25 Pieces Of Advice Frugal People Can Never Ignore

23. Align Financial Goals With Values

It’s safe to say you should try to align your financial goals and monetary practices with values. Remember it is not the material goods you aspire for, but your values and beliefs that give meaning to your life.

It would help if you were clear that it is next to impossible to keep up with the Joneses. On the other hand, attempting to progress at the same rate as your friends and associates causes misery. And it could lead to bankruptcy. You don’t even have to keep up with your peers, but rather be honest with yourself to stay happy.

22. The Bigger Your Nest Egg, The Better

Almost all self-made businesspeople earn money and follow a plan to achieve two overarching financial objectives. The primary goal is to invest in ventures, undertakings, and schemes guaranteeing high ROI. And the second follows the first, i.e., to have a nest egg for a secured future. You can do research on the net and discuss with seasoned investors with regards to putting your hard-earned money in business enterprises and undertakings that ensure a handsome ROI.

Alternatively, you can engage a financial consultant who has the expertise and the experience to tender you practical advice. Once you’re through with investing a percentage of your annual earnings in securities ensuring high returns, you should focus on savings.

It doesn’t matter if you start small. The idea is to develop the habit of saving and trying to live within your means. Once you start saving more out of instinct than out of compulsion, you won’t even realize that you’ve more than adequate reserve funds during retirement. You can open a superannuation account soon after you start earning and put surplus funds in that account.

21. More About Your Nest Egg

Usually, your employer will offer you a company pension plan or an organizational pension plan where your boss will match your superannuation account contributions. The most noticeable benefit of opting for a superannuation plan (401(k) or Roth IRA) is that the gifts are not subject to taxation. In other words, a Roth IRA has financed with after-tax dollars, i.e., the contributions are non-tax-deductible.

On the other hand, contributions to traditional IRAs are made with pretax dollars. Though your donations are tax-deductible, you’re liable to pay income tax when you withdraw money postretirement. Due to that, a good number of employees and self-employed individuals choose a Roth IRA over a traditional IRA.

20. Staying In the Market Is Better Than Being Out

Individuals who’ve made it a point to lead their lives frugally need not to invest smartly. To put it in perspective, you should ensure to invest in target-date funds such as ETFs (exchange-traded funds) and mutual funds. Such funds are designed innovatively to boost NAV (net asset value) in an optimized manner for a prescribed timeframe. How these target-date funds are structured enables the investor to meet their financial requirements at a tentative future date.

Overall, most investors make the most of a target-date fund at the time of or after their retirement. Such funds adjust and fine-tune risk exposure and asset allocation automatically, depending on your retirement time and age. Target-date ETFs or MFs (mutual funds) can go a long way in boosting a shareholder’s returns.

19. Understanding More About The Market

The difference in expense proportions between the different types of such diversified funds may seem nominal. Y such differences can total up to thousands of dollars in due course. Some of the best target-date funds pledging high returns during maturity include Vanguard Target Retirement 2045 Fund, TIAA-CREF Lifecycle Index 2045 Fund, Fidelity Freedom Index 2045 Fund, and Schwab Target 2045 Index Fund. TIAA, Vanguard, Fidelity, and Schwab tend to be incredibly popular with investors, thanks to their diversified offerings of low-cost target-date funds.

The expense ratio should be your prime consideration when selecting various low-cost target fund options. Low-cost funds are the way to go if you want to pocket good returns with risk allowance on your investments. Initially, such funds take on a more growth-oriented approach but with time as you move towards retirement, the exposure to risk decreases.

18. Never Let Go of the Employer-Backed 401(k)

Taking a cue from the above advice, you should focus on depositing as much money as possible in a retirement account. Towards that end, you should start putting money there as early as possible. So it follows that you should not let go of an employer-backed superannuation plan such as SIMPLE IRA, SEP, or 401(k) if the opportunity comes your way.

By and large, employers contribute the same amount that is automatically deducted from your salary and credited to your 401(k). Hence the amount the employer is contributing is free money, technically speaking, that’ll fetch you a 50% or even 100% return. Additionally, the retirement account gives you the leeway to deposit your before-tax money, so whatever you put in gets compounded in the long run. You can eventually access a large chunk of funds when you retire, but your withdrawals will be subject to taxation.

