Can being frugal give you the way to riches and wealth?
The way you can achieve being a wealthy person or family is that you create value for this world in forms of services or products to the people. But to keep your wealth or income is to become frugal.
Once you have created this value and you receive your harvest, then you should save a portion of this harvest. Once you save a portion of your harvest you can plant the seeds to grow more harvest in time. This is called compound interest.
The harvest is the income you receive for providing value to the Marketplace. Your boss, your company or clients that you serve through your own business.
With that harvest you have to pay for your expenses that you occur like things you have to pay to provide a ‘good’ life for yourself and your family. If you have a business then a portion of the harvest goes to the business expenses to further provide and expand you empire to a greater degree.
After paying all the necessary bills you have with the harvest. You have the option to spend money on things you would like to buy. The problem with most people is that they go way overboard on the spending part of the harvest. They don’t focus or even thinking about planting seeds for the future.
Planting seeds is highly important for building a wealthy future. If you don’t plant seeds you will have nothing in the future. If all you do spend, spend and spend you will destroy the opportunity to reward yourself with freedom that you deserve.
Grow that money tree!
So what is the plan?
The way to get a better grip on your future is to become more frugal.
So
DON’T WASTE YOUR MONEY.
A lot of people think being frugal is something of the past, something from an era where there was not a lot of food and work was impossible to find. A situation like the great depression in 1929.
But being frugal has nothing to do with that, sure a lot of old people still have the same mindset because their parents or themselves have experienced major poverty in their life time and that is completely understandable. But the issue with having a ‘broke’ mindset is that it will control your entire life.
I personally believe that thinking the frugal way is that you want the most out of something. That things you buy with your money will last forever so you don’t have to keep investing money in such things.
If you search a coffee maker, find one that is reliable and brings a lot of value for the money you put into that thing. In that way it is worth the money you buy it for. You don’t want to be buying a coffee maker every single month because of a shitty design. Wasting your time and your money away.
You should always search good items if you want to buy something and keep in mind that you need to keep it untill it dies. Once you decide what you want to buy and you want to keep it forever. Then your mindset will be different. You wont just buy something because you will see it. You will wait before buying and researching different kind of items for which one is the best fit for you.
The best bang for the buck.
The problem is that you can go overboard with the idea that more expensive is always better. You can buy yourself a $150.000 BMW but it will get a flat tire the same way a BMW for $5.000 would have. So don’t use that excuse to buy something very expensive. I have personal experience with this guy at work, he has this crazy expensive car to show off and has a lot of problems, it’s always in the shop. The car I own is way cheaper and my time is more on the road then in the freaking garage paying shit for a shit car, wasting money away.
Don’t go into a new car dealer and buy yourself a new car just because you had some maintenance with your older car. You will never be cheaper with a new car. For the money a new car depreciate, you can rebuild your entire car and have some money left over to give to people and have some new friends.
You want to find the perfect time where something has depreciated to a point that you can buy it on a cheap price and the product has a lot of years left in it.
An example.
Say you are looking for a new car. You want a nice and reliable one. The reason you want to upgrade is because first off you have the money set aside from your emergency fund and paid off your debt.
Second reason is you car is old, rusty, not very comfortable and breaking down on about every corner right now.
My suggestion would be to look for a car that has had the biggest depreciation hit, that means looking for a car 3 – 5 years old with low miles. Take in consideration that the higher the cost of the vehicle, the more it will depreciate.
A Kia rio from 2018 new is around : €19.995.
A year later with around 10.000 miles its worth : €15.000.
If you take a look for a Kia Rio that is 3 – 4 years old it will take a big step from that Original price of €19.995.
When we take one from 2013 with around 40.000 miles you have to pay : €8.900 for the same car that is 5 years older.
Thats a depreciation hit of -€11.095, that spread over 5 years is -€2.219 each year. A lot of people don’t even have that money in the bank. How retarded are you if you accept to let that money flush down the toilet. And this car doesn’t even depreciate that fast.
Let alone if you buy that Mercedes or beamer.
ONLY BUY IT IF YOU CAN REALLY AFFORD IT!
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How to determine what you can afford?
So how can you determine how you can afford something? Like a car, a house or just a new couch?
How much to spend on a house?
For a house it is very easy but hard to adjust. I would suggest 20 – 30% of your ‘net’ pay. Because people are way to easy to buy a house that is very high in monthly payments. People are manipulated in thinking paying a lot for your house is a safe investment and that you need to buy as much housing as you can. Because that way you can live very nice and have something for the future.
