In the last few years, the FIRE concept (financial independence and early retirement) has become immensely popular in the country. And, there is a valid reason behind that. People have realized one thing. They don’t have to work until their retirement age nowadays. If they can reduce the gap between their income and expenses and increase savings, their job is done. They can achieve financial independence before 50 or 40 or 30 years.

Your actual wealth is your income minus your expenses. Your expenses play a major role in determining how quickly you can achieve financial independence. The less you spend, the more you can save. The more you can save, the sooner you can attain financial independence.

Frugality plays a major role when you want to save money. It helps you to avoid spending unnecessarily and save money. This is the biggest virtue of frugality, and that is why it holds a special place in personal finance.

Why frugality is important in personal finance

The ideology of frugality is that you have to be careful about your consumption. The less you consume, the less you have to spend to maintain your lifestyle. You have less baggage in your life and can save enough money. The more you save, the sooner you can quit the job.

An example to elucidate the importance of frugality

Suppose, you earn $60,000 every year and spend $60,000 or more per year. So, this means two things:

1. You’re living paycheck to paycheck when your expenses are around $60,000.

2. You use credit cards to live beyond your means when your expenses are above $60,000.

Both scenarios indicate that you’re on a rocky financial boat. If you can’t pay off your credit card bills on time and get into debt, then you have to get the help of the debt relief programs.

When you’re living paycheck to paycheck, this implies that you have no savings. If your car breaks down all of a sudden, then what will you do? Either you have to swipe your credit card or you have to postpone the repair.

Now, if you live frugally and spend only $30,000 every year, then this implies that you’re saving 50% of what you’re earning. If you suffer a physical injury and you’re unable to work, then also you won’t be in any problem. You have enough money to cope with the crisis. If you’re fired from the job and don’t get a suitable job position in the next 6 months, then also there is no need to panic. You can survive the next 6 months with the money have saved. Your personal finance won’t get affected that much.

If you get a job that pays you only $30,000, then also you can support your family. The amount is enough to cover your living expenses.

When you lead a frugal lifestyle, you consume only what is required. So, you can survive even with a low monthly income. And, when you consume only what is required, you can retire early.

If you wish to retire by 40, then it’s imperative to take the following steps:

• Lead a frugal lifestyle in your 20s and 30s and maintain a saving rate of a minimum of 60%. 

• Contribute to a retirement savings plan until the maximum limit.

Once you take the aforementioned steps, you’ll be able to enjoy financial freedom after you turn 40. You can lead a life on your terms. No more boundaries. No more restrictions.

Frugality inculcates discipline and gives you freedom

As mentioned earlier, frugality instructs you to spend less and save more. And, believe me, it’s impossible to spend less without inculcating discipline in your life. Frugality teaches you to lead a disciplined financial life, and that helps you to prepone your retirement. You reduce the time that would have been needed to gain freedom.

Many people equate frugality with deprivation. That is a total misconception. It’s a thrifty lifestyle that helps you to build wealth.

Frugality changes the way you perceive things

Frugality changes the way you see things. When you learn to live with less, you start respecting what you have. You begin taking care of your things in a better way. You appreciate what you have. Previously, you bought things randomly and discarded old things. But now, you think of using various ways to use them in your daily life. For instance, previously you didn’t give much importance to baking soda. But now, instead of buying a detergent, you use it along with vinegar to clean your kitchen. As you use fewer things, you’re more grateful for what you have.

Frugality gives you a sense of accomplishment

Frugality helps you to achieve financial goals one after another. And, when you achieve your financial goals, you feel good about yourself. You feel satisfied when you get your desired things at a comparatively less price. Suppose, you’re able to bring down your utility bill by 30% through your frugal efforts. Instead of replacing anything broken, you try to repair it first. That helps you to save even more money. You can use it to buy a good lipstick you have been craving for so many months at a discounted price when there is a sale offer online.

Conclusion

Frugality leads to the overall development of personal financial life. But it is a habit that you can develop with time. It isn’t something that comes naturally. But it’s fun. It’s something that you can challenge yourself and engage in proper consumer behavior. 

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