The importance of frugality when it comes to investing

Something I recommend when it comes to investing, and one of the things I believe to be most important is the F word. That’s right… frugality. It’s extremely important to be frugal if you want to achieve your investment goals. Living below your means will allow you to have a surplus left over every week or month to be able to reinvest it and buy more shares. Listed below are some recommendations as to why frugality is important.

• Lower expenses mean reaching financial independence faster.

  There is something called burn. You have to know your burn. Basically this is how long you can live normally if you were to lose your job this moment or if things went wrong and the same revenue that was coming in stops. If financial independence is reached when we grow a portfolio to the size of 25x our annual spending, then for you it may be different than it is to the next person. If you can live off of 4,000 dollars a month comfortably, then you require 25 times $40,000 or $1,000,000. Take for example someone with enough bills every month to amount to $8,000 a month then they would require $2,000,000 to reach financial independence. Keep this in mind when you are on the midst of making a financial decision such as buying a Porche 911 gt3 RS for around $220,000… This would be a monthly payment of around 4,000 in and of itself. Hmmm…. I’ll wait on that purchase.

• Less risk

  Having lower bills means having less risk. If something happens in the economy and we experience a shut down like we did in 2020 with the covid pandemic, then you will be happy you kept your living costs low. You could buy yourself time (literally) to find a new job, create a new revenue stream or make some changes in terms of job or business.

• Less stress

  Life is already full of stressors. Adding a ton of payments to your list is not a good idea. This could cause unnecessary stress and worries every month. Like I say.. vtsax and chillax. That is the way. If you reach financial independence and no longer require the income from your job to be able to pay your bills, this will be a different way to live life. Some even say this is reaching FU money. Get FU money asap.

• Options

  When you are frugal, you have more options. More options to quit your job, more options to choose to do what you want to do today. If that means sit around all day and read then you can do that. If it means going hiking that day and then going out to the town then so be it. The important thing here is to be able to have the options. It may take some time to reach financial independence but with some time and weekly good choices, it is very much possible. Being able to attend family gatherings, hang out with friends, or just sit back and relax are great to have as options. If you like working then go ahead and find a job or create a business that you feel is important to you! Remember we all make decisions every day and what we do today will affect how we live tomorrow.