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Cultivate these 24 frugal habits of successful people and putting them into our daily routine will help us to achieve mental and financial wellbeing. All the knowledge and good intentions in the world means nothing if we didn’t take action. These little habits we do each day will lead to big changes in our life.
#1 Craft Out Your Financial Goals
Take a long-term view of what you want to achieve in life from a financial perspective. Start planning for the next 5 to 10 years. Don’t be speculative, be prudent. Read up and understand the fundamental of stocks and shares, cast a longer view of 15 to 20 years for long-term investment. Break down the financial goals into short, mid and long-term. Always keep these money goals at the back of your mind. Never lose sight no matter how slowly it seems to take to get there. Focus on the big picture even when caught in the difficult financial situation. Persist until the end.
#2 Realistic Budget And Stick To It
Break your budget into various categories so that you can watch over all the expenses. One simple method to start off is to use the 50/30/20 rule base on needs, wants, saving and debt repayment respectively. It doesn’t have to be perfect as you can refine them along the way. There are many software or app available in the market which you can try out. I started out using Excel to create the initial budget from scratch. Don’t have to be overly complicated. Just keep an eye on the big picture and stick to it. The whole idea is to spend within your means at all time. Know where your money is going. Which areas you are overspending. Where and when to cut back in order to match your financial goals.
#3 Pay Yourself First
Get into the frugal habits of paying yourself first. Swear by it to save before you start spending. Don’t put the cart before the cow. Set aside a fixed portion of your income and deposit into your saving account each month. Automate it, so that it is deposited into your saving account once the paycheck comes in. Have two accounts. One for saving and one for expenses. However small that saving amount is, make this the primary and important habit to keep above all things if you want to retire rich. Start saving while you are young and let the money compound and grow exponentially over time. Be consistent and stick to it. This habit to spend below your means has to be internalized if you want to retire rich.
#4 Pay Off Debts
We all carry debts and cannot escape from it in this modern society of consumerism. After saving, you have to manage your debt and nip it in the bud. Don’t ever let your debt grow out of proportion. There are two different approaches. Some recommend to pay off those that carry high-interest rate first. While others say pay off those that have a larger or bigger loan first. Objectively speaking, tackle the one with the higher interest rate first makes more financial sense. On a side note. Whenever on an installment plan, calculate the interest cost over the entire period of the plan. Don’t be deluded by the low repayment plan thinking that it is cheap. Do your sum as you may be surprised that you have overpaid for the item.
#5 An Emergency Fund
Build an emergency fund for the rainy day. Cut back on unnecessary expenses. Adopting this frugal habit will prevent you being caught with your pants down. Sometimes your car may break down when you are least expecting it, old home appliances break down in the midst of use, some family obligations may suddenly turn up. The worst to happen is you have been retrenched during a downturn or company restructure. Having an emergency fund on standby will certainly help to cushion off the blow so that life can go on with the least inconvenience.
#6 Instant Gratification
Checkmate instant gratification, the “NOW” must have attitude. Resist being tempted to buy at the spur of the moment. Stop the craving and ponder over for a few days before making the decision. Is it a need or a want? Can you live without it? Is there an alternative at a lower cost? Don’t let the super salesman sweet talk into making a hasty decision or letting the emotion gets the better of you. Do price comparison to determine best buy or value for your money. Learn to say no to yourself often.
#7 Peer Pressure
Do you buy under peer pressure? Is your buying decision dictated by your colleagues, neighbors or friends? Their core values are not the same as yours. Their earning capacity and responsibilities are totally different from yours. Stay focus and always keep your financial goals at the back of your mind. Don’t bow down to peer pressure. Your purchasing decision must be based on what matters to you most. Don’t burden yourself with unnecessary debts just to look cool or better than your peers. It’s just not worth it.
#8 Continuous Optimization
Have a frugal mindset for continuous optimization. Always thinking about how to make something better or improving it further to become the best. Review your funds periodically and make continuous optimization which may seem small but over time when compounded tend to yield a very attractive return. For example, can you save more, change where you buy groceries from, refinancing when it makes sense, switch banks, switch power retailers, improve cash flow by having a passive income.
#9 Cut Loss
Cut loss and move on when there is no future in any undertaking. Shelve your pride or ego. Be it an investment or a relationship that has turned sour. Stop digging your own grave. From the frugal people point of view, throw in the towel and start climbing out of the sh*t hole. Don’t throw good money after bad or waste time because you haven’t come up with an alternative or because you don’t want to admit to our friends and family that you have made a wrong judgment. Forget about sunk cost. Focus on what you have to gain rather than what you have to lose.
#10 Ask The Right Questions Before Purchasing Big Capital Item
Before purchasing any big capital items like a house, car or even insurance, frugal people will do a thorough research and know how to ask the RIGHT questions. Be modest and ask blunt questions like what is the long-term resale value. A certain part of the house which you may not like, can it be changed without any additional cost? What are the related or hidden costs? Most importantly, is your agent trustworthy? What are his track records? Sometimes phrasing questions differently or even asking the same question twice to see if the reply is consistent. Better be sure than sorry when coming to big purchases. If it is not to your terms and you smell rats, walk away swiftly and look elsewhere.
#11 Buy Quality
Buying something cheap that is of poor quality may actually cost you more in the long run if you factor in the time and effort to do the replacement. It is smarter to choose the “Upgrade and Save” strategy by paying a little more. Lookout for real bargain and buy quality things that are reliable and has long-lasting value. On the other hand, don’t overpay for quality that will outlast the usage. Be wise to know when to sacrifice quality and when it’s better to spend more for quality.
