My View of Frugal Thinking

Presenting my thoughts on frugality and personal finance literacy

I’ve never been a huge fan of extreme frugal thinking. I’ve always thought excess frugality comes at a rather high price which outweighs the financial benefit of saving $30 a month. I don’t, by any means, discredit a sum of $30 a month. However, as a big fan of efficiency and productivity I believe the time and effort it takes to get frugal enough to save quarter to quarter is just too precious.

Reading and writing personal finance articles has opened my eyes to many different views of frugal thinking. The simple act of reading is already enough for some ideas to grab hold and nest in your head ready to evolve with the next article and next post.

Those of you who have been following my writings here at The Personal Financier have surely noticed by now that my view of frugality is a bit different. I believe in investing the time in financial education and competence which later translates to much bigger savings.

Clipping coupons has its place and is very wise if you can afford the time. Quarters add up pretty quickly as grains of sand create dunes (I’ve expanded on this here: The Little Savings That Could). However, learning basic financial thinking, financial math and getting to know the capital markets better will pay higher dividends in the long run.

I suggest concentrating efforts at becoming very knowledgeable in the following personal finance niches which will serve as true leverages to your personal finances:

#1 Mortgages and Loans

I’ve recently wrote an article about how I saved over $3,000 in one hour. It sounds like, and it really is, a catchy headline, but it’s also completely true. Realizing we are in a very low interest environment allowed me to quickly capitalize on low interest rates by refinancing my mortgage. My financial understanding also made me to keep my mortgage payments at their current level thus saving on the number of payments and directly on interest paid (Naturally, the factor of time is crucial for compounding interest).

#2 Investments

Understanding common investing mistakes will also save you much more than any homemade rain water receptacle. These are fun and creative to build but financially wise don’t translate to significant savings. Understanding the relation between risk and return, the concepts of investment terms, asset allocation and investing goals and planning is much more valuable than throwing frugal birthdays.

I’ve written on my share of common investing mistakes. Two of my favorites are: 10 Sure Ways to lose 50% of your investment and Investing mistakes to avoid.

#3 Retirement

All the frugality in the world won’t get you a proper retirement unless it’s combined with solid financial planning. The amount of money required to retire properly has no equal (besides, maybe, a New York Apartment).

There are so many mistakes we can make that will affect our retirement it’s no wonder such a small percent of people retire as they planned (more on How to Avoid Crippling Your Retirement Funds here).

#4 Insurance

One of the most important aspects of financial planning is making sure the financial impact of sudden and unforeseen events is smoothed out through insurance. Life and disability on the one hand and property insurance on the other will ensure a smoother financial “life line”.
Insurance always seems easy enough but is really very complicated. Different coverage, plans, alternatives and more create a dazzling array of products to choose from. I’m not knowledgeable enough to be writing on insurance but hopefully in the near future I’ll be closing more knowledge gaps and become more proficient.

#5 Real Estate

One of the biggest expense and investment items in our lives is real estate. As a result each successful or less successful decision has a huge impact on our lives. Location is often mentioned as a prime consideration, home renovations and their return on investment is a popular topic, rent vs. buy comparisons are always relevant and more (there are a lot of relative posts in my top posts section).

#6 Career Planning

Instead of constantly focusing on how to spend less, which usually holds a finite and small potential I believe in concentrating on earning more. Career planning and opportunities offer much more than simply saving on expenses. From education to day to day management career planning is crucial for success. We do most of the things intuitively but often times some posts and articles can offer precious ideas.

I recently wrote, what in my opinion is a very good post on how to actively manage our careers which should really clarify what I’m talking about.

There are more subjects to explore such as budgeting, debt and risk management, credit cards and loans and more with an almost infinite pool of knowledge.

To conclude, my view of frugal thinking is of learning and education. I believe sinking our teeth in all of these subjects has a greater return on time invested than focusing on every-day frugality. I agree frugality translates, directly, to pocket money but how much are we talking about here?

Image by: ethorson