But most people are ‘broke’ and don’t have money left over for things they really want to do in their lives. If you really love to have a nice house, want to spend a majority of you income on it then maximize your spending to 40% your net pay. This way you can buy your dream house, but don’t expect to do a lot of traveling and buying nice cars because it’s a choice you have made.
So if you make $3.000 / month, spend $1.200 / month on housing. What I personally think is fucking crazy. I make around that money a month and spend like $400 on housing. I would rather suggest you pay no more than 25% off your net income on housing. Putting the limit on $750 / month.
It’s all about priorities. My priority is freedom and positive cash flow brings that freedom.
What is your priority?
Being frugal or a house?
What about a car?
We’ll most people get a car payment, its understandable if you don’t have any money in the bank. The average person doesn’t even have $1.000 for an emergency, so how the hell can you come up with an extra $20.000 for a new car?
You cant and that’s why you get a car payment.
How much is the max you pay on a car?
We’ll we described above that a car depreciate like crazy and if you want to build up some money you have to really think drastically about a car purchase.
Do you love cars and you don’t bother to pay a lot for it? Sure you can splurge a little bit once you have your other priorities at place like some savings for when shit hits the fan.
I really love cars but I would suggest that you wont pay for a car that is more then 25% of your net pay.
Lets say you make $25.000 / year that means the maximum car you can afford is $6.250.
Making $50.000 / year? Means you’re not going to the beamer dealer for a brand new 5 series, you are going to be content with a used 3 series for $12.500.
$100.000 / year ? Well now you are going into the nicer cars area, used Mercedes or a new car. Putting the purchase price at around $25.000.
This way you can enjoy nice cars, be frugal in your ways and still have some money left over for other parts in your life.
Why do I suggest no more than 25% of your net income? Because the car is going hill fast value wise and if you splurge $40.000 on a car, your money that you worked for is going to be worth nothing in a couple of years.
Using a % of your income is a great way to focus on creating more income, you want a nicer car? Well find a way to grow your income so you ‘may’ afford that dream car.
What is my cars value regarding to my income?
More like 7% because the car I own at the moment depreciated very fast. The reason for this was extra ‘diesel’ hate created by our governments. Thanks for that!
So best thing to do is to keep driving this hunk of junk until it destroys itself.
The only thing you have to remember after getting that nice car is to drive it untill the wheels fall off. if your out buying such a car every single year, you’re gonna be fucking broke.
And remember pay cash.
What is your priority?
Being frugal or a car?
What about stuff like furniture?
Some people really like having a nice interior in their house and I can understand that you love a nice couch. Nothing wrong with that.
But having too much and spending too much on ‘stuff’ is a great way to be forever broke. You can always buy a new and nicer thing, that’s the entire problem with consumerism.
Sure you can like it but the enjoyment of that item can wear off quite quickly. If you want something, you need to wait at least a month before buying. This way you can save more and really think about if you ‘really’ want it. If this is the case you may buy it, because you will keep the item that much longer.
If you buy on impulse your excitement wears of in like a week.
Delayed gratification gives you more contentment from the item you want to buy, because you will always know how long you waited for that particular item.
So how much should you spend on that?
I would suggest that you put 10% off your net income a side and save it to buy something you like. Spend that 10% however you like, its something you reward yourself with after saving month after month for a long time. Lets say you make $3.000 / month and that item is $600?
Put that 10% Aka $300 / month for 2 months . Once those 2 months are over you got your money and 2 months thinking if you still want the item. That’s real delayed gratification.
And remember pay cash.
What is your priority?
Being frugal or stuff?
What about just plain fun money?
I put a personal spending limit for 10% of my net income. You make $3.000 / month? We’ll spend no more then $300 a month on fun stuff. Going out to drink with friends, taking a day off for the beach or going out for diner with your girl.
You can spend money very quickly eating out or drinking. That’s why I recommend getting that $300 out of the bank and put in a box in your house. Every week you take out some of that money, like $75 and you can use it however you see fit. Is the $75 gone that week? Gotta wait until next week until you can go out again.
This way you can enjoy your money, learn to grow your income more for more fun money and not spend crazy on just dumb shit like 66 beers every month.
And remember pay cash.
What is your priority?
Being frugal or beers?
How this effects your frugality.
So how is this going to effect your thoughts and frugality?
We’ll once you’re in the mindset that you set up yourself budget wise in what you really want and you save on the rest, you’re frugal. You are focussing yourself on what you love to spend on and things you don’t care about have no need for spending.
If you want to drink & go out a lot and you spend only 20% off your income on housing, then you can do that.
Once you really think about where you want to spend your money and you save the rest, invest those in seeds and make it grow, you can achieve being a wealthy person.
It’s very simple :
Live below your means!
See you later,
Uuldriks Financial.
