Stop Being Frugal If You Want To Be Wealthy

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A penny saved is a penny earned.

Money doesn’t grow on trees.

Take care of the pennies and the dollars take care of themselves

Thrift and frugality are often touted as the road to financial health and well-being. These ideas are so drummed into our heads that it seems silly to even question them.  But is it really? Two recent articles in the Wall Street Journal articles pointed out how retirees who have spent their lives being frugal are now struggling to reverse this behavior and start spending.

Suggested Reading : The Mental Mistakes We Make With Retirement Spending

Suggested Reading : Why Retirees Cut Back On Spending : A Growing Pessimism, It Seems

Retirement experts are puzzled by people in their 60s and 70s cutting back on spending at a time when they are expected to start enjoying their life’s savings.

I’m not puzzled in the least. The problem is frugality and the idea that you can spend most of your life accumulating money and then flip a switch and be perfectly content spending it down.

Frugality triggers scarcity

What if this is the most money I ever have? – This was my thought as soon as I left my corporate job. Scarcity thinking crept in almost immediately. How would I know if I would have enough money? How could I spend on anything without worrying that I might need that money later and regret spending it just for fun.

The skills of frugality work against you in the future

Frugality is about allocating limited resources. How could you possibly ever know what your total future needs will be? Since this is a complete unknown, spending of any kind puts your future at risk. Someone else telling you it’s ok to spend, likely won’t change your behavior. You probably know someone who couldn’t possibly spend all of their money, and yet is so miserly that it is painful to watch.   Anything beyond a basic necessity is out of the question.

Frugality is a starting point

Frugality has it’s place. Most of us start out at zero.  Frugality gets us off zero. It isn’t what leads to a wealthy life unless you are one of those rare individuals that thrives on the game of thrift.  If this is you, I would suggest reading the blog of Mr. Money Moustach.

Learn from true frugality

There is a lot to learn from the Mr. Money Moustache blog, even if that lifestyle isn’t for you.  The core message of the blog is how wasteful many of us are with our spending. Often we can get the same or greater level of enjoyment by spending less. This is true frugality. When we are efficient with our spending, we have more to invest for the future. But the goal is never just a big pile of money…’s the life you want. For me it is about having a lot of freedom and options.  Money can buy you that.

Frugality is a defense strategy

Teams with a strong defense and no offense, seldom win games.  You need both defense and offense.  Frugality is only about defense.  It keeps you from losing, but doesn’t set you up for a win.  You need a good offensive strategy…… how to make more money.

We live in Abundant Times

Frugality assumes you have scarce resources that need to be conserved. If you consume something now, you won’t have it later. When we lived in the Industrial Age and our economy was built around physical products, maybe you could believe that to be true. But we live in an information and idea economy. Is there a scarcity of ideas? A natural limit? What is your personal limit of value you can provide to others?

Suggested reading : Abundance : The Future Is Better Than You Think 

Opportunity is everywhere

We live in the most abundant time in human history. We all have more opportunity than our parents and grandparents. Why are we still following the rules of a scarce world? If resources are scarce it makes sense to conserve. But if we are in fact shifting to a different type of economy, we need new ideas.

Opportunity isn’t where it used to be

It may seem as if jobs are in shorter supply.  Especially good jobs. In the book The End of Jobs, Taylor Pearson explains how the economy is in fact shifting.

Suggested Reading : The End of Jobs : Money Meaning and Freedom Without the 9 to 5

But that doesn’t mean that there is less opportunity.  The opportunity is different. The hardest part is that you were trained to think in terms of getting a good job, and being frugal and then everything would be ok. That was the agreement. But the world has changed.

Embrace the adventure of abundance

It’s a different game.  You haven’t been taught the rules. It’s about crafting the life you want and finding opportunities to live that life. A good job with a pension plan and traditional passive investments are one way.  But not the only one. Side hustles, micro businesses, real estate, intellectual property, are realistic ways to add to your offensive strategy.

We owe something to extravagance, for thrift and adventure seldom go hand in hand. Lady Randolph Churchill

Knowledge is power

Everything seems risky when it’s unfamiliar. It’s easy to see the down-side.  Every new idea seems like a scheme or a scam to separate you from your money. But knowledge is power.  Knowledge lowers risk. Learning the rules of the game before diving in head first keeps you from burning through your hard earned money.

The first step

You have to start where you are. As obvious as that sounds, most people don’t know how to do that. Your banker or CPA might tell you to figure out your net worth.  Net worth is simply the difference between what you own and what you owe.  Net worth is mostly a vanity metric that can obscure your true situation. I think you should start with a simple income and expense analysis. What are the sources of money coming in, and where does it go? How much comes from trading your time for dollars?  How much comes from your assets?

Cash flow is king

Money is never the goal.  Money is the means to your goal.  How much you need depends on your lifestyle.  How much do you spend each month? Cash flow is how you run your life. That’s why we start here.

How would you spend your time if money wasn’t a problem?

Owning my time to do the things that matter most is my goal.  Doing less of the things that I hate and more of what I love. Having the cash flow to support the life I really want.

What about you? Are you ready to think beyond frugality? What is your ultimate goal? 



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