Never having to work again at age 40 – that sounds great, doesn’t it? But would you give up your car now, eat cheaply, repair a lot of items yourself (DIY) and only buy used things to make it happen? Because that’s exactly what so-called Frugalists do. What this life feels like and what we can learn from the Frugalists’ savings strategies – I will tell you right here and right now”
Realize why you no longer have to work from the age of 40.
Learn the simple 10 rules that will make you a Frugalist now.
Frugalism, with structured saving strategies turn into financial freedom.
There are many blogs, FIRE podcasts, and youtube channels that draw attention to the topic of frugalism. Unfortunately, however, they do not explicitly show you how to get on board step by step. But that is exactly what is important – not only knowledge, but also how to execute proper implementation.
Many people think “knowledge is power.” but “Applied knowledge is really power.” We’ll take care of that together now. This article will help you see the light and explain everything you need to know now. Ready? – Let’s start right away …
Frugalism should not be confused with feudalism (Latin feudum / feodum ‘leaning’), feudalism describes the social and economic form of the European Middle Ages.
“I just don’t do anything. For me, almost every day is a vacation day, so to speak. For this reason, I hardly ever feel stressed. ”
Simply doing nothing for Frugalists means doing what you feel like doing. Everyone loves vacation, because vacation means only doing what you want. It means consciously taking time to experience the world. Work is a very good and healthy thing, but as we all know it can be very stressful. However, it usually takes up two-thirds of your day and doesn’t give you experiences that are worth it. Even if you love your work, it’s not good to be dependent on it. This is not the way to live a free life that belongs to us. Having a plan B is therefore essential. And it is clear that you have to give up something to reach the ultimate goal of early retirement.
Rule 1: Be aware that there are alternatives to retirement at 65 and strive for freedom and free time.
“Being frugal means being economical, frugal. Frugalists are economical people. In the US the scene is still young but extremely active – there are thousands of people that consider themself to be frugalists. The model to retire early as been described as “Fire”. The FIRE – Financial Independence an Retiring Early movement – which means being completely financially independent and early retirement. ”
Thrift and frugality are disciplines that are always held up with the right intention, but are done wrong by most. Being economical is not synonymous with “not indulging yourself”. To be economical means to save what goes beyond what is enough (living within your means). Of course you have to decide what is enough for yourself, but most people have problems identifying what really matters for a happy life.
And that may surprise you, because most of your possessions only make you more unhappy. You can avoid buying most things and then really benefit from the saved expenses. Until the end of this article, I will show you a way in which you mainly win through your “loss”. “FIRE” is a very important acronym because it shows you where you want to go. Goals should always be set specifically and motivate you, because that is how you can achieve them. FIRE – These four letters not only provide motivation, they also provide a good plan: you can become financially independent through your own financial behavior and use this independence to stop working altogether or just work that type of work that you enjoy most.
Rule 2: Set yourself the goal of becoming financial independent through new financial habits.
If you want to retire at age 40, you have to start early, of course. Depending on your earnings and income, the age of 27-33 is still sufficient as an age to start working towards financial independence. However, it is also worthwhile and recommended for all age groups to become a Frugalist. The easiest way to raise early retirement money is, of course, to work and save as much money as possible. However, it is faster and easier to supplement your own work with independent part-time jobs or by starting a side-business and to invest the proceeds.
Owning too many things restrict your ability to progress on your journey to FIRE and when being a frugalist they have no use that justifies owning them. Do it like me and take a look around in your own apartment or house. Ask yourself what you don’t need and get rid of it. You can even sell it and make money from it. Of course, you should also be just as critical of the things you buy new in the first place.
Rule 3: Enrich your life and free yourself by avoiding consumerism. Only buy and own what you need in everyday life. (And that’s a lot less than most think.)
A new, impulsive purchase should be avoided at all times. If you want to buy something, give yourself a cool-down buffer and hesitate instead of making the purchase right that moment. An easy rule of thumb could be to wait at least 2 days for any single item purchase that costs more than $100.00. This waiting period will most-likely affect you consumerism and allow you to safe more money.
Here we are dealing with the most important point for you. There are pure consumer purchases that are only done to buy something. The purchases are impulse-controlled. Non-critical consumer purchases are emotionally driven and not rational, they are “stupid purchases” that should be avoided at all costs.
