Posts filed under 'Frugality'
Vanguard has an interview with Eric Tyson, author of Personal Finance for Dummies and a few other books. He says more people are involved in investing than ever before and the Internet is making it very easy, but few people research the stocks they invest in and few people live within their means.
From the beginning, I knew that many people simply are never taught how to manage money. What I’ve learned over the years is just how serious the problem is. There’s clearly a lot of financial illiteracy in America, though there’s more information available on the subject than ever before.
I’ve also come to realize that a pretty significant portion of the population has great difficulty changing their financial habits, even when they know they’re making serious mistakes. People have a hard time changing their behavior, even if they’re shown the correct path.
The interview was a good read.
Source: Vanguard
June 3rd, 2006
Lee Eisenberg has an excellent thought about the value of money.
The greatest uncertainty of all may be the uncertainty over what money is good for. We bury this uncertainty under a million cliches. Money can’t buy happiness. Oh, no? Money can buy time and opportunity to do the things we most love. It can help us fulfill our obligations as parents to our kids and as kids to our parents. It buys quality health care. But somehow or other, we get our knickers all twisted up when it comes to figuring out the real value of money. Could it be that in the end the reason we don’t plan is because we don’t have anything meaningful to plan for?
— Lee Eisenberg, The Number
Via: Debtspiration.com
May 30th, 2006
For a humorous look at the difficulties of being frugal, see TrailerParkRave.com:
I posit there is no such thing [as frugality], because the universe demands a zero sum by the time all accounts are settled, and money saved will always come at the expense of time or something less tangible but of comparable value. (Source: The Relatively High Cost of Being Cheap)
May 20th, 2006
A comment on our last post, Winning on the margins, brought up a very interesting topic.
“You still have to balance [frugality] with living a nice life though. Winning for the sake of winning, or being frugal for the sake of being frugal will probably not lead to a better life. Living a life where you express yourself and achieve your goals through reaching your highest potential probably will, but it is not necessarily the same thing.”
So, what’s the point of being frugal if it doesn’t lead to a better life? I’d argue that frugality, in its correct form, will undoubtedly lead to a better life. The purpose of frugality is to manage your money in a way the enables you to create wealth. Overtime, you can begin relying more on your wealth for income instead of a job. Being frugal for that purpose creates self-control and freedom from financial stress - both of which lead to a better, happier life. Frugality does NOT mean being a selfish miser with your money who hordes it just for the sake of not spending it.
There is another statement in that comment that brings up another great point:
“You still have to balance [frugality] with living a nice life…”
I really agree with that. There are many things in life that may not bear financial fruits, but are definitely worth spending money on. You could learn a new language; learn to play a sport, or a musical instrument. You could move to a struggling country for a while and volunteer your time and talents to help less privileged people. Things that add to your personal development and build character are most likely worth the expense. I would say be frugal when it comes to consumer goods. The value they add to our lives is debatable compared to the financial burdens they can create.
May 17th, 2006
Olympic athletes finish races within seconds or milliseconds of each other, but they would be minutes or hours ahead of me. To win an Olympic event, it’s not enough to be “pretty” fast. Victory is in the margins. To win you have to perform at least as well as the other Olympic athletes and then do that extra little bit that pushes you to the top.
If you’re trying to live a frugal lifestyle, live within your means, save money, etc., don’t settle for less than an Olympic performance. It’s not enough to be frugal or financially disciplined MOST of the time. If you’re frugal 6 days a week and then splurge on the 7th (to congratulate yourself for your frugality!) then you haven’t been frugal. Frugality, like other character traits, is a matter of consistency. You can pat yourself on the back only after have learned to be consistent.
May 6th, 2006
What’s more important - having a large bank account balance or a healthy positive cash flow each month? I’m sure both are important, but which one should we focus our attention on when budgeting? Should we budget and plan based on money in our bank accounts? If I want a new plasma TV that costs $2,000 and I have $8,300 in my bank account, I could make that purchase stress-free right?
The amount in a bank account is the least important factor when making expenditure decisions. To increase our wealth and achieve independence, the primary factor we need to control, manage and think about is our cash flow. If I’m spending $100 more than I make each month, buying a $2,000 TV is a bad idea, even with $8,300 in the bank. In a negative cash flow situation, that balance will quickly diminish and with it the false sense of security it created.
Too often, we buy something or make a big financial decision based on the amount of money we currently possess and then find ourselves frustrated later on when we realize we aren’t progressing financially. In the words of Robert Kiyosaki, we’re stuck in the rat race! If we aren’t carefully tracking our monthly in-goes and out-goes we don’t have enough information to make sound financial decisions. The only way to increase our wealth and get out of the race is to manage our cash flows, i.e., spend less than we make and intelligently invest the positive cash flow.
April 28th, 2006
This week’s Festival of Frugality is up and being hosted by the Canadian Capitalist. Check it out.
April 11th, 2006
There is an excellent new site called Debtspiration.com. It posts motivational quotes each day from various authors about reducing your debt and increasing your savings.
“We hope our collection of ideas and quotes motivates and educates others, nudging them to reduce debt and grow savings. We hope it encourages you to seek out more information and knowledge regarding all aspects of personal finance.”
April 8th, 2006
Does using financial management software make you wealthier? Does budgeting eliminate debt? The answer is no, of course not. These are just tools that help you track where your money comes from and where it goes. Software and budgets only help you become wealthier as they change your behavior. Using those tools alone will do nothing if they don’t provide an incentive for you to improve your financial habits.
In 37signals‘ new book, Getting Real, they hit the nail on the head when they said:
“If it doesn’t change your behavior, then it just doesn’t matter.”
The financial tools we use should enhance our lives, not drain our time and create more clutter. Finance software should be really good at one thing - providing an incentive to increase wealth. (Is there really any other reason we’d spend so much time scrutinizing our finances?) In regards to the time we devote to our finances, we should waste less time trying to understand all the “bells and whistles” of our finance software and more time thinking about how to spend less and invest more of our money.
Sources: Getting Real book
March 30th, 2006
Scott Berkun, a project management and product design consultant, writes about the importance of being frugal; not with money, but with our attention. He explains in his essay, Attention and Sex, that we determine the value of something by deciding how much attention we devote to it.
Law of lost attention: The value of something you spend attention on is dependent on how much attention you spend on it.
I feel this if very applicable to personal finance, entrepreneurship, or anything we wish to improve or succeed at. If financial independence is a high priority, are we devoting enough of our attention to our finances so that goal becomes a reality? We can ask that question about any ambition we have to determine if it is really valuable to us.
This is an excellent lesson for me because the time I spend on the important things in my life is often at the mercy of several less important things I try jamming into my day. Learning to focus my attention on the worthwhile will bring me the success I seek. In our day and age of mult-tasking, we divide our attention over many trivial things, and focus less on the things that will bring satisfaction and meaning.
“There isn’t a single great work in the history of civilization, no novel, symphony, film, or song that was completed as a 1/5th time-slice between e-mail, IM, cellphones and television.”
Sources: Attention and Sex
March 24th, 2006
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