In the world of personal finance, we see a lot of messages, blog post, even books which encourage us to skip the $5 coffee and make soaps at home to save some pennies. Frugality is the practice of being sparing or economical as regards money or food. This is great when you are absolutely broke. Is frugality the miracle cure to make your purse fat? Let’s find out.
In his book, ‘The Automatic Millionaire’, author David Bach talks about the ‘latte factor’. What is the ‘Latte Factor’? He says that if you spend $5 every morning on a Starbucks latte, that amounts to $150 in a month and $1800 in a year. If you invest $1800 every year for 30 years, with an expected return of 7%, It would amount to $184,063.12. This is a lot of money.
Another popular blog, ‘TheSimpleDollar’, by Trent Hamm, teaches you how to make laundry detergent at home. He argues in this blog that his homemade laundry detergent saves him $60 – $80 per year. He describes a lot of other ways to save money on his blog.
The question is: Is frugality the miracle cure to building wealth? Can you be frugal and become wealthy? Yes and No.
Broke? Frugality is the way to go!
If you are completely broke, adopt frugality. Save as much money as possible and cut as many corners as possible. You would need to skip the latte at this point of time. Cancel all the subscriptions. New clothes or the latest sale are not an emergency.
However, if you are not broke, have same savings in your bank account, frugality is good, but not really necessary. You should still not spend money recklessly, but can do with a few splurges.
Focus on increasing your income
It is way easier to increase your income by $1000 than saving $1000 from your existing income. Let us consider the scenario where you are able to save $1000 from your existing income. You probably need to cut down a few expenses to achieve that. In the second scenario, you increase your income by $1000.
Both put the same amount of money in your hands. But one expands your freedom while the other option curtails it. If you can spend a few hours a weeks building a side hustle, an online income, it will go a long way towards achieving financial freedom.
How to increase your income?
Focus on acquiring skills. Skills have value. And if you apply this value in the marketplace, you earn money. Some skills that you can learn are:
- Copy writing
- Content Writing/ Blogging
- Digital Marketing
- Web Development
- Video Editing
Most people stop learning as soon as they graduate out of school. Investing in skill development and education is the secret sauce for success. Upskilling yourself is the ultimate way to earn extra income. Some sources which have tremendous resources are Udemy and SkillShare.
Click here for a 2 month free access of all SkillShare courses.
Frugality is necessary when you are absolutely broke. But if you want to get ahead in life and create wealth, focus on skills and earning more. Which skill are you going to learn to increase your income? let me know in the comments below!