• Choose a category
• All
• Classic-Fiction

By Root 1493 0

of opportunities. Our society idolizes big winners: million-dollar athletes, lottery winners, and Wall Street billionaires. Nobody celebrates the guy next door who bikes to work, grows his own food, shops at the thrift store, and gets his books from the library. That sort of life isn't glitzy, yet it can—and does—lead to true wealth (see the box on the next page). Of course, it's also important to save money on the big stuff, like a home or a car (see Chapters Chapter 9 and Chapter 10), but large transactions are rare. (How often do you spend more than $1,000 on anything?) You have many more chances to save on the small stuff you buy regularly, like groceries.

Small steps lead to big savings. As you'll see, small savings here and there really do add up over time. And there's an interesting side effect to making small, thrifty changes: They spread to affect all your buying decisions. If you learn to comparison shop for shoes, you can use that same skill when you buy something big, like a car. Or if you learn to slash recurring monthly payments on things like magazines and newspapers, you can apply this same principle when shopping for a mortgage.

Thrift is about more than just saving money. It also:

Highlights the value of things.

Provides for the future.

Lets you focus your time and money on what's really important to you.

Reduces your consumption and waste.

Gives you a sense of accomplishment.

When you practice frugality, you're developing habits that'll help you save money and build wealth throughout your life.

On The Money: Thrifty Millionaires

Some financial gurus argue that building wealth is all about earning more. A huge income is great, but research shows it's not how much you earn that matters, but how much you spend.

You'll never become a millionaire if you spend every penny you earn—or spend even more and wind up in debt. In their book The Millionaire Next Door (Pocket, 1998), Thomas Stanley and William Danko write, "Being frugal is the cornerstone of wealth-building." As mentioned in the box on How Much Is Enough?, the three words they feel best describe most millionaires are "frugal frugal frugal." They also found that millionaires usually:

Budget. "They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way." Of the millionaires who don't budget, more than half save and invest their income first, and then spend what remains. (You'll learn about this "pay yourself first" strategy on Get in the game.)

Track their spending. They know how much they spend each year on food, clothing, and shelter.

Set goals. This is especially true of those who've built their wealth through frugality.

Actively plan and manage their finances. Wealthy Americans spend nearly twice as much time planning their financial futures as the rest of us.

If you want to build wealth, copy the subjects of The Millionaire Next Door. The best place to start is by being thrifty.

The Power of Small Change

Saving 50 cents a week on milk doesn't mean much if you do it just once, but over the course of the year, it adds up to $26. Taken together, many such small economies make a noticeable difference. Small amounts really do matter.

Tip

Because you earn pre-tax dollars but spend after-tax dollars, a penny saved is actually more than a penny earned. Depending on your tax bracket, you might have to earn $111, $133, or even $150 to put $100 in your pocket. So if you're in the 25% tax bracket, saving $750 a year is like giving yourself a $1,000 raise! (You'll learn more about tax brackets in Chapter 11.)

Rather than give you pie-in-the-sky examples of how much you could save, here are some real examples from my own life. While trying to improve my cash flow and pay off over $35,000 in debt (see The Basics of Debt Reduction), I made many small changes, including:

Switching my cable TV package from $65.82 per month to $12.01 per month, saving $645.72 every year.

Getting rid of my home phone line (roughly $46.50 per month) and