Profile of a Frugal Person

So what does a frugal person look like? How do they behave that is so different from others? How does one person build wealth while another struggles to stay on top of his monthly bills?

Let’s look at some of the characteristics of such a person. These are examples of what you should cultivate in your own thinking and behavior.

A frugal person practices strategic thinking. This is an approach to planning things for the long view that will help win the economic war. A strategy is an overall plan or approach that you are following to be successful.

Here it is important to understand the difference between a strategy and a technique. A strategy is a broad planned approach, whereas techniques are small actions that implement your plan.

Let’s look at examples of strategic thinking versus money saving techniques.

A frugal person is "financial goal" oriented. This is perhaps the most important characteristic of a frugal mindset. You need to have a target to shoot for, a meaningful goal, or at least some sort of vision of what success looks like for you.

An associate of mine is fond of saying: "If you don’t know where you are going, any road will get you there". I always add: "And when you arrive, you’ll never know it."

Establishing realistic and meaningful financial goals is a key to success. You have to know what your "end game" is with respect to your finances. Do you want to be financially independent, or do you just want to be able to splurge a little every now and then?

Unless you clearly define what you are trying to achieve, you won’t be as well motivated, and you will be more likely to talk yourself out of steering your financial ship toward your goals. If you have a strategic plan, you’ll have reasonable goals to go along with it.

A frugal person is happy with simple living. It is a life management style that is sustainable and easy to control. Many of us live lives that are unwieldy and complex in many respects. Elvis Costello said it very well when he sang: “I feel like a juggler running out of hands.” Henry David Thoreau also said it very well: “Keep your business under your thumb nail.”

Simplify at every opportunity. Simplifying your life allows you to focus on what is important to you. Focus is the best way to make things happen. What you want doesn’t happen by accident, it happens because you are focused on it. Simplify your life and you can focus on what really matters to you. Here is an example.

Frugal people are investment oriented. A key part of the frugal mindset is to consider each financial transaction as a true investment in you and your future. If it isn’t a good investment, then perhaps you should rethink spending the money.

You can invest in yourself by buying fresh organic produce. It could be an investment in your wealth, like taking out a certificate of deposit. Another type of investment is a flashlight or emergency kit for your car – an investment in your safety.

Whatever the financial transaction, consider whether it is a true investment in you and your overall goals, or whether it is really an expense. Life isn’t without expenses, but address investments in you first and foremost, then consider spending on other things.

If you aren’t investing in you and your future, then chances are good that you are investing in someone else’s. Here are a couple of stories about personal investment.

Frugal people recognize the value of items. The cost of an item is one thing, but recognizing its value is much more important. The frugal individual tries to minimize cost, but recognizes the difference between cheap stuff and items of high value. The key is to get the best value at the lowest cost. Cheap stuff can be just that, and it may not be worth purchasing.

Once we understand the dollar equivalent of something, it allows us to determine the relative value of items, activities and services based on what we think we will get out of it. In other words, it allows us to compare apples to oranges, because we know the price that is being asked for both as well as other factors that we value.

When considering the value of an item, activity or service, the frugal mind will look at cost and other value-related aspects of the purchase like:

• Unit price ($ per pound or ounce)
• Convenience
• Shelf life (ability to store it)
• Life expectancy
• Versatility (does it have multiple uses?)
• Functionality (is it as useful as they claim?)
• Cost of maintenance
• Cost and availability of replacement parts
• Durability
• Warranty or service plan
• Taste
• Strength
• Quality of construction or assembly
• Appearance
• Safety risks

Example: Years ago tiny computers came out just about the time PCs were becoming common. I know someone who bought one, expecting to store lots of records using this device. Was this of value to the purchaser?

First, the tiny keyboard was a pain – it wasn’t built for regular size fingers. It was fine if you were a person that stood about 18 inches tall. Second, what records do you really need to type into this tiny computer and store? Isn’t it just a whole lot easier and less costly to keep the paper records in a folder somewhere instead of transcribing them? I thought so too.

In the above example, the versatility and functionality was over estimated. I also think that the purchaser got enamored with the idea of owning a computer of some sort. These are the sales traps that advertisers and retailers set for you. Your job is not to fall into the traps.

The bottom line is to keep the value of an item in perspective, and you can avoid talking yourself into buying cheap stuff that is unworthy or unnecessary.

Let’s look at some examples of comparing value in something, instead of just price comparisons.

A frugal person keeps things in perspective, so cost and value judgments are easier to make. Toothpaste and other small purchases provide examples of times when we might lose our perspective when it comes to money.

Let’s say that one tube of toothpaste costs about $2. Another brand costs $3.50 for the same size, but it has the taste we like. Which one would you buy?

If we only look at the cost and consider that both do the same job, we might choose the cheaper brand because the more expensive brand costs 75% more. At first, this seems like a reasonable decision. After all, we wouldn’t spend $5.68 for a gallon of gasoline when we can get gas elsewhere for $3.25 a gallon.

If we keep that toothpaste decision in proper perspective, we will recognize that a tube of toothpaste every six months will result in a $3 cost or savings each year – not exactly something that we should be excited about. So, we should spend the extra $3 a year and get something that we will enjoy using each day

Keeping things in perspective means, among other things, that saving money of any significant amount will only come from larger and more frequent purchases, where you spend more, not minor or infrequent ones like toothpaste.

A frugal person resists peer pressure. Keeping a strong resistance to peer pressure will help you stay focused on personal goals.

Pressure to spend money exerted by peers can be hard to take, especially if we are inexperienced or have trouble with our self-esteem. We are all susceptible to peer pressure to some extent and for different reasons.

Here are some examples of why our peers exert pressure on us to make spending decisions that might be contrary to our plans:

• They want someone to have or do something that they have or do, just to feel like we are all part of the same “club”. The more “members” there are in the club, the better everyone feels. If you are not part of the "club" then you are an outsider.

• It’s easier for others to see what we should do with our money simply because it isn’t their money.

• They think others should behave like them, simply because that is the “norm” they are most familiar with.

Peers often give us strange looks when we march to a different drummer. A true friend might watch with great interest, but he/she won’t care.

Henry David Thoreau reminds us: "If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away."

Let’s look at an example of peer pressure from my professional career.

A frugal person will delay gratification. A key to financial freedom and a cornerstone of upward mobility is the ability to delay gratification – to be satisfied with what you have now, knowing that greater satisfaction, fulfillment and indulgence will come later.

I can’t say that I learned much in college that I have put to use in my professional career, but I do remember one professor making a point that individuals that are upwardly mobile are most likely those that practice delayed gratification.

This point stuck with me, as I notice that this is exactly what my frugal family had done. Seeing evidence that his comment was correct, I added this to my mindset of frugality. That meant I was willing to wait on discretionary spending until something worthwhile came along. It made sense to me.

If you look at advertising, you’ll see that there is an ongoing battle to get you to gratify yourself now. From the seller’s perspective, that is a great idea as that makes income for them now.

From your perspective, immediate gratification is not always a good idea since it chips away at your wealth accumulation and might delay or prevent you from obtaining something worthwhile – an item or situation that you are planning for.

I like to think of delayed gratification as celebrating after you cross the finish line, not every few hundred feet as you race around the track. Wait until you have made your significant accomplishments, then "pop the cork" and celebrate.

Let’s look at some examples of delayed gratification versus immediate gratification.

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