What is a stupid purchase really? This type of purchase is there to satisfy your inner drive to want something. In today’s world, when hardly anyone is firmly convinced of a higher meaning, most of these purchases make you feel empty inside. Everyone who does not have his own life plan and knows what he lives for should take alternative actions = avoid unnecessary consumerism. It is hard, I totally admit. Our world is full of advertising for shitty products that promise everything to you, but in the end, do not really fill a void or provide value.
Fortunately, the solution is very simple. Let your mind determine every financial decision and not have your emotions drive your actions. The Internet makes it easier for us than ever before to buy stuff on the fly. Amazon then delivers it the next day, the short-term “wants” is then filled, but shortly after that effect is gone and we often realize that we wasted money.
Here is such an example. Sparkling water and sodas are favorite drinking options for many. So, people buy a Sodastream or similar product to make sodas at home and to save money. Statistics show that once the novelty feeling about making sodas has disappeared that most Sodamaker are rarely used and even when used the cost of doing so barely justifies the purchase.
Let’s take sparkling water – on average 2 cents are saved per liter (4% of the total price) compared to sparkling water from the supermarket. If you subtract the purchase price of the soda maker (as well as the expensive price to replace the special bottles every 3-4 years), then you pay even more. A soda maker only pays off if you use it frequently and if you are able to bring the cost for C02 replacement down. I will write up the steps I took to hack my own Sodastream and bring the cost down dramatically.
Rule 4: Wait 30 days before buying something new and have valid reasons why it is absolutely necessary if you still want it.
My personal mantra:
“My primary goal in life is not thrift just to swim in gold valleys like Scrooge McDuck afterwards. But my main goal is zest for life, to find myself and my purpose. And I noticed that the more consciously I deal with finances and the objects I buy, the more joy I have with things that usually don’t cost much. ”
I want to make a very important point here, because things that you buy should never be the purpose, but always only a means to an end. They should support you with your own goals and plans and make the most important things in life even better. If Frugalists spend money, it is to enrich their life not from a consumer-level, but ideally on a spiritual level. Think about experiences and events, new knowledge and new skills, relationships, and more.
Rule 5: Spend money on things that bring you personally forward. A cheap flight to a foreign place improves your life more than an expensive couch.
That’s how a friend of mine started saving money four years ago. He followed the Dave Ramsey envelope savings method. The method works like this: one uses envelopes for the different sections of life. It is like budgeting where you assign a certain amount for groceries, utilities, rent, and so on and put the pre-calculated amount into individuals envelopes. You can either estimate an amount for each category or use absolute numbers and then put money in the envelope. As an example, you always know how much you spend on your rent or mortgage payment – so, it is easy to put the appropriate amount into the envelope. This method assumes you do not use credit cards and or transfer money to and from bank accounts. Some banks actually allow the creation of an online envelope system by offering sub-accounts of your main bank account. Give it a try and see if you can handle it. It’s about knowing where the money is going.
It is actually extremely important to know what you are spending your money on, because if you know the exact numbers, you know where it is possible to cut back on expenses and save money. Especially at a time when a lot of our day to day expenses are being paid for digitally, I recommend making it easy for yourself. Set up a simple account system that automatically allocates your money for you. This can be offline by using envelopes or as mentioned you start using a bank that offers this type of system online.
Talking openly about money is also very important. Did you know that the “don’t talk about money” mentality was instructed by factory bosses at the time of industrialization so that workers would not complain about wage differentials? The more you talk openly about money, the more it can become a habit to look at your spending behavior.
If we talk about money more openly it gives us a chance to learn a lot from others and we can improve our own situation more easily. Saving a large part of your own income is also extremely important. Most people save nothing or maybe reach a savings rate of only 5-10%. You won’t get very far with that. If we start talking openly about the money we make we might also gain motivation. As an example, why not turn your goal for a high savings rate into a competition with friends and peers?
Try it out at least once – maybe pick a 3 month period and push as hard as possible to increase your savings rate. I think you’ll be pleasantly surprised! After 3 months you might have figured out that you can live on 40% less and still have a good life. Now imagine putting that extra 40 % away and invest it month after month, you will be able to become financially free much faster. Even if you do not want to retire early, having reached financial independence allows you to choose what type of work you do and who you want to work for.
