What do people like Warren buffet, Ingvar Kamprad and the Scions to the Walton family have in common? Well apart from the fact that they all are one of the richest billionaires on the Forbes list, it is their frugality that sets them apart from not only the rest of us common folk, but also their billion dollar peers.
For those of you who are new to the term, frugality is the act of meticulously saving or investing your fortune, rather than spending it on luxury mansions, sports cars, champagne spewing fountains or whatever else money can buy. For now, let us look beyond the immense wealth and covetable lifestyle of these aforementioned people and take a look at the valuable lesson they teach us about frugality and living within our means.
Warren Buffet, for example, prefers to eat in fast food joints rather than gourmet kitchens and his current residence is worth less than a million dollars, which is vanishingly small compared to his net worth.
Now what can you learn from this?
In my opinion it shows that no matter how rich or financial astute you may be, you are never immune to debt or bankruptcy and taking the current financial turmoil into account, you should learn to be more frugal. However, this is easier said than done because you will come across a thousands of people and business entities who claim to have come up with a master saving strategy where they only have to spend or save $X to secure their financial future.
The reason for this failure is the fact that people always tend to overestimate the money they are going to have and underestimate their expenditures, thus causing a strong mismatch between their income and expenditures. So here are 3 simple but often lessons these frugal billionaires teach us about balancing our finances
Credit card abstinence
The most important rule of finance is that if you do not have the money to buy something, then don’t buy it. However, a lot of people seemingly ignore the rule and blatantly use their credit cards, instead of their debit cards, to do their holiday shopping. It is high time people should realize that unlike a credit card, a debit card is used for shopping with your money, where you do not owe anything with interest by the end of the month. As a matter of fact a lot of billionaires are well aware of the fact and do not keep more than one credit card, so the sooner you realize that the better.
They say the difference between the rich and the poor is the fact that while poor people earn money to spend, the rich earn money to make more money. To put it in simple words, investing is the best way to make your money work for you instead of the other way around. Fortunately, nowadays there are a lot of investment options, like mutual funds or ETFs, which are available for people who are risk averse thus allowing anybody to get in the game.
However, it is important to know your limitation and not gamble, which probably the reason why investors like Warren buffet shy away from day trading.
Cutting down on Luxury
While it is easy to proclaim living within your means, you have no idea how much of unnecessary expenditure you may have incurred lately. I am no expert in saving money either, but here are some things I would consider to be too much spending-
- Keeping up with the latest trends in the computer and mobile industry, by purchasing a product every time they hit the shelf, without looking at the actual value of the device
- Using your car and wasting your gas for distances that would have not taken you more than 2 minutes, if you had just walked instead
- Regular and unnecessary consumption of fast food and junk food, rather than just having it once in a while, thus saving more money
- Keeping all the electrical appliances like the light bulbs, fans, T.Vs etc switched on, when you are not physically present in the room.
Of course there are a lot more things you can cut down on, but let us first start with the basics. While it is understandable that everybody needs luxury once in a while, it is the unwanted luxury that causes the problem.
I understand that the current economic conditions is making it impossible for some people to eat a decent meal, let alone luxury or fast food, but it certainly helps to maintain some level of positivity during such hard times.
But, keep your anxiety and your finances smooth and you will definitely get back on your feet again, because lets face it nothing is permanent, even this economic depression, so the choice it up to you
What are some frugal lessons you learned from the ultra wealthy?