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  • Writer's pictureAkshay Nayak

Frugality Decoded

Our foremost objective when managing money is to save and invest enough money for our goals. As a result, we constantly look for ways to increase our income. But viable opportunities to do this may not always be available. Fortunately we have another option available to save and invest more. And this option does not require us to increase our income. It simply requires us to use the income we currently earn optimally. What I am talking about is known simply as frugality. And frugality is going to be what I focus on today. I am going to talk about what frugality really means. I will then talk about the importance of being frugal. I will finish by talking about what it takes to adopt frugality as a way of life.

At a very basic level, frugality simply means avoiding wasteful use of money. This is why being frugal is constantly confused with being miserly. But, there is actually a world of difference between the two. Being miserly means that we may not spend even when we need to. Being frugal means that we spend only after thinking through all the implications of our spending decisions. So being frugal is not about how much money we spend. It is more about how effectively we spend our money, regardless of the amount.

Living frugally may sound boring, especially to those who follow a lavish lifestyle or aspire to do so. There are even those who are of the opinion that being frugal may not necessarily be an ideal way to live. But those of us who aspire to be financially independent and live without working must train ourselves to be thrifty and frugal to a considerable extent.

So the importance of being frugal is undeniable. And its benefits go way beyond helping us achieve financial independence. I am sure most of us have seen someone around us (especially our parents) being frugal. And they have good reason for doing so. First off, life can throw a nasty surprise at us when we least expect it. Such situations almost always bring major financial implications with them.

Being frugal allows us to derive more value from limited amounts of money. It also helps us inculcate the ability to live on low costs. Thus, living on shoestring budgets during hard times is much less likely to be stressful. We would be much better prepared for anything that life may throw at us. Frugality is also the best way to rationalise our money management. Adopting frugality as a way of life requires us to think through the various implications (emotional, material, financial) of our spending decisions before taking action.

It would help us make well thought out decisions which are well suited to our needs. It also helps us focus on understanding what we really want from our money. It therefore cuts down the options that would be viable to us. This helps us avoid choice paralysis, making money decisions a lot easier. As a result of this, we are more likely to be at peace with our financial decisions. This reduces indecisiveness when we need to make a money decision.

Being frugal also greatly improves our investment behaviour. When we analyse our own investment behaviour, we tend to be overly lenient. We tend to think that we have the fortitude and discipline required to make good money decisions. But, these qualities would only take us so far on our way to financial freedom.

Therefore, what we really need to help us achieve financial freedom is the right environment. We need a system and environment that helps us cut down errors and minimise effort. Being frugal helps us do just that over a period of time. It gives us a better understanding of our behaviour with money. This allows us to zero in on the mistakes we make when managing our money. We can then phase them out gradually. From there making the right money decisions every time almost becomes a matter of second nature. As a result, our chances of achieving financial independence would shoot up.

Being frugal would stand us in good stead even after we achieve financial independence. This is because the qualities that are required to achieve financial independence are also the qualities required to maintain it. Therefore, being frugal is something that would serve us well throughout our lives.

Let us now look at what it takes to make the shift towards adopting frugality as a way of living. The shift to frugality is fully effective only when it is made as part of a gradual process. The process starts with ignoring the 'more is better' philosophy. We hear people around us say more is better all the time. But, less is actually more when it comes to money management. Fewer investment decisions, a few purposeful investment products, and infrequent portfolio activity usually leads to superior money management. Once we understand this, we would have to gain control over our inner propensity to consume.

In today's world consumerism is rampant. But, excessive consumerism is severely injurious to our financial health. Therefore we must calibrate our consumption effectively. We need to learn to consume, but within our financial limits. When we find something we feel like spending on, we must first think whether we really need to spend on it. It would help to play devil's advocate and look at things from the seller's point of view.

We must ask ourselves : Why is the seller pushing this offering? What kind of needs do they satisfy? and Does this offering satisfy a need that I currently have? Most of the things we spend on do not meet any of the genuine needs we have at a given point of time. Therefore it is important to take a step back before we actually spend on something. Doing this over a period of time would make us immune to the urge to spend compulsively. We would actually realise that we spend a lot more than we need to.

So, before we realise it, we would automatically cut the extra spending completely. A lot of the money we save on needless spends can be channelled straight into our investments. So our savings rate would shoot up without an increase in our income. Our investments are the vehicles that help us make the journey to financial independence. And frugality is the fuel that our vehicles need to keep moving forward.

So to sum up, frugality is not about how much we spend, but how thoughtfully we spend. Being frugal helps us develop the to ability derive more even from modest incomes. It helps us rationalise our money management. It makes decision making easy by giving us few options to choose from. It therefore becomes the fuel that propels our journey to financial independence.

But the shift to frugality should be a gradual process where we first accept that less is more in money management. This allows us to not fall prey to consumerism. It would make more money available for our investments. This would expedite our journey to financial independence. And that is what frugality looks like when decoded.

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