Frugality can have a new meaning once you begin earning a higher income. While some view frugality as saving money, it can also have the simple meaning of living within your income means. Being frugal will prepare you for the future while still allowing you to enjoy the lifestyle you build over time, and the joys that come from your career, family, and travel. Income is not wealth, so to build wealth you must be aware of your spending habits. Change your mindset, change your outcome!
“Living a frugal lifestyle allows an individual to comfortably afford the level of consumption in their household.” –J.D. Stanley, The Next Millionaire Next Door
How do you build and sustain wealth while earning at high levels? Frugality is a measure of responsible spending regardless of the economic condition of the day. Being frugal demonstrates a financial behavior pattern that is economical and prudent. The most important thing to remember in maintaining a lifestyle of frugality is to implement a set of behaviors in your life that don’t drastically change as you acquire a higher income level. If you continue to raise your consumption level as you move up in income brackets, wealth will not be built, and your net worth will stay the same. Income is not wealth.
Material goods such as homes, cars, and clothing are high ticket items that people desire. While rewarding yourself for hard work and advancements is good, it must be done in responsible moderation.
Buying homes can often be a larger long-term investment than your current income will sustain. Over 40% of millionaires today originally bought their home for under $400,000, and those that choose to buy nicer homes were driven by factors such as wanting high-quality public schools or relocation for a career. Although they can afford the nicer home, saving begins at home, allowing wealth to be built and people to live within their means.
The average millionaire drives a vehicle that is on average about 3 years old and is often a brand such as Honda or Toyota. By choosing reliability and practicality, these millionaires incur fewer additional costs for upkeep and have lower rates of depreciation. If you are able to outright buy a vehicle or pay it off within a few years, you have less debt and less worry if your economic condition changes. While luxury cars may be more appealing, there are many other expenses that often accompany them, hindering your goal of financial prudence, i.e. frugality.
Clothing and Accessories
Purchasing quality clothing and accessories is part of having a certain occupation. You must dress the past and present yourself in a respectable way. However, having an excess amount of these things can run high rates of depreciation. When looking at clothing as cost per wear, splurge only on the items that are staples in your wardrobe. While your sunglasses might cost $150, if you only own one pair and wear them daily, the value you receive is quite high and well worth the expense. Make smart purchase decisions and think about the long term benefits these material goods will give you. Keep in mind that retail therapy is not in fact therapy, it is short-lived and doesn’t bring long term joy.
Although you may have the freedom to consume expensive material possessions, remaining tactical about purchasing decisions will benefit your goals for long-term wealth and economic freedom. Trying to keep up with the Jones’s and ignoring essential practices such as frugality hinders your goal of reaching sustainable wealth. Implementing small acts of frugality into your everyday life can make a big impact on your future economic stability. Change your mindset, change your outcome!