is one of the most important values that helps frugal people achieve retirement faster and enjoy it longer!
Here’s another example of how frugality enhances retirement…
Erica makes $150,000 each year after taxes. But, after taxes take a huge chunk, she spends the bulk of her money on her new Tesla, fancy condo, and lofty living expenses. She only puts away 10% of her income each year for retirement, about $15,000 per year.
Her sister, Caitlin only makes $80,000 each year. But, Caitlin is super frugal, renting out a room in her house to a friend, driving a safe used car she bought in cash, and has lower living expenses. She invests a whopping 30% of her income for retirement, which is $24,000 each year.
30 years later: Erica has saved $1.7 million for retirement. Impressive! And Caitlin has $2.7 million saved. Caitlin accumulated more wealth than her sister, even with a smaller income.
But here’s the crazy part… Since Erica is accustomed to a higher cost of living, the impressive $1.7 million she accumulated is not actually enough for her to retire with! She needs to continue working and saving for many years to build her nest egg higher. On the flip side, Caitlin’s $2.7 million is way more than she needs to pay for her lifestyle.
Saving money and cutting your expenses has a twofold effect. First, it helps you to invest more for the future. Second, having a lower cost of living also helps those retirement dollars stretch further. It’s a frugal win/win!
Try this: Look at some of the bigger line items in your budget (housing, transportation, food) and see what you can reduce. You’ll reach a quicker and fuller retirement!
6. Preparing for Emergencies
Did you know that only 44% of Americans have enough savings to afford a $1,000 emergency!?
When you don’t have an emergency fund, things can get pretty bleak when financial crises pop up. Without cash on hand, folks resort to credit cards or personal loans, exacerbating the problem and digging a deeper hole.
Frugal folks dont like to be caught by surprise. They naturally protect themselves against emergencies by building a savings buffer. Having an emergency fund on hand means they can afford car repairs, surprise medical bills, or last minute expenses without going into debt or paying interest. Plus, they enjoy more peace of mind in their everyday lives knowing that they’ll be covered even if surprise expenses do pop up.
Try this: While we typically recommend creating an emergency fund of 3-6 months worth of living expenses, that can be a tall ask if you don’t have any savings. Start out by working towards saving $2,467 in a high yield savings account. Economists have found that having this exact amount on hand can help you to cover most emergency expenses.
7. A focus on mindful spending
With modern tech like Apple Pay and 1-Click Checkouts, spending money without a second thought has never been easier. That’s why frugal folks always work to be more mindful with spending.
Mindful spending is basically just thinking through your purchases before making them. It helps avoid impulse buys and keeps more dollars in your wallet! The more you can be frugal and eliminate mindless spending, the more money you will have to spend on your biggest values!
Here are some quick mindful spending tips:
- Think about purchases in terms of hours worked. You may not want to splurge on that takeout when you realize it will cost you three hours of your life!
- Organize what you have. Have you ever considered something lost and ordered a replacement, only to find that item again a month later?🤦♀️ Keeping an organized home helps you to keep track of what you have.
- Avoid optimistic spending. Are you spending that $50 every month on a gym membership because you’re the kind of person who goes every day, or because you want to be the kind of person that goes every day?
- Ask yourself who you’re buying this for. Buying something because you want to impress the folks around you will never make you happier.
- Plan ahead for spending triggers. If you always order takeout after getting home late on Tuesday nights, plan for it by having quick recipes or readymade meals on hand.
Try this: Consider making a 24-hour waitlist for purchases. If you decide you want something, put it in your notes app or in the store cart, but do not buy it until 24 hours later. You’ll be amazed at how often you won’t finish the transaction the following day.
8. Simple investing strategies
Another way that frugality helps you to build wealth is that it emphasizes tried and true investment strategies. Wealthy people and frugal folks share the same investment values, and understand that slow and steady wins the race.
Instead of trading stocks often, most wealthy people just buy and hold assets long term. These days, that means buying highly diversified index funds on a consistent basis, and never selling them until retirement.
Even people who spend their entire careers trying to find the best times to buy and sell stocks are routinely outperformed by the S&P 500. In fact, a study from the New York Times found that after analyzing 2,132 actively managed funds, not one of them beat their target benchmarks!
If you are new to investing, don’t overcomplicate things. Learn all you can about investing for beginners and keep things simple!
9. Focus on avoiding debt
High interest debt is a MAJOR wealth killer. So frugal folks avoid it like the plague. In doing so, they naturally build wealth over time because there are no big leaking holes in their bucket.
Not all debt is bad, of course. Bad debt is usually taken out to afford assets that depreciate in value. And those loans typically come with a high interest rate. For example, car loans, personal loans, payday loans and credit card debt can all fall into the category of bad debt.
Good debt on the other hand can be used to buy appreciating assets that grow more money over time. Fixed rate mortgages on houses, student loans, etc. These typically have interest rates under 6% and can leverage your ability to build wealth when done in moderation.
Try this: If you’re currently in a bad debt situation, it’s important to put together a debt payoff plan. Two popular methods of paying off debt are the debt snowball and debt avalanche methods.
10. Utilizing credit card rewards
If you had the choice between funding your next vacation yourself, or letting someone else pay for your vacation, what would you choose? Yeah… thought so.
One of the easiest to spot frugal values is taking advantage of free things. And credit cards are arguably the most fun rewards you can get for regula spending you do every day!
Credit card companies offer massive signup bonuses for opening a new credit card. And, you can earn meaningful rewards just for putting your regular spending on that card, too. Points can be redeemed for incredible travel experiences, or even for just cold hard cash back if you aren’t into travel.
Try this: Instead of planning your next vacation expenses out of pocket, study up on traveling for cheap using credit card. It will blow your mind. And use this credit card tool to compare the best credit card offers available for the type of points you will get the most value from.
What is Frugality?
Simply put, frugality is being thrifty and efficient when it comes to your money. It’s a lifestyle that emphasizes making the most out of what you have, valuing your time, and working to reduce waste.
While some people think that being frugal is boring or restrictive, we believe the opposite is true. Frugality actually makes more room for the good stuff in life, because it focuses on eliminating the unnecessary things that don’t provide lasting value. Plus, frugality encourages you to be more creative, and let go of the idea that you need to spend money to have fun.
Keep in mind, there’s a huge difference between being frugal vs. being cheap. Taking anything to the extreme will end up backfiring, and that’s definitely the case with extreme frugality. It hurts more than it helps.
The Bottom Line:
Frugal values and wealth building go hand in hand. And that’s why many wealthy individuals mimic the same values as frugal people! They both practice mindful spending, budget according to their values, and invest in simple, proven strategies.
By adjusting your behavior to adopt some of these frugal values, you’ll be able to grow your wealth in a meaningful way. It’s never too late to change your financial trajectory, so what are you waiting for? Get started!
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