#12 Pays Cash
Cash is king and pays cash. Always carry some cash because paying cash may get them a better deal. Using cash will also save on transaction fee which some establishment impose on credit cards. Having ready cash on hand gives you psychological peace of mind. No need to worry about minimum payment or late payment fee imposed by credit card company.
#13 Aren’t Afraid To Speak Up
Always check your bills or receipts and aren’t afraid to speak up to clarify when wrongly been charged. It’s only human to make mistakes, so ask for customer services in a graceful and respectful way and seek clarification to get the refund. When situation permit, provide feedback and give the advice to improve the service. On the other hand, if something is new or you are at a loss, speak up and ask for help. Don’t pretend you know everything and waste your time trying to reinvent the wheel.
#14 Opportunity Cost
Frugal people understand what is opportunity cost and evaluate it against trade-off. They don’t just look at the price tag and take it at face. Assuming you have $10,000, would you invest in share with a projected return of 9% or take up a course that will advance your career in the 2 years time. At the end of the 2nd year, if the market turned bad and go south giving you only 3% return then taking up the course would have been a better choice. Conversely, if for some reasons, you did not complete the course due to heavy workload then investing was the right choice. It’s a choice between tradeoff when making a decision. Having this awareness will help to open up alternatives for evaluation.
#15 Modest home
Be down to earth to choose a modest home that is comfortable without being too luxurious. The home loan usually takes up the major option of our long-term debt. It’s very important to be frugal when come to purchasing a house. Live within your means and not be persuaded by the banker to believe that you can afford a bigger mortgage. Plan early for this big capital item and have sufficient cash for the down payment. The mortgage rule of thumb is set at 28/36 which is not more than 28% of your gross monthly income (before tax) towards all housing expenses and not more than 36% on all other debt. Personally, I prefer to be prudent and keep it at 20/30 because it is difficult to predict for the long term beyond 10 years.
Get into the habit of decluttering every week. Starting from your wardrobe, your study room, living room, garage, attic and the surrounding areas. When you are running out of storage space, use this rule “One in, two out”. This will curtail your habit of randomly buying stuff that occupies precious space. Set a 15 minutes routine, same time, every day, every week. Pick an area which you think is most messy or needs improvement and work from there. Another method is to practice the Japanese method of housekeeping based on 5S. Start to label things that seldom been used as “Don’t need them and Don’t Want them”. Don’t attach too much value to those items you want to discard. Keeping going and don’t look back.
#17 Cost Conscious
Frugal people will memorize the prices of those items they buy regularly. They value their money right down to the last dollar. They don’t believe in paying full price. They will sit back and relax, patiently waiting for store sales or seasonal offers. Always keeping an eye for bargains and will buy used instead of new whenever possible. They are discipline and buy only what they need. They will schedule no-spend week throughout the year to stay on budget.
#18 No Trash
Another important frugal habit is to minimize spending and have a “No Trash” mentality by repairing, reusing or recycling all their stuff. They play their parts to care for the environment by recycling or reusing until the things worn out or broken. They are prudent and will find ways to make things last by repairing before buying.
#19 Food Wastage
Frugal people have the habit to plan their meals in advance and cook in bulk. They remember to consume meals that have been frozen and will not tolerate wastage. And they take great effort to use things until the very last drop.
#20 Home Cook Food
Be frugal by eating home cook food because it saves lots of money. For a large family, food budget will take up a fairly large portion of the family expenses. Proper meal planning will lessen the need to eat out or last-minute order for delivery. They will eat out at the restaurant only on special occasion. Even then, will check if there is any dinner deals or coupons are available to keep cost down.
#21 Have Side Hustles
Developing side hustles will help to ease cash flow or increase your saving account. Join a walk the dog or the babysitting services. Earn cash by selling unwanted items on eBay or CraigsList. Start a website to blog about your working experience and provide online training courses. Over time, frugal people will establish several secondary incomes.
#22 Keep Learning
One important habit is to emulate successful people who always learn to improve themselves. They have this never stop learning attitude. They like to read, listen and learn new skills to stay relevant in today’s fast and constantly changing environment.
#23 Community Resources
Practice good frugal habits by making use of free community resources. There is nothing cheapskate about making full use of them. There are free concerts, road show, festivals, health talk and interest group activities all around us. You must make effort to really look for these things by putting the ear to the ground.
#24 Spending Emotionally
In the past, I tend to spend emotionally whenever I was totally stressed out. I will go out to buy a gadget that I have been dying to have. The pleasure gained from buying new thing seems to release the stress. This is commonly known as “Retail Therapy”. However, after the thrill was over, I often end up regretting not making the best choice while incurring additional debt. Frugal people will look for free things to do that will deflate stress like going for a jog or take the dog for a long nature walk. Channel the energy of the troubled mind to physical activity by doing volunteer work to help the less fortunate. May also consider spending more time with the children by going hiking or biking. All these activities at minimum or zero cost.
Closing Message On Frugal Habits
In order to have long-lasting change, establish a routine behavior and repeat it regularly so that it gets into your subconscious level to become a habit. Cultivating these frugal habits doesn’t mean you have to live a joyless life. It simply means living on less and spends money mindfully without getting into unnecessary debt. These are only some of the essential habits practice by highly successful people. It is by no means complete.
I would be most delighted to have your comment as well as hear new ideas from you in our pursuit towards leading a happy debt free life always.