Today I was at the universities book store looking at the “required” text book for my International Economics course. Looking down at the different price tags I saw a giant $90 starring back at me, and boy was I disappointed. Just yesterday I had bought 2 other books, costing me $150 each. Spending $390 in two days is a lot, especially when there are other school expenses.This experience struck a cord in my mind and I started thinking a lot about being more frugal and the effects. So here are some things that I think everybody should know about frugality.

Controlling how much money you spend on purchases does not create wealth and will not have a large impact on when you retire or how much you save, it does not have a long term effect. At first it may make sense that purchasing your normal goods will allow you to save money and thus create a larger nest egg.

The problem is that is money is in small increments and generally not accurately tracked, so it is hard to find that $10 you saved a on pair pants. You may however find yourself with $150 more in your bank account at the end of the month then you started with, but what to do with this? The vast majority of people will see this additional cash and end up spending it something they might normally have bought. People have the tendency to spend money they have, and once they know they have more money then they thought they will find a way to spend it.

Now you should take this money out of your savings/checking account right away and invest it. That way the money is out of view, just like the saying “out of sight, out of mind”.You will soon forget about the money, which is what you should do. However if you do this why don’t you just save like I suggest in my previous article; The How to, On Saving Money.

So at this point you may think that I hate saving money on purchases and being frugal (and your partially right ). However there is one thing very important to know: Being frugal does have short term results, and these results are very helpful. When I saw those price tags on the text books, I instantly thought “good thing I just reduced my cell phone bill and withdrew all my online poker money”. If it wasn’t for being cheap, paying for those books would have put a serious dent in my short term cash (I’m referring to my very liquid assets and not investments or long term accounts) . This thought confirms my earlier statements about being frugal, it was only a couple days after reducing my expenses and I already managed to spend the extra money.

I just wanted to show people that being frugal is a short-term solution and not long-term. If you really want to build wealth, you need to save properly, invest and build new income streams.

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Filed under: Frugal, Saving