Tuesday, October 1, 2013

How Living Frugally Can Make a Real Fifference to Your Finances

Here are some frugal lifestyle thoughts from Shobir Ali, the co-founder of findsomemoney.com 

For many individuals, including myself, it’s hard to see the direct connection between frugality and wealth and how living frugally can make a real difference to your finances. Unfortunately, most people see frugality as a miserly quality which inevitably leads to unhappiness and unfulfilled dreams. If you can clearly see how wealth comes from frugality it’s easier to change habits because you’re seeing your wealth increase as a direct result or practicing frugalness. Suppose you want to give frugality a go and decide to change some of your habits, you decide to stop eating out during the weekends as well as cutting back on cigarette consumption.

Let’s assume previously you spent $20 during the weekend eating out at your favorite restaurant. You decide to stop eating out making this habit permanent over the course of 52 weeks. You are going to replace the habit of dining out by cooking your own meal which might cost around $5. Every week for a year you’ll be able to save $15, this means that you will save $60 over the course of the month, and if you’re able to make this habit permanent over the course of the year you’ll save $720.

Another frugal habit you adopted was to cut back on smoking cigarettes, suppose you smoke 20 Marlboro Class-A Filtered Cigarette every day which costs $5.07 in West Virginia. You now decide to cut back to 10 a day. Now normally you would spend $35.49 a week, however because you’ve cut back you’re only spending $17.76 which means you’re saving $17.73 per week, that’s rough $76.05 per month and $912.60 per year.
If you’ve got the resolve to maintain the two frugal changes in habit then in a year you could save $1632.60. When we see the direct connection between frugality and wealth we are more likely to maintain the habit. Unfortunately most people who start out practicing frugality fail to see the connection with actual numbers and fizzle out after a few weeks and return to their un-frugal characteristics.

Now to take things one step further you could reward yourself on a monthly basis if you maintain your habits, if you’re likely to save $1632.60 per year then your monthly savings will be $136.05. If at the end of the month you’ve kept up with the frugal commitments then you could transfer $136.05 into a high interest bank account (3%) and let the money grow, you then add the same amount every month for the next 12 months as long as you keep up with your habits. You’ll end the first year with about $1795, that’s a gain of about $163 in interest alone.

The visualization of math:


Seeing the numerical connection between frugality and wealth and then setting aside the amount you save on a monthly basis will help you realize the true beauty of being frugal. 

Eating out less, cutting back on cigarettes, or another lifestyle change you can make, when you begin to realize that can save over a thousand dollars through the course of the year, it makes you think the change just might be worth it.

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