29 August 2007 4 Comments Print This Post  Email This Post

It’s good to read books, subscribe to blogs and talk about personal finance and wealth building, but the hard part is to put ideas into action. When it comes to wealth building, I think too many people focus only on making more money. Theres all sorts of books, websites, blogs and get rich quick schemes that all claim to show you how to make more money. While an increase in income is definitely welcomed, it’s not a cure for financial illiteracy. According to the Money Socket fundamentals of wealth building, saving and investing money is more important than just making money. The first step to mastering personal finance is to be able to save money. Far too many people believe that they can’t save money. Saving money and being frugal is relative to your income, environment and ultimately your life. There are ways to save and be frugal for the person who makes five dollars an hour as there is for the person who makes a six figure salary. This is where the old adage “if there is a will, there is a way” applies.

Frugality Is Relative

Being frugal and saving money is different for everyone. What makes the difference is income level, environment, and your life. What is considered frugal for an entrepreneur who makes $100,000 a year is different than frugality for a person who makes minimum wage at a toy store. The high income person may decide to purchase a $30,000 3-series BMW instead of a $80,000 7-series. For that person, saving that $50,000 is an accomplishment. He is being frugal by choosing the entry level bimmer. Now imagine if the toy store worker did the same thing and bought a $30,000 BMW rather than a $80,000 one. Is that being frugal? No way! For the toy store worker it would be devastating financially to spend $30K on any car. For the toy store worker, he is being frugal by shopping at a local thrift store. The entrepreneur may choose to buy his suits online rather than in a designer store and save about $400. Both moves are frugal, but if the roles were reversed it wouldn’t make sense.

Know What is Frugal

The tough part is to determine what is frugal for your income level and your life. I believe that most of the time we have an inflated lifestyle, rather than the other way around. We think we are being frugal where in fact we’re not, like if the toy store worker bought that $30,000 bimmer. The way to know if you’re being frugal is to look at your savings or investment accounts. Are you saving enough each month to become financially free? You can calculate those numbers and see if your current level of saving and investing will allow you to reach your goals. The bottom line is that if you find that you’re not saving enough, then you are simply spending too much. That so-called frugal 2007 Honda civic purchase needs to be replaced with a truly frugal 2002 Honda civic purchase. Its tough to do, but if you want to reach your goals you’ll have to make sacrifices.

Speaking of making sacrifices, I hate it when those so-called financial gurus down talk frugality and living below your means. I’ve read several books where the authors would argue that you shouldn’t live below your means, and that you should believe that you will make a lot of money and succeed. Yea right, maybe for them since they are already rich. While that type of talk sounds rosy and pleasant to the ears, it doesn’t work for the majority of people. If you listen to them and refuse to save the way you should, thinking that a large raise or something will come bail you out, you can be waiting forever. Smart people would save and invest the way they should while living a frugal life and if a raise or some kind of jackpot does happen down the road, that is an added bonus.

Take the time to evaluate your current financial situation. Take 30 minutes and really focus on this and come up with a budget to stick with. Brainstorm about the expenses that you can reduce or wipe out. Do you need digital cable, or is basic good enough? Whats the real difference between the $300 coach purse and a $40 Nine West one thats on sale at Macy’s? You don’t have to be perfect, but get a start and build on your money saving skills as time goes. Personal finance is a life long journey and perhaps there is no perfect way of mastering it, but along the way you can build a significant amount of wealth and live a very successful life.