6 Reasons Why Frugality Is the Key to Making Financial Plans Successful
When it comes to financial planning, your mind automatically wanders to market graphs, economic journals, and financial advisors in business suits determining the next effective strategy. While it is true that financial planning is a complex and dynamic activity, there are some aspects of it that can be implied in the simplest of manners. One of these is to save more, spend less, and be frugal.
Frugality can be an optimal way to secure your financial future. Here’s how.
What is the role of frugality in financial planning?
Frugality refers to being more prudent with your money. Many people mistakenly take frugality for living life like a miser. However, the reality is far from this. Living frugally does not mean cutting down on essential costs and living a life full of restrictions. Instead, it refers to carefully planning and spending your hard-earned money, so that every penny that you pay is spent towards a specific purpose and goal and there is no wastage of resources.
Here are six reasons why frugality is the key to making financial plans successful:
1. It helps you save for an emergency
Frugality is the opposite of wastage. It ensures that your money is well accounted for and saved for a time when you may find yourself out of traditional options. A job loss, economic instability, or health concern can restrict your ability to earn money. However, if you have been living a frugal life, you can use your savings to stay afloat in uncertain times. Moreover, when you believe in frugality, you have a healthier relationship with your money. You learn to stay happy without finding comfort in material possessions. This can be a savior in times of economic hardships.
2. It contributes to your retirement fund
Being frugal can directly translate to better savings. When you are careful about where your money is spent, you can make better decisions on where your money goes. This, in turn, facilitates higher savings. It is a well-known fact that your retirement fund is an amalgamation of investments, pension accounts, insurance, and bank savings, among other things. A major part of this comes from frugality. The money you save by being frugal can be added to your retirement contributions. It can also be invested in the market or used to buy insurance that can secure your future in your golden years. A small step of saving a penny today can go a long way in safeguarding your tomorrow.
3. It facilitates profitable investments
Investing allows your money to grow. It can be hard to take out funds from your list of expenditures to invest further. Most people get tangled in the web of living from one paycheck to another. Routine costs like paying rent, settling loans, buying groceries, etc. leave little room for more. The most that people have in the name of savings are their employer-sponsored retirement plans. Frugality can change all of this by breaking the cycle of living from paycheck to paycheck. Living frugally allows you to carefully account for every dollar that you earn and spend. This consciousness lets you build a reserve. The money saved can then be further invested in high yield instruments. Frugality can set the right tone for investing. Once you start seeing returns, you can invest more and ultimately create a large fund for yourself over the years.
4. It helps in budgeting
With frugal living, you can have a firm grip on your budget. When you have a definite budget in place, there is little scope for going astray. You spend on exactly the things you need at a given point of time, and the rest is carefully divided into savings and investments. This ensures that you are protected against any financial contingencies in the years to come and it offers increased flexibility in the present. Above all, with proper budgeting, there is no ambiguity as sometimes petty expenses make up for a substantial figure but are hard to track. This can include magazine subscriptions, eating out, mindlessly shopping on the web, etc.
5. It promotes discipline
Being disciplined is an important virtue that can help you in various fields in life. When you are disciplined, you follow a strict schedule and approach. This helps you create a foolproof financial plan for yourself. Moreover, with a strong sense of discipline, the chances of not following the track laid in front of you are low. Hence, you stick to your initial financial plan and achieve your goals as per the pre-decided timeline. Being disciplined yourself is also a great way to teach your children to do the same. By leading a frugal life, you can inculcate similar habits into your children and help prepare them for when they are older.
6. It reduces your dependency on debt
The money you save by being frugal can be contributed towards different life goals. While it may not be possible to buy a house by just being frugal, it can help you get a better loan deal. Frugality reduces your dependency on debt. When you spend less, you do not need credit cards or personal loans to buy assets and possessions. The lower your debt, the better is your credit score. As a result, when you do need a loan for an asset such as a house or a car, you can secure a loan with a low-interest rate. This promotes more savings in the long run.
To sum it up
Frugality can be a great quality to adopt. It can ensure high savings, lower reliance on money for happiness, and promote overall financial consciousness. Not only is it gaining popularity as a personal finance strategy, but it can also benefit the world at large as a sustainability strategy. It helps you identify between a need and a want and avoid any kind of excessive consumption that adds no real value to your life. However, keep in mind that living frugally should not compromise with your comfort. The idea is to aim for a better future and not an unhappy present.
If you need guidance on how to adopt frugal living into your financial plan, please reach out to a financial advisor in your area.