Before upsetting anyone let’s define cheap:
CHEAP — Buying inexpensive or low quality despite being able to pay for the higher quality item.
Cheapness can be good or evil. The latter can damage reputations, friendships, the economy, and/or personal health. Good cheapness can lead to financial freedom.
Examples of evil cheapness:
- Postponing preventative medical care
- Eating low quality food
- Wearing poor-fitting clothes
- Bailing on social situations
- Foregoing international travel
Examples of good cheapness:
- Fixing things that break
- Bringing bag lunches
- Biking/walking instead of driving
- Drinking water (instead of sugar drinks)
- Using the library
You’ll notice that all the good cheapness examples have secondary benefits related mostly to health and/or personal satisfaction. Now that we’ve defined cheapness let’s call it frugality. But why bother with it?
Frugality is the easiest way to get ahead:
It seems simple and it is; if you want to build wealth you need to increase your income or decrease your expenses.
For most people increasing income is what they focus on, but there are two glaring problems with that:
- Making money is difficult
- Lifestyle creep – As income grows, expenses tend to grow – “I got a raise, therefore I can afford the expensive coffee today”
Regardless of income, the easiest way to build wealth is to decrease your expenses.
The Financial Diet Doesn’t Work
The key to changing your financial diet habits is intrinsic motivation. Instead of paying someone to fix your bike/computer/car next time it breaks down try using google and fixing the problem yourself. Not only will you save money, you’ll learn a new skill. Instead of paying for a fast food lunch, pack your own lunch with healthy food. You’ll feel better physically and mentally while saving lunch money. The same applies to foregoing driving for walking or biking.
Saving money gives the frugal intrinsic satisfaction. They value freedom over things. They change from “I can’t afford it” to “I don’t want to spend the money”. If you want to keep your body fat low forever you’ll have to diet forever. But that sounds awful right? Well not when it ceases to be a diet and becomes your own healthy lifestyle.
Dieting is active, lifestyle is passive.
A diet requires constant mental attention, where a lifestyle is really a series of background habits. Which is going to last?
How do you change a diet into a lifestyle? Track your progress. Use feedback to keep you motivated until your healthy habits become passive. Find a way to track your budget using software (like Mint or YNAB or an old fashioned manual excel spreadsheet). Nothing is more motivating than watching your net worth grow.
Budget tracking will gamify your financial life so you can direct your money to where it really matters. And if you’re a cheap bastard like I am, eventually your chart will look more like this: