budget

Why Be Frugal?

by mike on July 17, 2010

Being frugal is boring.  How are you supposed to have any fun if you never spend any money?  I guess it depends on your definition of fun.  Fun to me is doing work that I am passionate about and that helps others.  Fun to me is spending time with my wife and two daughters, laughing while my older daughter gives us another one of her “performances” and my younger daughter screeches and claps wildly for her.  Fun to me is knowing that my wife and I are building a strong financial future for ourselves which causes less stress in our marriage.  Fun to me is dreaming about the amazing things we will be able to do for others after we have accumulated some wealth.

Unfortunately, many view the only way to have fun is to buy nice things, live in a large house, and go on great vacations.  Actually, I agree.  Those things are fun.  I think fun is not the ultimate goal, however.  Happiness is.  You could easily exchange happiness for all the times I said fun above (happiness to me is spending time with my wife and two daughters).  I’m not so sure you can automatically exchange happiness is buying nice things, living in a large house, and going on a great vacation.  Fun is fleeting, it happens and it’s over.  Happiness is deep, it is lasting.  It is a way of life.  Why am I going on and on about this?  The average millionaire is extremely frugal!  The definition of frugal is “behavior characterized by or reflecting economy in the use of resources”.  That doesn’t sound like much fun.  But it is the way to accumulate wealth: economy in the use of resources.

Look at it this way: the opposite of frugal is wasteful.   You cannot be both frugal and wasteful.  Chances are, you are one or the other.  Which are you?  Which do you want to be?  With reality shows and MTV, millionaires are believed to be people who spend wildly and live lavishly.   The people who do this are only a tiny fraction of people who are millionaires.  But, their lives make great TV.   A reality show of a true millionaire would be one word: BORING!  The authors of The Millionaire Next Door included in a survey of millionaires questions about their spending habits.  When the average millionaire was asked the most they ever spent on a suit, the answer was $399.  Shoes? $140.  Watch?  $235.  That would really be exciting as the camera man follows the millionaire to a department store to buy a $235 watch!

How did these millionaires become so frugal?  Well, the authors point out that they often answered yes to three questions:

1.      Were your parents frugal?

2.     Are you frugal?

3.     Is your spouse more frugal than you are?

I think most people who know me would say that I am frugal.  Mandy, however, is more frugal than I am.  When we were first dating, she had stored away all kinds of money from working through high school.  I also worked through high school, but I didn’t have a whole lot to show for it.  I often joke that I am lucky to be married to a wife who doesn’t like to spend money, but it’s really not a joke.  I am lucky!   My net worth is (and especially will be) thankful!  It is virtually impossible to build wealth when you are married to someone (husband or wife) who is wasteful.  By the way, women often get a bad reputation for being big spenders according to their husbands.  They buy too many clothes, spend too much on the kids, etc.  When men are wasteful, however, they do it big!  It’s a flat screen TV, a four wheeler, power tools, a boat, etc.  It’s not just a $500 trip to Saks Fifth Avenue, it’s a $15,000 trip to the boat dealer!

The ultimate question is how to become frugal.  It’s so simple, yet hardly anyone does it.   The answer: do a budget!  Millionaires budget!  That is how they became wealthy and that is how they stay wealthy.  You may falsely think that millionaires don’t need to budget, they have plenty of money.  That is like thinking fit people don’t need to exercise because they are fit.  It is how they maintain where they are, and improve even more.  Look at it as your income is offense and your expenses are defense.  When I used to coach basketball, I would often tell my players: “defense wins championships.”   Most coaches (really in any team sport) will tell you that an excellent defense will always beat an excellent offense.  It is usually the thing that is most in your control.  You can control your defense, or your expenses, by the choices you make.  Those choices are best arrived at through doing a budget.

I would like to finish by asking four questions the authors pose to the reader that you should be able to answer yes to (millionaires can!):

1.     Does your household operate on a budget? It is much easier to do a budget when you can see the long term effect of it.  Millionaires have the end in mind.  They do not particularly like budgeting either, but they know the payoff in the end is worth it.  You have to understand the why of budgeting for.  What is in it for you?  Ask yourself that question.  Is it a sense of control?  Is it security knowing your future will be taken care of?  What is your motivation to budget?

2.     Do you know how much your family spends each year for food, clothing, and shelter? This goes along with the budget thing.  I would like to make a distinction, though.  When I ask my potential clients if they do a budget, many of them answer with “yeah, we look at what we spend on utilities, food, etc.”  That is looking backward.  Budgeting is telling your money what to do before the month begins.  BOTH of these things are important.  It’s important to look back and put into perspective what you have spent.  I do this once every three months just to make sure we’re not budgeting too high in a certain category.

3.     Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals? Knowing where you are going is extremely important.  Michaelangelo once said “The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it”.  Stretch yourself and accomplish great things!

4.     Do you spend a lot of time planning your financial future?
Millionaires spend significant time planning.  Budgets, goals, investments, tax shelters and other financial tools take time.  Millionaires understand the time spent doing these things are well worth it.

Carefully go through the questions in this post.  If you cannot answer yes to all of them, figure out why.  Change the no’s into yes’s.  Although being frugal may not be seen as “fun”, it sure can be a means to happiness.

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