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Personal Finance Saving- What the Rich Know

Personal Finance Saving-

“You don’t get rich by giving it away.” This old adage might sound obvious, but its message of frugality actually carries some vitally important lessons for anyone who aspires to improve their financial situation. We think of rich people as having enough money to spend on whatever they like, but you might be surprised to learn the lengths that some of the better off go to get the best for less – or even for free. Let’s take a look at some of the secrets the seemingly well off use to live in comfort and style without needing to spend a fortune.

 How the Wealthy Practice Frugality

Personal Finance SavingThe self-made rich understand the value of money, because they had to work for it. Often working 16 hour days in thier own business for years before they became “an overnight success”. Which means they don’t let misplaced pride get in the way of securing a bargain. The frugal wealthy have long since gotten over their qualms around dumpster diving or curbside shopping. After all, when someone discards a beautiful antique by the side of the road, why wouldn’t you take it home with you? Next time you’re at a church rummage sale, take a look around the car park; you’ll see plenty of Mercedes among the beaten up station wagons. The wealthy know a good deal when they see one, and they aren’t afraid to take advantage of it.

And that old pick-up truck might just belong to a millionaire. In his excellent book, The Millionaire Next Door Thomas Stanley tells how millionaires often drive older cars (or trucks),  shop at Salvation Army or Good Will and live in ordinary houses. Even Warren Buffet one of the richest men in America, lives in an ordinary house in an ordinary neighborhood.

Why Swallowing Your Pride Makes Financial Sense

You can use the same tricks. All you need to do is swallow your pride and admit that paying full price doesn’t make financial sense when it comes to saving your personal finances. As well as scouting out and frequenting the best sources of second-hand bargains, such as local thrift shops and garage sales, you can also shave a significant slice off the cost of new items by using coupons. Get into the habit of searching for online coupons whenever you make a significant purchase online: you could save yourself tens or even hundreds of dollars simply by entering a code at checkout.

Don’t Forget Quality

Of course, an eye for quality is key. There’s no point in buying something simply because it’s cheap if the quality is so poor that you’ll end up chucking it before long. When it comes to major purchases that you expect to keep for several years, it’s worth holding out (saving up?) for quality rather than getting by on budget items. However, that doesn’t mean you can’t save money by buying second-hand items in good condition. Keep an eye on listing sites such as Freecycle and Craigslist: sometimes people give away quality items for free simply because they are moving or clearing out their home.

The rich know that quality is the key… not price. Suppose a cheap desk costs $150 and will last 2 to 3 years before it falls apart. But for $450 you can buy a quality piece of furniture that your grandchildren can still use. Which is cheaper? You have to look at the cost per year.  The first one costs $50/yr. ($150 /3). The second one costs $15/yr or even less ($450/30+), of course in order for quality to retain its value you have to take good care of it (another trick the rich know, take care of your stuff).

Keep Track of Your Finances

What’s most important is having an awareness of where your money goes and where you can easily cut back without sacrificing your quality of life. One of the tricks that better-off people use is to frequently review their major expenses, such as utility bills and insurance costs, and ask whether they could save money by switching to a cheaper provider. Similarly, many take advantage of the best interest rates on savings and loans as a way of making their money work for them.

The rich also understand the difference between assets and income. You can be a multi-millionaire but be cash poor if all your money is tied-up in something illiquid like Real Estate. In order to pay your monthly bills, you have to have cash flow i.e. more money coming in than going out. If you don’t you will have to dip into your assets to pay your bills. The rich know never to dip into their assets, if they can’t buy it from current cash flow they don’t buy it. In other words, they don’t use credit cards they can’t pay off every month or home equity loans or worse yet payday loans.

Incidentially, cash flow can come from several sources. Personal labor, business income, royalties, investment Income, etc. The rich undestand that not all sources of income are equal. Labor is the worst source because you only have so many hours you can trade for dollars and there is a maximumum you can charge per hour. So labor income is finite. Next comes business income, theoretically, you can grow your business, hire workers and multiply your efforts but you still have to work. Finally at the top of the pyramid are sources of passive income like royalties, investment income and other sources that require minimal inputs of your time and effort but continue to pay out year after year. An excellent book on how the Rich think is Felix Dennis’ How to Get Rich: One of the World’s Greatest Entrepreneurs Shares His Secrets.

Live Frugally, Not Poorly

Living frugally is not incompatible with living in comfort and style. By honing your bargain-spotting skills, using coupons, buying wisely, and managing your income vs. expenses, you can have it all without sacrificing quality of life.

See Also:

The Wealthy Buy Assets, the Poor Buy Liabilities, and the Middle Class Buy Liabilities Believing They Are Assets

Large Family? Check Out Four Ways to Save on Health Insurance

How to Save Money on Surf Clothing and Equipment

Earning More Money is Not the Answer

3 Easy Ways to Cut Expenses Quickly

Budgeting for Groceries

10 Ways To Teach Your Children About Money

About the Author:

This article was contributed by Hayley Russell for TastyBingo.com – learn more on how to earn free bonuses at TastyBingo.com.

Photo Credits: By dmdonahoo Mel #123