To compensate for what you lose in taxes concerning a 401(k), you can go for a Roth IRA. You can open a Roth IRA at any stage of your life (even postretirement), provided you are still earning taxable money. Depositing money in both employer-sponsored 401(k) and Roth IRA facilitates making good savings in tax-deductible retirement plans as stipulated by the law.

Ensure that you’re contributing sufficiently to your 401(k) account before putting money in a Roth to make the most of your employer’s contributions. To maximize your nest egg, have a fair idea of the gifts you can make for both the plans (Roth IRA and 401{k}) as per your age.

17. Settle Credit Cards In Full Each Month

Once you get addicted to using a credit card, you eventually take the plastic for granted as if it was free. You come down to earth after you receive the invoice. And if you consistently try to cut corners by not clearing the credit card bill at one go, you could end up paying through your nose sooner or later.

On one hand, you pay excessively for settling your credit card invoices, which you could have avoided. On the other, you find it extremely difficult to get a mortgage approved owing to your poor credit history and low credit score. You’ll come across innumerable cardholders who used their credit cards indiscriminately but paid as little as possible.

So it was hardly surprising they got the shock of their life when they were slapped with a whopping bill. Therefore, if you don’t want to fall into this vicious trap where your credit card dues keep mounting exponentially, ask your service provider to automate bill payments. Automating the payment of bills not only frees you up from the hassle of due dates but also saves the hard-earned money from late fees.

16. Plan An Emergency Fund

Those who are very prudent when it comes to spending money are acutely aware of the indispensability of planning for emergencies. You never know when you’ll have to deal with a crisis. You can never be fully prepared to grapple with such problems because they’re beyond your control.

The unpredictable nature of emergencies makes them catastrophic and ruinous, causing people to become bankrupt. So the best you can do to cope with unforeseen crises is to create an emergency fund. This reserve fund comes to your rescue when you need to fork out a considerable sum in the event of a medical emergency, home or car repair, and so on.

15. Emergency Fund Tips From Financial Planners

Nearly all financial planners and experts think you should stockpile funds equivalent of up to six to nine months of expenses. So, obviously, the more you contribute more to your emergency account, the greater is your level of preparedness for dealing with an emergency. An emergency fund not only offers you complete peace of mind as regards financial stability but offers you other benefits as well.

Putting away emergency money enables you to effectively cope with the stress that results from grappling with unexpected job loss or ill-health. Emergency funds act as a robust bulwark, shielding you from the vulnerabilities of borrowings like steep interest and processing fees. An emergency fund also serves as a vital check against willful and gratuitous expenses. You cannot access the funds readily like a debit or credit card.

14. Credit Cards: The More, The Merrier

Contrary to what you think, having more credit cards can be remarkably beneficial instead of a burden. On the contrary, having access to just one credit card can adversely affect your credit score due to a factor known as ‘credit utilization ratio.’ Credit utilization ratio measures the amount of credit you are using versus the total credit available to you.

Many financial specialists and planners advise your credit utilization ratio can significantly impact your credit score. Credit card companies suggest that you keep the utilization ratio under 10%, though most cardholders believe maintaining a proportion of 30% -50% will suffice. The total credit available to you for spending goes up when you have more than one credit card.

For instance, if you have three credit cards with limits of $6000, $7000, and $8000, the total credit you can access is $21,000. When you’ve only one card and spend about $2,500-$3000 using your card, then evidently, the unutilized credit that mitigates the impact of expenses is deficient. The nearer you are to your available credit for the spending, the lower or more inferior will be your credit score. Therefore, having multiple credit cards to boost your credit score and improve credit history does not bear hurt but rather help.

13. Don’t Always Focus Excessively on Saving

‘Do not save to save, but to invest’ is the mantra you should abide by if you intend to boost your fortune in the long run. There’s no denying the significance of saving money. But it should not come in the way of your wealth creation efforts. If you focus excessively on putting away money, you’ll be fortifying your financial security, but may not be able to take advantage of investment opportunities.

