I’ll admit I used to think frugality was a distasteful lifestyle forced upon the poor. I believed “frugal” was synonymous with never buying new clothes and dumpster diving under the cover of night. Boy, did I have a lot to learn. And learn I did — and continue to learn — that the frugal lifestyle is the path to building wealth on any income.
I credit a great deal of my change of attitude from reading “The Millionaire Next Door,” by Thomas J. Stanley and William D. Danko, quite a few years ago.
Frugality is behavior characterized by economy in the use of resources. The opposite is “wasteful,” a lifestyle marked by lavish spending and hyper-consumption. Wealth has nothing to do with how much you earn, but what you do with it and how much you keep.
Ask most people to name a financially savvy American, and a regular guy like 41-year-old Paul Kieffer, profiled years ago in “Money Magazine,” wouldn’t even be in the running. At that time, Kieffer lived in St. Charles, Minn. (pop. 3,000), spent about $38,000 a year to support his wife and two kids, drove a three-year old car he bought used, refused to sign-up for cable TV and worked six days a week at the local Red Wing shoe store. Oh, yes. Kieffer also happened to own the store as well as five trailer parks in the St. Charles area, which gave him, at the time, a net worth of $1.4 million.
The reason folks like Kieffer are financially independent is because they live understated lifestyles. They live frugally. They aren’t showy, but are careful how they spend and invest their money.
Stanley and Danko identify these self-imposed rules of self-made, wealthy Americans:
Live below your means. Reduce your spending as necessary so that you eventually save 15 to 20 percent of your annual income before taxes.
Meticulously budget your spending. Make a belt-tightening plan for everything you spend, and do whatever it takes to stick to it.
Take on secured debt sparingly. Every dollar you pay in interest is one less you have to invest. Unsecured debt is not in the vocabulary of the authentically wealthy.
Participate in serious tax sheltering. Pay as little as legally possible in income taxes by maxing out on contributions to tax-deferred retirement accounts.
Launch a disciplined investment plan. More important than the amount of money you put away now is establishing the habit of regular investing.
Get help from a sharp fee-only financial advisor. Such a professional can assist with a wide range of financial needs for a flat fee. You can find such a professional in your area by calling the National Association of Personal Financial Advisors’ toll-free number at 888-333-6659.
Work hard — ideally in your own business. Salaried workers are pretty much limited to what an employer will pay them.
Savvy business owners can grow their business and thereby increase their income. Keep this in mind as you consider what role frugality will play in your household and in your life: Many of the people who flaunt the trappings of success often have little wealth.