Cut out the excess and save more money
If you’re reading this then you probably came to this website because you have a keen interest in finance and you want financial freedom. That’s great and here at FinanceFanatics we wish you every success in your endeavours.
But are you sure you’re living the lifestyle that will ultimately enable you to fire your boss and say goodbye to the 9-5 world?
Understanding how to save and invest is only the first step on the journey to financial independence. You also need to learn how to spend less so you can maximise the amount you’re able to save.
Becoming frugal is a simple process once you re-align the way you look at money and possessions. All it takes is a small amount of effort on your part. So with that in mind we’ve created a list of tips that will hopefully steer you onto the path of frugal living.
- Know your budget
The first and most important tip is to know exactly how much you earn and where every penny is spent. You need to make sure that what you spend is less than what you earn and try to minimise spending wherever possible. This is the foundation of frugal living. Without this basic knowledge, successful budgeting and saving will always be out of reach.
- Live below your means
Living within your means is a great start, but if you can live below your means you’ll start to see real benefits. The surplus money you generate is the engine behind your long-term wealth building. If you can’t make surplus money on a regular basis – either by cutting expenses or increasing your income – you’ll never become financially independent.
- Know the difference between Assets and Liabilities
Robert Kiyosaki, the entrepreneur and financial independence guru, says it best when talking about the difference between assets and liabilities:
Asset – An asset is anything that you acquire that puts money into your pocket. Assets are what the rich use to generate wealth over time. They come in many forms such as real estate, businesses that generate wealth (including passive income), and stocks and bonds.
Liability – A liability is any acquisition which takes money out of your pocket. Many people consider owning a house as an asset, without realising a house is a liability. Home owners don’t always take into account the cost of maintenance for the house, the fact that the mortgage may not be paid off by the time they want to move again, and the fact that houses can depreciate in value.
To put it simply, if you want financial freedom then you must always ensure you buy assets before liabilities.
- Buy for quality
Being frugal doesn’t always mean buying the cheapest product; it’s about always seeking the best value. Sometimes that means choosing quality over price. A pair of shoes that cost £20 might seem like a great deal, but they’re not if you have to replace them every six months. A £60 pair that will last two or three years will be much better value
in the long run.
- Avoid consumer debt
Frugal people already know this. Interest on consumer debt is a tax people pay for living beyond their means. And while a credit card can save the day from time-to-time, embracing easy credit as a way to enhance your lifestyle can have disastrous consequences. Interest and other charges will bleed your budget and destroy any hope for financial security.
- Know the difference between a Want and a Need
Consumers are constantly bombarded with advertisers trying to tell them what they want over what they really need. And advertisers have become extremely sophisticated in their sales techniques, making the advertising business a multi-billion pound industry. But the fact is, our needs are fairly straightforward. We might want to buy the latest smartphone because it’s got a slightly better screen than the old model. But do we really need it? Probably not.
Always remember these mantras;
If you’re broke – ‘Do I need it, and can I afford it?’
If you’re not broke – ‘Will I use it, and is it worth it?’
Being able to tell the difference between what we want from what we need is the first step towards making wise buying decisions. If you can’t master this skill, your money will never be able to keep up with your never-ending desire for new and ultimately unnecessary things.