For example, if you continue to deposit most of your earnings in your savings account, you’ll hardly have sufficient funds for investing in undertakings that could help boost income. However, if you don’t want to face risks that put money in ventures promising good returns, you can transfer your funds to a savings account with a high-interest rate. Alternatively, you can park your money in low-cost target-date MFs and ETFs and watch your returns gradually grow effortlessly.

12. Keep A Close Eye On Your Expenses

The best and the most effective way to bolster your finances for having more funds at your disposal is to keep a tight leash on expenses. Keeping track of your costs, regardless of whether they’re fixed (mortgage, utility bills) or variable (tours, dining out), is extremely crucial for managing your assets, savings, and investments.

With online banking becoming the norm worldwide, keeping oneself updated on money matters is no longer a headache. Nowadays, you can make the most of several efficient ways for keeping a close eye on your money:

• OTT (over-the-top) financial/banking services
• Your own bank’s online services
• Web-based financial management instruments
• Prepaid card (debit card) services
• Templates and spreadsheets (Google Spreadsheet/MS-Excel)
• Traditional pen and paper (the old-school technique of keeping tabs on your finances continues to be the most reliable)
• Formulating your budget with the help of online tools and techniques

11. Prioritize Paying Off High-Debt Interest

There’s no doubt you’ll accumulate a hefty amount of debt while working your way up towards building wealth. Towards this end, prioritizing the repayment of high-interest debt should take precedence over even creating emergency funds. By settling debt, especially those that come with an unusually high-interest rate, you’ll be able to save more compared to what you might have earned had you invested that amount.

As an investor or depositor, you’ll have to confront the dilemma of whether you should prioritize debt reimbursement or wealth creation, time and again. Of course, investing and saving are as crucial as becoming completely debt-free. Yet how do you strike a balance when your funds are limited? Though there’s no one-size-fits-all solution, you surely can take some steps to make an informed decision based on your circumstances.

One of these measures that you should follow is settling your high-interest arrears and liabilities on a priority basis. With an eye on expecting a high ROI, you definitely must have built and organized a balanced investment portfolio. However, there’s no guarantee that your portfolio will fetch you returns in the range of 6%-7% in the long-term.

You should be mentally prepared for a rollercoaster ride with regards to receiving handsome returns on your investments. In sharp contrast, you can take it for granted that you stand to benefit more ( better returns) by clearing your high-interest debts. It’s a no-brainer that you’re assured of a guaranteed higher or equal return by paying off high-interest debt than the long-term but unguaranteed proceeds from your investment portfolio.

10. Patience Is Key To Save

If you want to master the skill of making money, then you have to learn to bide your time. In other words, you’ll need to cultivate the virtue of staying calm and relaxed under all circumstances. Even if a patient person has less money than an impatient person, a patient individual tends to be more prosperous.

Now you must be wondering how that could be possible. It would help if you noted that an individual’s richness is not only measured in terms of dollar signs. What is it about the patient individual that makes him or her wealthier compared to the impatient person?

For a start, someone who is patient can wait calmly for the opportune moment to do something. On the other hand, the impatient and edgy person is always raring to go and does not have the patience to bide his or her time. All patient persons have the sagaciousness to visualize the short term and the farsightedness to envisage the future.

If you’re always in haste, you’ll never gain the perspective imperative for creating a secured tomorrow, thereby missing the big picture. This patience is one of the most priceless skills you should aspire to have.

9. Always File Your Taxes

It pays to file and pay your taxes when the financial year comes to a close in the long run. Be in the know that filing your taxes within the prescribed deadline enables you to save on taxes by making the most deductions. Additionally, enumerating explicit deductible heads, including but not limited to gift checks to charitable institutions, property tax, and mortgage interest, helps make optimum savings.

On the other hand, consider the downsides of defaulting on tax payments of not paying at the same time. You’ll have to pay a late fine over and above what you owe and perhaps be saddled with a poor credit score.

8. Network With Wealthy People

Bear in mind that the company you keep or the class you socialize with can have a considerable bearing on your spending habits. If you find yourself irresistibly mingling with people who tend to be spendthrift and extravagant, then it should serve as a reality check. Look back in retrospection and evaluate your financial decisions from the past few months. You’ll have a clear idea about your profligate ways.