What does someone do who only earns $1,500 net per month? Can that person still live frugally and save, is that even possible? Even being in a lower income group, you have opportunities to save money. Added benefit, you will need to have less money saved in retirement compared to someone who makes twices as much because if you can live of $1,500 today – you can do so tomorrow as well.
You can live frugalistically from today on. Frugalism is simply a strategy to deal with money and is not tied to a certain amount. Especially those who earn less money should know how to get by with as little as possible. It will take longer to reach an absolute amount, but that’s not a problem, because this might even be motivation to work on building up additional income streams.
Rule 6: Frugalism is worthwhile for everyone. Limit your expenses to what is necessary and avoid to find another excuse not to do it.
Are you a bargain hunter like I am, even when it comes to groceries? I usually go to the grocery discounter like Aldi and only use the normal grocery store for some very specific items not available at Aldi. I also make it a habit to memorize prices of certain products. As an example, meat prices at Aldi have risen by over 50% lately and so it allowed me to change my cooking and shopping behavior without affecting my savings rate or my quality of life. Every once in awhile I splurge on something, but I also noticed that I enjoy those moments much more than before – giving me the feeling that the quality of my life is actually higher in those moments.
With the last sentence, I want to showcase that it is actually very easy as a Frugalist to lead a completely normal life if you plan just a little bit more compared to just shopping mindlessly. Only pure consumerism type purchases are eliminated, which makes us unhappy anyway. So you improve your quality of life and at the same time save enough money to retire 25 years earlier. To be free from work at 40 is a complete blessing and certainly worthwhile for you too.
If you mostly avoid expensive things like eating out, this will ensure that corresponding things are actually more valued and therefore more valuable in a way. So, every visit to a movie theatre or a simple BBQ with friends is a great experience and brings joy into your everyday life. The experience of the event adds quality to your life.
Rule 7: Keep most of your money and spend the rest on experiences.
Nutrition is also important for Frugalists. Cooking at home for yourself is the order of the day. This has a positive effect on your savings rate + you possibly cook more healthy, too. What is addressed here should be very important to you. Because no matter what your financial situation is, being able to live frugal is always beneficial! Even if you have the plan to become a big entrepreneur and make millions, it is good to have frugalist know-how as a basic security and plan B. That is really where the financial independence portion of the story comes into play.
When an expense item is especially expensive, it has more savings potential for you when trying to go frugal. Think about it, if you can replace a recurring expense and procure the same type of goods or service 50% cheaper it means a lot more actual dollars more for your savings account.
Groceries: The trick here is to buy mainly house-brands. They almost always have the same supplier as more expensive name brands, but deliver the exact same value at a lower cost. In many cases for half the price or even more savings.
Rule 8: You can save money absolutely anywhere and still benefit from it. This is especially true when something else is very expensive.
Frugalists spread their investments very broadly. Low-cost index funds, individual stock shares of companies, and even real estate investments are also included. This diversified strategy is not about quick profits, but about long-term growth while reducing risk. Sure, the potential profit is smaller than with high-risk investments, but it’s also much safer. Don’t put your money into a regular savings account. Your savings account is reserved for your emergency fund only, all other investments should be made in other financial vehicles.
The money saved shouldn’t just stay in the bank. Due to inflation it is going to be worth less and less from year to year. Instead, you should invest your money, because it will multiply. Investing as early and as long as possible and investing long-term is the simplest, and most efficient form of investment and can also be done by beginners without any problems. The best thing you can do for yourself is to educate yourself. My favorite book for this is the “Simple Path to Wealth” by JL Collins as well as the Bogleheads books. These are affiliate links and I would earn a tiny commission if you buy through my links with no added cost for you.
Don’t worry: you can easily do it too. But it is important to know how long-term investing has an impact. There is the so-called compound interest effect. This is the interest on the interest + the interest on the interest on the interest + … Incidentally, people cannot imagine the compound interest effect outside of mathematics. JL Collins book specifically will shed light on that topic.
Rule 9: Invest your savings for the long-term and use a diversified approach.
You now know how to retire at 40 (or 45, 50, etc.). Now the most important thing is that you a) start saving money and b) learn to invest (think of the compound interest effect). These two steps are essential to your success. Now, get started.