Lately, I’ve been reading some personal finance gurus who are against the frugal mindset. I understand their point. On one hand, life is too short to not enjoy it. It’s easy to sell a “just earn more money” message. It also makes it easy to follow it up with, “Buy my book or buy my course.” To put it simply, by its very definition, it is hard to sell training to frugal people.
There’s a place for focusing on earning more. I had some kind of moment last September where I said, “Hey I can earn more.” I hustled to get my dog sitting profile up and work on this site. So far the results have been great.
But there’s the other side of the coin as well. Frugality matters.
I’ve always enjoyed reading about financial freedom and what people are doing to get there. Two of my favorite reads of late are Retire By 40 and Root of Good. They are extremely intelligent people who are focused on early retirement.
Neither of them are attempting to do it by going out and earning more money. They’ve saved a lot of money throughout the years. More importantly, they have learned to make simple substitutions to save a lot of money while not compromising their happiness.
Here’s one example that most of us can relate to. Let’s say you have a $60 cable bill. A frugal-minded person might say, “Netflix has more television than I could ever watch at $10 a month.” I’m going to cut my cable bill and save $50 a month.
You might be thinking, “Big deal. That’s nothing.”
That $50 a month is $600 a year. This is where we need to apply the Rule of 25. The rule of 25 states that in order to afford a $600 annual expense, you need to have 25 times more saved. It’s mathematically derived from a bunch of economic analysis that shows people can live on 4% of their saving mostly indefinitely by investing a large sum of money.
At the risk of putting an example in an example, if you have $1,000,000 you can roughly take out $40,000 to live on. And with the rule of 25, if you need $40,000 to live on, you should have a million in savings.
When we translate that to our $600 annual cable bill, we need to have $15,000 in our savings just for that.
That’s just one bill. You multiply it by a lot of extravagances and you are going to have a hundreds of thousands of dollars in your savings. A little frugality can make a big difference in financial freedom.
I’m not saying that you shouldn’t try to make more money. I’m simply saying you should be aware that frugality can being you to financial freedom early enough that you’ll have plenty of years to enjoy it.