Networking within your career is probably a must already. So why not mingle with those who you look up to, including your mentors and role models? You can learn from their ways and have some of that positive work ethic rub off on you, too. Mend your ways and try spending time with those who share your values and interests.

7. Understand Health is Wealth

It does not need to be stressed that staying in good shape is vital if you wish to continue earning a lifetime. The IRS stipulates that every US citizen must opt for health insurance, failing which he’ll or she’ll have to pay hundreds of dollars in penalty. It would help if you accorded top priority to buying coverage or health insurance as the policy will indemnify you against bankruptcy, unexpected illnesses, and mishaps.

Remember that purchasing a policy tends to be more expensive than opting for your employer’s health insurance. So if your company is offering you coverage, grab the opportunity. Nevertheless, before you register for a policy, ensure to thoroughly read the terms and conditions outlined in the policy document. At the same time, take your time to realize the policy’s term, the premium amount, and deductibles. You may also have to sign up for life insurance if you have a family of dependents.

6. Rein In Temptation

All those who swear by an economical and prudent way of life are by and large cautious of overspending. There are many ways you can be profligate or spend to excess; buying a limousine or a mansion in Malibu, or opting for a holiday in the Caribbean are all ways. You can even demonstrate your extravagance in so many other ways, like going for exorbitant home décor, setting up a swimming pool on the terrace, and more.

Of course, you can afford to be extravagant once in a while. However, if your squandering ways develop into a habit that you find hard to control, you could be on the brink of bankruptcy. You can rein in your spendthrift ways by convincing yourself that you can lead a comfortable life by staying within your means.

5. Learn To Manage Your Money

You work hard day in and day out to earn, so you must make your own financial decisions. Therefore you must learn the ropes of financial management to decide how to make the best possible use of your earnings. Towards that end, you may have to consult a range of professionals engaged in the areas of real estate, stock market, insurance, banking, and accounting.

However, it would help if you always trusted your instincts when interacting and dealing with such professionals instead of charging them blindly; after all, these professionals will be more interested in improving their bottom-line rather than yours, so you have to be circumspect.

4. Make The Most Of Free Offers

Always be on the lookout for freebies and promotional offers, and do not miss out on taking advantage of them. You can rest assured there will always be free offers to benefit the various sectors of trade and commerce.

The logic behind free offers is prosaic and straightforward; thriving businesses earn massive tax revenues for the administration. It is beneficial for the government to plow a proportion of the gains back into the companies.

3. Let Savings Compound

You have to struggle tremendously regularly to enable your company to grow and develop and stay competitive. More often than not, the most effective way to boost the bottom line is by reining in your expenses rather than boosting up sales.

There are multiple simple and straightforward ways of saving money to bring down your business expenses:

• Negotiate with your vendors and suppliers for better deals (like reducing the cost of cell phone use or slightly lessening the interest rate on the mortgage once in a year)
• Outsource tasks for which you’re paying much more than industry norms
• Get quotations from multiple vendors for settling on the best rates without compromising on the quality aspect

2. Never Lose Sight Of Your Sunset Years

You’ll not be able to work at the same rate and earn an identical amount of money as you’re making now when you grow old. However, you’ll need to keep paying your energy and grocery bills and various other essential expenses for a lifetime. And this is where you’ll need to tap into your superannuation and savings bank accounts for meeting your expenses.

Therefore you’ll have to put a portion of your monthly earnings in these accounts instead of spending your entire current income on present-day expenses. Once you realize the importance of the lifetime income principle, you’ll never have to worry about your expenses postretirement.

1. Don’t Get Carried Away By Schemes

Warren Buffet offers valuable financial advice that frugal people will find worthwhile for one of the most celebrated self-established billionaires and an investor with deep pockets. One of his financial tips is, “Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick, no.”

Shrewd and wise investors and financial planners have the wherewithal to figure out where one should be investing. In other words, these professionals understand there are many businesses out there that promote get-rich-quick schemes, which could put you in hot water financially. Always keep in mind that it is nigh-impossible for your investments (or anybody else’s for that matter) to earn an inordinately high rate of interest in the cutthroat world of commerce.

So when any individual or institution attempts to thrill you by guaranteeing an exceedingly high ROI, laugh it off.