Being frugal is not enough to build wealth. If you are frugal it means you generally buy store-brand items and make your own food. However it’s also important to cut back in general. If you frequent Walmart, Amazon, or save up for Black Friday deals and feel like you are saving money because you are getting a good deal, that’s only half the work. You also need to buy things less often whenever possible.
A good way to do this is by allocating your fun money down to a couple dollars a day, or possibly zero fun money depending on your income and how important your wealth-building goals are to you. This doesn’t mean you can’t have fun, it just means you need to be more creative about how you have fun and spend less time shopping and more time doing something meaningful or productive that you find to be fun.
Wants and Needs: Create two-for-one need/want compromises.
While every dollar becomes important, there is more to saving than simply differentiating wants and needs. I am not going to suggest splitting out all your needs and wants and eliminating the wants. Part of life involves having things you need as well as some wants. Some things you need can also be wrapped into a want. There are many types of needful wants that this method can be applied to. Here are a few examples below.
One example is the need to eat and the want to have pizza as the type of thing to eat. I know it can be tempting to order pizza every week or two, however by combining the need and the want and focusing on getting those things in a cost-effective way, you can save more. There are a few different strategies to do this. Let’s say you like to order pizza every week and it costs $40 after taxes, delivery fees and a tip. Here are some possible needful want compromises for this situation:
1. You could order pizza half as often and save 50% of what you might have spent in your regular pizza ordering routine. 2. You could buy frozen pizzas and heat them up when the desire for pizza hits and save about $30-35 3. You could make your own pizza in a fun activity & save even more.
If you want a brand new cell phone every year, that’s great. Buy a prepaid smartphone for $20-40. I just bought a ZTE R2 and it runs all the apps I need and only was $19 plus tax and shipping. It’s much more efficient than buying a $700-1000 iPhone and can cut down your phone hardware costs by up to $1000 per year by still accommodating your need for a cell phone and your want to have a new phone.
Don’t give up your latte. I hate that advice and it’s not a compromise. Just make the coffee at home. Or at your office. You can save 100% if your office has free coffee available during your workdays, or can save a great amount of cost just by making your coffee at home instead of buying it. If you need to go to Starbucks with friends, they have free waters, just drink your own coffee before/after the outing.