How Being Frugal Will Make You Rich!

Now when I say “rich” I don’t mean spiritually, intellectually or having plenty of possessions.  I’m talking about cold hard cash, baby!  Think Scrooge McDuck swimming in his pool of gold coins or billionaire playboy Tony Stark (aka Iron Man) flying around in his powered suit of armour, rich!

Yup, we can all dream, can’t we?  Well, today I’m here to show you how being frugal will help you get one step closer to Dr. Evil’s, “$100 billion dollars!”

Money; it’s the one thing most of us are willing to sacrifice 3/4 of our time (arguably our most valuable asset) on earth for.  Think about that for a moment.  We as a society have accepted the fact that money is so precious that dedicating more than half of our lives working to obtain it is normal!

I’m not saying this is the only way to earn a living, but try telling your parents you’re going to become a multi-platinum selling rap artist after you just dropped out of high school and let me know how well that goes!

Let’s just assume that going to school, getting a good education, and working hard in a career until you retire at 65 is the most logical way of obtaining wealth.  But, it doesn’t end there.  Something is missing.  A critical piece of the puzzle that explains why not everybody who follows this formula is able to save enough money to achieve financial independence.

If money is so valuable and we work so hard for it, why does it seem like only a lucky few ever become rich while the rest of us struggle to make ends meet?  

Short of winning the lottery or receiving a large inheritance, it’s because of:

• decorative lawn ornaments
• fancy wine bottle stoppers
• novelty manual shift knobs
• pumpkin spice lattes
• celebrity-endorsed vape pens
• AYCE weekend sushi dinners
• exclusive golf club memberships
• private maid services
• premium manicure/pedicure treatments
• all-inclusive trips to the Maldives
• distressed designer jeans
• Mercedes-Benz S-Class Coupe with the Swarovski Crystal Lighting Package
  (I was in no way, shape, or form compensated by Mercedes-Benz for endorsing their vehicle!)

In other words, it’s because we’re not frugal!

Dictionary.com defines frugal as: “economical in use or expenditure; prudently saving or sparing; not wasteful.”

Look, I’m not saying you can’t indulge—that would make me a hypocrite.  (No premium mani-pedis though, I swear!).  But knick knacks have a tendency of adding up slowly over time, eventually costing us a fortune.  If you’re able to live lavishly because your expenses are only a small percentage of your income and/or net worth, I applaud and envy you.  If that’s not the case, however, I want you to ask yourself a serious question:  

How long do you want to spend your life living the illusion of being rich?

Despite all the expensive products we own and the convenient services we use, if our net worth is not congruent with the income we’re earning, we are not rich.  Do Not Pass GO!  Do Not Collect $200!

Ouch, why so harsh?  You were writing so light-heartedly just a minute ago!

Because the world is harsh.  Because instead of building wealth, we’re squandering it.  Because corporations invest billions of dollars in advertising with the sole purpose of separating us from our hard-earned cash.

“Why bother about winter?” said the Grasshopper; “We have got plenty of food at present.” 

—Aesop Fables, The Harvard Classics

You may have heard a popular tale, “The Ant and The Grasshopper.”  It describes how the Ant toils to store food for winter while the Grasshopper sings merrily away.  When the season arrives, the Grasshopper is dying of hunger and begs the Ant for food, to no avail.

Although the moral of this story shouldn’t escape you, things are a little different in the real world.  In reality, the Grasshoppers are wealthy, powerful, and influential.  The Ants (while still hard working), seem doomed to part with their corn and grain (money) for song and dance (products and services).  The Grasshoppers are the ones who survive the winters, not the Ants! 

So what’s the solution to this financial apocalypse?  

Frugality!

For all you sports enthusiasts out there, being frugal is like the team with the tough impregnable defence.  Now I’m well aware just how helpful a six-figure salary is, but how does the saying go…“Offence sells tickets, but defence wins championships.”  Simply put, if you earn a million dollars but your expenses are a million dollars, a millionaire you do not make!

For the benefit of this post, I will not be discussing the importance of increasing your income because (as noted above), you are not guaranteed riches just by making a lot of money.

“But $54,750 is worth it for the comfort of knowing I’ll be able to indulge in my favourite latte for the next 50 years!”

If you adopt a more frugal lifestyle it will help to lower your expenses, increase your net worth, and achieve a goal that is so rarely met in today’s consumerism society: financial freedom!

Along with frugality, there are other important personal finance tips that improve your chances of becoming rich and reduce the amount of time it takes to do so.  For example: living below your means, investing a percentage of your savings, reducing your credit card debt, etc.  These I will go into further detail in future posts.

So how exactly does being frugal make you rich?

There is a phrase called, “The Latte Factor,” coined by David Bach, author of The Automatic Millionaire.  The concept is simple: save what you would have spent on small purchases—like lattes—and instead use that money to accumulate wealth.  There are some detractors towards this philosophy, but what I take from it is basic math and the practice of frugality.

Let’s say you bought a $3 latte from Starbucks every day for 50 years.  This habit would end up costing you $54,750.  (3 x 365 x 50 = 54,750).

But what if instead of spending the $54,750, you saved it; (you can still make your own lattes from home!) and what if instead of saving it, you invested it?   

Let’s do this in a low-cost index fund with a 6% rate of return and compounded interest annually.  Index fund?  Rate of return?  Compound interest?  Never mind the financial jargon for now, just bear with me!

The $3 invested daily for 50 years would be worth approximately $317,973.08!  That’s an 83% increase in value compared to just saving the original $54,750!

Still not impressed?  Try cutting back on a few other small luxuries so you’re investing $10 every day instead of $3.  Using the same compound interest formula, you would retire a millionaire with $1,059,910.25!

“But $54,750 is worth it for the comfort of knowing I’ll be able to indulge in my favourite latte for the next 50 years!”  

I won’t argue with you there.  But what’s the alternative?  The alternative is the real possibility of attaining wealth and retiring a millionaire.  (Home-brewed coffee for me, please!)

Being frugal allows you to become aware of the fundamental mindset that continuously saving and investing your money over time will make you rich.

The definition of rich will differ depending on who you ask.  Every North American is considered rich if you ask those living in third world countries.  Even people living within North America each have a different perspective of being rich.  

“What is one man’s meat is another man’s poison; and a state of things which to one man means starvation and misery, means to another positive luxury.”

—J. Goulton Constable, The Anatomy Of Wealth, Or, The ABC Of Every Day Life

My definition of being rich is not having to work for money, but saving enough of it so that it buys you time.  Having more time will provide you the freedom to pursue the dreams and aspirations you’ve always wanted to fulfill in your life.

So go ahead, be frugal, and before you know it, you’ll have plenty of time to thank me for it!