Frugality Won’t Make You Rich

Instead, it makes it possible for you to get rich.

Lately, I’ve read statements in personal finance books where people claim that “frugality won’t make you rich.” They make the valid point that if you cut out some small thing – say, a $5 daily expense – you wind up with less than $20,000 after ten years.

“What good is that if it brings you misery?” they ask. “It can’t possibly make you rich!”

They miss the point. Frugality itself doesn’t make you rich. Instead, it increases the possibility of getting rich through other means.

Let me explain what I mean.

Joe Average has $80,000 in student loan debt, $25,000 in credit card debt, and a $10,000 car loan. His total monthly debt payment is about $1,200 and he’s going to be making those payments for the next, say, ten years.

Joe has dreams of starting a small business. He realizes that his monthly debt payment is really hindering his monthly cash flow and making it impossible to make the entrepreneurial leap that he wants to make.

He also correctly realizes that simply being frugal won’t give him the steady savings he needs to make the leap either.

Instead, he recognizes that frugality can help him get rid of that debt a lot sooner, save himself some serious money on interest alone, and get him in the right place to make his business leap much earlier.

Joe starts cutting out some of his lattes. He cancels Netflix and his satellite radio service. He starts making meals at home. He doesn’t pull anything out of his life that would be too devastating and instead feels good about the changes.

He manages to add about $250 a month to his debt payments.

His entire debt load is gone more than two years ahead of schedule. Because of frugality, he’s launching his business two years earlier than he might have otherwise been able to. Those are two years where Joe is at his youngest, so he’s able to throw a ton of energy into that business and make it a real success.

Frugality doesn’t create riches. It creates opportunity. Frugality enables you to pay off debts more quickly (and thus pay less interest on those debts). It enables you to increase your monthly cash flow. It makes it possible to reach a savings goal much quicker than you otherwise might have. Frugality can help you avoid going into debt at a tight moment in your life.

What do these things result in? They result in the ability to successfully launch a business. They result in the ability to go back to school and completely switch career paths. They result in the ability to take a lower paying job you’re passionate about that might blow up into something big. They result in the ability to jump on board at a startup company because you don’t fear your financial situation. They result in the ability to buy a house or buy a car. They result in the ability to start investing for retirement or for those big plans you have in the future.

Frugality frees real people to do these things.

The people who write about how frugality doesn’t really help haven’t faced a situation where a lack of money or the state of their own finances have kept them from doing what they want. That’s a reality I’ve faced many times in the past, where my finances have kept me from something I dreamed of. Frugality was often the key that opened the door.

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