Frugal living basics

Before we get to the point that we can talk about saving, investing, passive income and ultimately, early retirement, we need to have cash on hand to work with and no matter your circumstances, whether you are a top paid executive or a day-to-day worker: If your expenses are higher than your income, then you got a problem to solve.

One of my first career steps was a vocational education in one of the largest banks in Europe and what I learned early on really astounded me: People with great salaries, expensive cars, amazing apartments or houses were often those with the worst bank accounts. They usually had great salaries, but their monthly expenses would eat up most of the money even before they could have any chance of withdrawing anything.

Therefore, one of the first and most important recommendations for any financial planning is to have a budget. But before we even get to that, today my top 5 recommendations on the most basic tips for a frugal living that require no effort whatsoever except for dedication on follow through. Here we go:

  1. Don’t have cash or credit cards on you. It is really as simple as it gets: You can’t spend money if you don’t have access to it. And vice versa, the easier the access to money, the sooner it’s gone.

    This is in fact not only a personal financial advice but also one that is followed through by many companies. All the rules and regulations that you have at most workplaces set up by your accounting department will make it really difficult to proceed with any kind of payments. They will set up systems that consist of purchase requests, purchase orders, and payment vouchers so everything needs to be double and triple checked before any money goes out from the companies account. While some employees might consider it very annoying and slow (nothing ever gets done), it is, in fact, the most simple and most effective system in the world to control cash flow.

  2. Don’t go to a grocery store when you’re hungry. Not just a fun fact, it is the truth: The hungrier you are when entering a grocery store, the more your basket will be filled up at the cashier counter and the less you will care about it. NOTHING is more important than satisfying our most primal desire of avoiding thirst and hunger and we will seldom feel guilty of spending money on fulfilling this basic need. The guilt will come later, but the money will be gone by then and the fridge filled with plenty of useless stuff that one wouldn’t probably look at under “regular” circumstances.
  3. Don’t shop online. I know, Amazon is very successful, as is Baidoo, LAZADA, and E-Bay. I am not saying that it is not less convenient or that you couldn’t get better bargains on these sites. But it is exactly this comfort and convenience that makes online-shopping so dangerous for the money-savvy individual. As a rule of thumb, one should always remember, that the easier any company makes it for you to spend your hard-earned cash, the less you should utilize its services.

    You might feel like a unicorn first, but especially in Europe, you will quickly discover that you are not alone. A farmers market i.e. is always very popular among all generations. You get great food, often from local farms or manufacturers and you get a real sense of what you are actually doing as opposed to clicking on virtual shopping baskets and waiting for the delivery. The walk to the market, the socializing with local dealers and some human-to-human conversations may also be good for your physical and mental health by the way.

  4. Don’t chase trends, especially in technology-related items. When I was 10 years old, I bought my first computer, a C64. I was very proud as I paid for it with my own, saved cash which I was able to gather by walking to school instead of taking a bus. Day by day after school on the way back home I would stop by the bank and pay-in the saved cash until after almost a year I had enough to get my first computer.
    6 months later, one of my best friends got an AMIGA500 and his dad an AMIGA2000 which made me so jealous that I decided to start saving for a PC (a 486DX33). I cleaned walkways, distributed newspapers, walked to school and was trying to gather cash wherever I could, and my parents go so impressed that they finally supported me to get a 486DX2-66 (the DX33 got already outdated by then).
    Only a year later, I upgraded it for a Pentium, and shortly after for a Pentium 2 while my parents were still paying off the loan they took for the DX2-66.

    Point is: Technology is moving so fast, you can sink a fortune in it and you will still never be on top. Just appreciate what you have and learn to fully utilize it. Trust me, it will do the job just fine as long as you keep investing in quality.

    Having learned all that, I swapped from PC systems to a MacBook back in 2007. I got my first, white MacBook and was very happy with it as a student and beyond until 2012. Then I purchased a MacBook Air and used it for 5 years until 2017. After that, I purchased a MacBook Pro and I intend to keep using it until 2021 or maybe even beyond. 5 years usage-cycle works perfectly for me but I can imagine to extend it even to a 6 or 7-year cycle. And by the way, all my previous MacBooks are still working and being used as I donate them to my sister who continues using them as long as possible.

  5. Learn to say no, to yourself and to your friends and/or family. I could name hundreds of stories when people get into financial trouble just to fulfill expectations of others. In the end, in most cases, no one wins on such occasions and you just keep adding more personal and financial pressure to yourself.

    There is always “something”. A friend gets a job promotion and wants to celebrate. Christmas, New Years, Birthdays, family events, school reunions, the list is endless! And it is really easy to spend money on every single one of these events. The sooner you and your family learn to handle it, the better everyone will be off and there is a high chance that your social circle will actually start to appreciate some adjustments on this front because, while many people may not show it in the beginning, buying things for others all the time and overpaying events on a weekly or monthly basis is no one’s favorite.

One more point that should be on this list but which I will have a separate post about is concerned about loans. There is no rule of thumb and the topic is a little more complicated, but for most parts, taking loans is not a good advise until you learn to use them to your advantage. But more on this point later on.


