If given the opportunity, nearly everyone would want to be a millionaire. However, to become a millionaire, you need to develop the financial habits of millionaires. While we often see rich people flaunt their money with expensive things, the truth is, many of these individuals are world class when it comes to frugal habits and saving money.
The word “frugal” is often misconstrued when brought up in conversation. Frugal doesn’t mean you are cheap or unwilling to spend money, not in the slightest. Being frugal is all about not wasting money and being smart about how you spend it, simple as that.
Now, with that in mind, let’s take a look at twelve habits of frugal people. If you want to get better at managing your money in an intelligent manner while also improving your knowledge on all things personal finance, these tips will surely help you out.
1. They Have a Budget
One of the best habits that frugal people possess is their ability to create and maintain a budget. A budget is a perfect way to make sure you always know how much money you have coming in, and where it is all going. Despite how helpful having a budget is for people, a recent U.S. Bank study showed that only 41% of Americans use a budget. That number should be much higher as spending can get out of control without a budget. If you want to develop frugal habits, you need to know where your money is going. To know where your money is going, you need a budget.
2. They Surround Themselves with Like-Minded People
While we are all individuals, there is no doubting that the people we surround ourselves with have an impact on our successes in life. If we surround ourselves with those who often make terrible financial decisions, there is a chance we could fall into the same things, as we are constantly exposed to them. Of course, this isn’t always the case, but it can be. Instead of surrounding yourself with people who seem to always make the wrong choices, try to connect with those who have similar goals and mindsets.
3. They Save First
The name of the game when it comes to developing frugal habits is saving your money. Before you spend any of your paychecks, you should look to put some away in savings. Doing that manually can be daunting, so we recommend having a portion of your paycheck automatically transferred to a savings or investment account.
If you wait to save money, there is a good chance that money might end up being spent by the time you were going to save it. This is apparently an all too common problem as around 34% of Americans have no savings, and only 15% have more than $10,000. If you want to be a millionaire one day, you have to save like and have the habits of a millionaire.
4. They Look for Value Everywhere They Can
Despite what many people might think, being frugal is NOT the same as being cheap. Whereas cheap individuals will always look for the least expensive option, frugal people will look for value. Whether it is in their investments, their furniture, their homes or their cars; frugal people look for the option that will provide them the most benefits in the long run.
If something is a bit more expensive (but has a ton of value and ownership benefits to them), they will not shy away from buying it. While it is acceptable for frugal people to splurge on occasion, generally, they look for value wherever they can.
5. They Keep it Simple, Stupid
We know you have heard this phrase a million times, but here is one million and one. The reason this phrase is so common is because it is so true and is instrumental in developing frugal habits. Frugality is often about keeping things simple and straightforward, whether that is your investments, your shopping lists or anything else.
While you might think the habits of a millionaire couldn't possibly be that simple, the fact is, they often are. Take, for example, Warren Buffett. Buffett is among the richest men on the planet and one of his biggest philosophies when it comes to investing is to keep your investment strategies simple. He also lives a very simple life as he still lives in a small home he purchased over 50 years ago and doesn’t need things like luxury cars or other lavish items.
6. They Don’t Put Anything To Waste
Wasting things like food and other household items is basically the same thing as throwing money in the trash. Waste is hard to avoid completely, but there are things you can do. Avoiding over purchasing and making sure you always know the expiry dates of your food and goods can help you eliminate waste in all facets of your life.
Waste is a huge problem in America today as half of all U.S. produce is thrown away and 40% of all the food in the U.S. goes uneaten. If you are looking to become a more frugal person, one of the first steps should be to reduce waste where you can.
7. They Don’t Fall Into “Competition” With Others
Trying to “keep up” with your peers is one of the biggest reasons many people overspend, and they often don’t even know it’s happening. Let's say your coworker or friend gets a nice new car. Some people feel that if they don't get a nice new car to match them, they are an inferior person.
While this seems strange laid out like this in an article, it is a very real thing. A recent paper has shown that people will often take on more debt when they have rich neighbors (or neighbors that they perceive to be rich). If you truly want to be frugal, you need to avoid this type of competition like the plague.
8. They Buy in Bulk
It is no secret that buying in bulk can be cheaper than buying in a traditional manner. Big stores like Costco and Sam's Club offer large discounts on groceries, electronics, and other household goods. These discounts will save you money and also save you from going on a grocery or shopping trip every single week.
While buying in bulk can help you save money and become a more frugal person, you should make sure not to “overbuy” certain things, as this could lead to the potential for a lot of waste. If you are good at using all you buy and monitoring its expiry, buying in bulk is a frugal habit to adopt.
9. They Create Goals For Themselves and Plan For the Future
People don’t often become millionaires overnight. Becoming successful in life generally takes years and a significant amount of goal-setting and planning. While saving money and looking for value are great, being frugal is also about keeping it up over the long run. One of the best ways to ensure that happens is to set goals for yourself and plan on meeting or exceeding them.
If you want to one day become an ultra-successful millionaire, you need to develop the habits of a millionaire early on in life.
10. They Are Continually Educating Themselves
Some people think that education in your life stops once you graduate from high school or university. However, this shouldn’t be the case. Studies have shown that continuing to educate yourself throughout your adult life can have numerous benefits. This doesn't mean you have to go back to college for your whole life. It could be as simple as passively learning a new language, reading new books or learning new things here and there.
Becoming a frugal person is a process, and there are always new ways to save and stretch your money. If you are not learning or hearing about these things throughout life, you may not be as successful as those who are changing with the times.
11. They Learn to Live Below Their Means
Out of any piece of advice within this article, this is likely the most important for young adults within their first few years in the workforce who want to develop good frugal habits. Going from being a starving college student to getting a steady flow of income can feel like you have just hit the lottery. However, don’t feel the need to raise your cost of living to match your new salary.
In fact, if you keep spending low and bump up your saving, you will be well on your way to financial success in life. The problem is, not many people do this. In fact, some studies show that over half of Americans live at or beyond their means. Instead of joining them, why not join people like billionaire Ingvar Kamprad (owner of IKEA), who often buys second-hand clothing and often flies coach on planes.
12. They Do Not Adhere to the Diderot Effect
The Diderot Effect is a social phenomenon that many people experience when they treat themselves. It basically involves when you get something new and exciting (whether it be a piece of furniture, electronic or appliance), which makes all of your other possessions look bad in comparison.
As a result, many people will buy other “new and exciting” things to match the new thing, which can end up with you in debt or facing money problems. Even for frugal people, this phenomenon can be hard to ignore at times. However, if you practice and work on the various tips and habits within this article, you will be able to stand up to the Diderot Effect.