To Frugal or Not To Frugal?

Someone on twitter expressed an opinion contrary to what I believe this other week.

I will paraphrase what they said...

They alluded to the notion that living below your means would not lead to financial freedom because people are insufficiently paid.

This person has a point. People are underpaid, that is true.

But what is also true is that there are people who are reasonably paid too but they are not financially free either as indicated by this tweet https://twitter.com/Linda_Khuz/status/1214884517800038400

It has often come to light that people who earn little can make their money stretch better than those who earn more than them.

Case in point https://twitter.com/CassidayJacobs/status/1226038549042147329

So this means that earnings are not the issue.

This also means that this person's reasoning about frugality not bearing fruit is not reasonable either.

I will use myself as an example here:

When I started working in 2004 I earned the kind of money that could allow me to go to the movies as often as I wanted during the month.

I was grossing R7k and I was paying 7.5 % of the gross towards my pension and had medical aid costing about R0.7k which was subsidised by my employer, in part, to result in me paying about R0.3k, if I remember the amounts correctly but they were around there.

I qualified for credit in clothing stores.

I could buy household appliances & furniture on higher purchase.

I did none of that.

I opted to buy lunch only when I had not had a chance to grocery shop, which happened if I had to work overtime.

I bought clothes and shoes that I could afford cash and saved before buying them, I mainly bought clothes appropriate for work so I never had nice clothes outside of those my sister bought me out of the generosity of her heart, which she bought with a clothing store credit that I often berated her for having. I did not want to make her feel bad but I discouraged her often from buying me clothes with her credit and helped her to pay them off. I even paid them off to encourage her to close them down.

I did however have to get into debt to buy a car as my employer had stipulated own transportation in my employment contract.

In 2008 when I bought my first property for less than what I qualified for & it was not a new development, I had money to defray the transfer and bond costs of about R12k from the savings I had accumulated by not doing any of the above.

I was also able to buy my very first fridge and bed cash, the fridge cost me R7k and the bed R5k. In 2016 I bought my first sofa cash (seats 4 & is brown leather) for R13k.

Today I am not financially free, but I am well on my way as I have to date:

1. 1 paid up property
2. 1 rental property that has a tenant who pays on time financed by a second bond
3. 2 investment portfolios of about R150k & R120.k respectively, current market value notwithstanding, which give me dividend payments or varying amounts and percentages throughout the year. I started the first portfolio in 2013, the second in 2017
4. A TFSA account
5. A pension preservation fund
6. A retirement annuity that I started in 2009 paying R0.5k increasing by 10% annually
7. A matured unit trust I had with Sanlam for 5 years which amounted to just a little over R100k when it matured in 2014, giving me a mere R5k growth from my capital contributions that started at R1.5k and increased annually by 10%
8. A silver Mandela coin which I bought for R27k in 2013 from savings collected over the 12 months of 2012 as part of a savings group
9. 4 unit trusts I started in 2013, one of them financed by the savings collected over the 12 months of 2012 and 10 months of 2013
   
10. 2 notice deposit accounts for myself and 1 for the tenant's deposit that are earning 9% pa

So what then is the problem?

I see it this way;

People will always aim to spend what they have, some even aim to spend more if they are able to spend what others have, by borrowing from friends and family, clothing stores that offer credit, food stores that offer credit, and even banks.

Credit should be used to leverage, not to fill a gap created by frivolous spending because the person who is spending is seemingly able to absorb this cost because they can always use the credit card or borrow transport money from their close relations.

You are also spending all the income you are generating because your mindset tells you that you must spend all that you earn because:

• You worry about losing your money if you don't spend it.
• You recite philosophies such as "Money is earned to be spent", "You only live once", "Reward yourself so that you won't be bitter about having to work so hard" etc...
• All these mantras rob you of the mindset required to prepare for a future you clearly desire, I mean no one wants to die young, and can reasonably ascertain by the choices you make throughout your life.

The solution is not to look at what you earn, but why it is that you insist on spending every penny that is accessible to you.

If you are already underpaid, you are finding ways to supplement that income if it does not reach the end of the month. If you are borrowing from close relations, this is not a sustainable solution.

Start something while you keep employing this temporary solution so that later you can employ a more sustainable one and stop borrowing from your loved ones.

To be able to do that, you need a lump sum.

To build a lump sum you need to give up something in your life that you consider a thing that you reward yourself with.

This giving up is only until such time that you have build your lump sum and can start entering spaces previously closed to you due to the absence of some financial leverage.

It may take several years but you can alternate months that you are doing the giving up so that you do not go completely cold turkey until you are ready. As you see the benefit of doing this, it will become easier to make the decision to do without other things that you will identify as well.

If you consider that you are living below the poverty line with your minimum wage of R3.2k, if your aim is to expend that entire R3.2k, you can still do so and save a portion of it

What you do is include your saving as an expense that is included in what you are spending, i.e. R3.2k

Refer to my blog for ideas on how you can save and invest your savings in the context of the topic under discussion  Living below your means

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