Conscious Spending Habits

It can’t probably be repeated often enough so let me say it just once more: Being in control of your income and expenses is a crucial discipline that needs to be mastered in order to reach financial independence. Today, I would like to give some advice on the expenses side.

Let me start by saying that personally, I truly hate shopping. I like small grocery shops, fresh markets. I hate shopping malls. Not for their value and convenience of having everything you might need in life in one, central location. Yes, I admit I also spend time in shopping malls occasionally. What I hate is the fact that the constant competition that drives markets is intentionally pushing us into very unhealthy spending habits and encourages us to be constantly spending money.

I am amazed and terrified every single time when I enter a shopping mall, to see how many hundreds, thousands of people daily stroll from shop to shop and swipe one credit card after another to carry home as many bags as possible with them. The consequence of this is an empty account at best and credit card debt at worst.

Sales bargains and saving money

There is really only one definition of saving money: Not spending it. The one most intentionally false statement that you can see everywhere is the sales pitch of “saving on sales”. Buy 1 get 2, save 30%, and all other kinds of promotions have nothing to do with saving money. It is such a tricky way of manipulating our brains that I am really appalled by it. It addresses our desire to spend not more than necessary by stimulating one of the humans most primal and dominant instincts: Greed.

If you see a 2 for 1 promotion on toothpaste, chances are high that you will jump on it. The promoted retail price seems to indicate of really doing nothing wrong on this bargain and we immediately recognize that for paying what we normally pay for 1 pack, we receive the double value. Sounds great, right? Well, not in my opinion.

Toothpaste is a product that we use every single day and a pack might be finished within a month or 2, depending on size and frequency of use. Buying the promotion will reduce the time required to repeat the purchase within the regular usage-timeframe and also half the cost of it. There is nothing wrong with that, in fact, for a super-frugal living, it might be even recommended. However, it might quickly lead you to copy this into all other products purchases which may result in an overall negative effect on your spending and consumer habits. You see, when we have more of something, we also tend to use more of it simply because we lose the feeling for the value of the product.

For the case of the toothpaste, I remember as a student there was a time when I was really short of cash and needed to save on every single penny. When my toothpaste was about to run out, I would squeeze the tube until getting the last drop of it and even when I could not squeeze out anything anymore, I would cut it open and scratch out the last tiny rests to ensure I fully utilized the product. Chances are high that I wouldn’t do it if there was a second pack of toothpaste in my bathroom. I would most probably not go through the effort and just open the new pack.

Quality over quantity

In my opinion, simple living means to buy things that we need and to enjoy and fully utilize the things that we have. We don’t need to compromise on quality and purpose, but we should be conscious about why we buy something and for what reason as well as how we use what we have once we have it.

If you need a shirt, buy a shirt. You don’t need two of them. You don’t need to spend hours looking for the best promotion in the entire shopping mall. Just establish a budget and buy the shirt within this frame, that you like and that gives you the feeling of having bought what you wanted and what you came to the shop for. Buy it, wear it, keep it in good condition and enjoy it for as long as possible.

The more expensive the product or purchase, the tighter should be your criteria and the less should be your willingness to compromise on quality. Value is obviously always a factor, but the value is a tricky metric because especially for expensive products like laptops or cars it stretches over a long period of use. It may involve some points which you are not aware off, which may turn out after months or years and therefore you could or would not consider at the time of purchase.

To give an example: You might get a great deal on a diesel car right now, but a hybrid or an electric car might turn out to be the better deal, even at 50% higher cost, considering how technology and markets might develop within the next 5-10 years.

For a laptop, you might wonder why anyone would spend the double price on a MacBook compared to regular Laptops or Tablets, but you might change your opinion once you require a laptop for work and consider your requirements on a robust and reliable supportive equipment for your profession.

Have a budget in place

What I would like to make clear is that the combination of a minimalistic living approach with consciousness on quality and purpose can give us not only great satisfaction, but it will have a positive effect on our spending habits. You will quickly realize that the idea is not about reducing all your spendings but that it’s more important to enjoy and appreciate every single purchase that you do.

One important step that I did not write about yet is to have a plan in place. A budget. I will follow up on this with more detail soon but in the meantime, this is too important not to emphasize it: No matter how good the bargain is, if you don’t have the money, don’t spend it.

I want to be perfectly clear on this. If your account balance does not allow a purchase of a product, then you should not buy it. There may be certain very specific situations in which you may have an advantage by buying something through borrowing money or utilizing your credit card, but this should be a seriously special occasion and request a very realistic evaluation whether there is no other way around it or whether it can be postponed. Borrowing money, credit card debts, these are serious matters that push you in the wrong direction. No matter how good a deal may sound, if you can’t afford it, then don’t buy it.

Shopping is a formula to keep your account empty

At the end of the day, what is important is that you keep your main target on the horizon. To reach financial independence we need to focus on purchasing products that keep generating additional value. As explained in my previous article, The Investor Mindset, most of our daily purchases lose value the moment we take them in our hands.

Therefore, normal regular shopping should not be a daily activity and not a habit. It’s a sure formula to keep your account empty.