Frugal Living is one of the keys to building wealth especially in Canada. Of course, creating wealth is a function of earning more or/and spending less. The epitome of wealth, for your Frugal New Canadian, is that you’re able to get to and live off your investment portfolio. Of course, the definition of wealth may wary to each of us. My argument today is that a bit of Frugality will help us get to this desired state quicker. There are many blogs and FIRE aspirants who have taken on this route very successfully.
A frugal person will avoid excessive spending to make ends meet. Financial decisions will be made after careful evaluation in most instances. A frugal person may continue being frugal irrespective of how much money they make. They may also not be bothered with how they are perceived.
So, how might being frugal help you with your financial goals?
You will want to (and can) stay miles apart from debt
This is something I have read about and seen in a lot of frugal individuals. Because a frugal individual values where their dollars are allocated, they may want to avoid debt as much as possible.
An example would be someone choosing to buy a used vehicle in cash rather than a new vehicle for half the price. A used vehicle with a few thousand kilometers on it will of-course be cheaper than a brand-new car. I would dispute that a used vehicle with some KMs and with a clean CARFAX report is pretty darn close to a new vehicle purchase. A frugal person will avoid undertaking the auto loan as much as possible or try to get as low a loan as possible. This practice of avoiding debt will spill to all walks of a frugal person’s life. Think of how easy it is to qualify for a hefty car loan in Canada. Just because its easy doesn’t mean that you should have it.
You’re able to choose quality over quantity
Not buying excessively leaves you the opportunity to buy a higher quality product. This might last longer and help you with not buying the same thing again. Getting good deals is enticing to a frugal individual and can be a bit of trap where the individual ends up buying more than what is required. I have purchased many inferior winter jackets before coughing some dollars for a quality product. But I am sure that the quality product will last me many years. Frugality does not equate to buying cheap.
It will take a frugal person lesser time to save up to their emergency funds
I was in this boat currently where we had to tap into our emergency funds. Imagine a change in life circumstances or unemployment where you need to use your saved up funds to sustain for a while. A frugal person may know how to better stick to a budget and thereby, achieve this desired state a lot faster than someone who doesn’t. Frugality can make the hard times a bit easier to get through.
And it’s not just an Emergency fund. We are thinking of upgrading our house in the next couple of years. To be able to do this, we would need to put away larger sums of money each month. But this life goal is achievable primarily because we’re respectful of where we spend. This is applicable to all sorts of sinking funds including travel which we value immensely.
You will have money to put towards your Investment Portfolio
On the same lines as the previous point. A frugal person will require fewer and cheaper things to achieve their level of contentment. This would mean availability of funds for your investment portfolio each month or each quarter. If you can increase your income year over year, this also means that you will be able to invest significantly more over time and allow compounding to do its thing. The beauty with frugality, however, is that you can still invest even if your income does not rise as quickly as you’d like. The story of a janitor who amassed an $8 million fortune over his life comes to mind.
To Conclude !
A bit of frugality helps especially in tougher times. Often in our daily lives being considerate of our decisions and not opting for instant gratification helps with making wiser financial decisions. There are many other non-financial benefits of being a bit frugal, but I will refrain from talking about those here. Keep in mind, however, that being frugal is only a part of reaching your goals. The other element is of-course is increasing your income over time. Consistent promotions, increasing business and side hustles can shave years in your journey towards financial independence. Making more translates to being able to invest a lot more irrespective of added cost to one’s lifestyle. A bit of frugality still speeds things up.