I've talked before about how important it is to live frugally. A lot of people probably brush it off because it sounds like too great of a sacrifice or not relevant to them, but I think that's a mistake. It is possible to live frugally and to love it at the same time.
In general, that's a key to how I live my life. I try to figure out what the empirically "correct" thing for me to do is, and then I convince myself to love it.
How much money you should be saving is hard to determine. It depends on your age, your earning ability, and your goals. I will say this, though... there is some way for you to save more than 50% of your income.
That number is probably shocking, as most millenials have a negative savings rate. I'm not saying that you will do it, or even that you should, only that you can. It's worth considering poor immigrants, many of whom work minimum wage jobs and still manage to send significant amounts of money back home. Some people are doing it.
You will never be frugal unless you have a good reason to be, as sacrifice requires an end goal. But the problem with saving money is that the whole point is that you don't know what you'll want or need the money for in the future. The universal benefit of saving money, though, is that it maximizes freedom. Saving money will open up options in the future that you can't even think about now.
I think a lot about what I "deserve". It's a totally arbitrary because I could make the case that I deserve absolutely nothing or that I deserve everything and could convince myself of either. Instead I take a middle road. When I was working on Sett 12+ hours per day, I mostly ate a stew I made that cost $1-2 per serving. I told myself that I hadn't reached the financial goals I set for myself, so I didn't deserve to eat anything else.
I wasn't totally strict with that, but it defined my overriding mindset. I was always baffled by twenty-somethings that were out at clubs blowing money and partying like they had acheived something. What were they celebrating? Even if I enjoyed activities like that, I would have had a tough time justifying it.
The point is, you should recalibrate to believe that you deserve very little. Not because you actually do, but because it's expedient to believe that you should suffer a little bit. Media and advertisements push the idea that you deserve everything, but that's because they benefit from convincing you of that.
Being frugal means that you will be spending less money than all or most of your peers. At first this will mean that you feel a little bad because they are all having more "fun" lives than you are. To survive this, you must take pride in the fact that you are taking extraordinary steps for your future self that few people will take.
Eventually you will hit an equilibrium where your investments provide you with income, and their debt starts to bog them down. Those trends will probably continue.
In practical terms, you need to look at your biggest expenses and reduce them as much as you can without making your life too stressful. For example, if you decide to sleep in a tent in the park to avoid paying rent, the stress overhead of that will blunt your ability to earn more money, thus negating the benefit.
I lived in an RV for many years. Eight or nine, I think. In some ways it was a sacrifice, as I had to go out of my way to dump the tanks and get fresh water, but I saved more than a hundred thousand dollars by doing it. For many years I paid nothing in rent. Other times I paid $500 a month for a parking spot (in a city where rent was $3000+).
You could live in an RV if the idea appeals to you (I loved it), or you could get a roommate, live with a family member for free, or live in a much cheaper location. It blows my mind when people live paycheck to paycheck in an expensive city. In that situation, I would tell myself that I have not earned the right to be in that city yet.
By living in the cheapest place possible, you are simultaneously maximizing your ability to live in a much better place in the future and acclimatizing yourself to live simply. That means that you'll enjoy the better place even more in the future.
If you are not willing to economize on your living space, you probably aren't serious enough about living frugally that you will do so in a meaningful way.
The next area I would look at is food. Eating out all the time is a real convenience, but it's much more expensive than cooking for yourself. Lentils, quinoa, veggies, greens, and a bit of protein is a really inexpensive and easy to cook meal that you can make any time. Most of your friends will be eating out, but you can save a lot of money by cooking for yourself. And if you make a lot of money already, another option is to ditch fancy meals and just eat chipotle or other healthy and inexpensive restaurants.
Buy a Buick Regal or a minivan or some other cheap car. Don't use the excuse that you need to project a certain image. Don't finance a car. Share a car with your friend if you can. I did that for several years, far beyond when it was a financial imperative.
Don't scale all of your expenses up evenly. Think about your needs and which upgrades will actually benefit you, not about goes with what. I live in one of the cheapest condos in all of Las Vegas, but I park my Bentley out front. I still eat at Chipotle for just about every meal.
Also, don't scale up expenses linearly with income. If you are making $2000 and spending $1000, try to stay at $1000-$1500 when your income increases to $4000. By the time you get to $10,000, maybe you'll still be around $2500-3000. That's a lot of savings.
Be proud of being frugal. Your life is going to be very stressful if you care so much about what other people think that you are embarrassed to save money and make your future much better. Anyone who criticizes you for it is probably just insecure because they're spending more than they should.
Photo is from an incredible hike in Bryce canyon. It's one of the coolest hikes I've ever been on.
Living in the city, I see SO many people living paycheck to paycheck. I wouldn't call my lifestyle frugal, but I save quite a bit and live well below my means. To add to Tynan's point, I actually think the idea of purposely being slow to "upgrade" my lifestyle has played a key role in allowing myself to have the ability to invest in more profitable things.
I lived with a roommate for many years in a good but not the hippest part of town. I still drive my 2005 Toyota Corolla. I usually only upgrade my phone every 2 or 3 years, etc.
But here's the thing. You don't miss what you don't have. When the day comes I get a nice new car, I'll wonder how the hell I drove the 2005 Corolla for so long. But today, I don't know any better. When I had a flip phone, I couldn't understand the hoopla with iPhones...until I got one, and now I can't go back.
Moral of the story. Live below your means because as soon as you upgrade, it's insanely difficult to go the opposite direction!
In my last post i talked about what NOW is the right time for. The implication, of course, is that there are certain periods of time where you can actually take advantage of opportunities that come your way. Let's call that your Opportunity Window. In the Standard American Lifestyle, that window is narrow. Really narrow. It probably starts somewhere at the end of senior year in college and ends a few months afterwards.
There are small blips of opportunity afterwards, too. Getting fired creates a window. Some sort of windfall income might create a window.
That sucks. Someone with a Standard American Life probably has no more than a year of Opportunity Window in their lifetime. It's only during those times that they can start a new business, leave their lives behind and try something new and exciting, or just make a drastic change.
One of the biggest mistakes I see young people making is spending their money capriciously and not saving. If your bank account or investment portfolios aren't growing, or you are not expecting them to grow something is awfully wrong. S&P 500 has been shown to go up around 10% every year in the long run. There are treasury bonds and other investment vehicles as well which can ensure that your money is at the very least keeping up with inflation.
When I started earning some money last year I ended up investing or saving up 4/5 of it, and kept spending my money frugally and only splurged once or twice. Being frugal, saving up, and thinking about the future is crucial, especially at a young age because you have so much time for compound intrest to take hold
One of the clearest ways to picture this was an example given in the book the slightest edge, whereby two young post-graduates at the age of 24 agree decide that they want to retire millionaires and will invest 2,000 a year into an 12% account every year until they can make it a reality.5 years later they meet each other and ask how its been going. One of them has followed the investing religiously, while the other hasn't. The one who hasn't asks the other how close he is to his investment goal and the the other friend says "I'm done". It turns out that with just 6 years of investing, the compounding interest will be sufficient enough to get him to 1 million at retirement. The other friend decides he has to get to it, but when he does the math, he realizes he has to invest 2,000 a year for the next 33 years!
This story underscores two things. One the cost of waiting, how waiting to long to do something keeps you from taking advantage on the magic of compounding interest. and second how important investing and not overspending is.
The biggest reason by far not to overspend though, is so you can increase your freedom. I'm not saying money always equals freedoms, but having a good amount of money in the bank significantly opens your options and lowers your anxiety levels. Living paycheck by paycheck, or not having a clear long term financial goal can lead to distress and insecurity.