My close friends and colleagues call me frugal. I make good money so why don’t I live a more lavish lifestyle? The answer is because I want to retire young and wealthy. Being frugal is the cornerstone of wealth-building. It’s not how much you make that’s important but how much you save. Famous people who made lots and lots of money but filed bankruptcy anyway include Mike Tyson (boxer), Donald Trump (entrepreneur), Anna Nicole Smith (model-actress), Ted Nugent (rock star), Robert Kiyosaki (Rich Dad, Poor Dad author), and Larry King (talk show host).
Let me illustrate the relationship between frugality and wealth accumulation by an example. Mr. Bob Works-a-lot is 22 years old and a recent college graduate. He works really hard at his career and often stays late ever in search for that next promotion. He leaves work every night exhausted and stops off at Burger World five times a week for his favorite super burger meal which costs $7. He stops off at Burger World because it is on his way home and feels too tired to cook. He continues this routine throughout his working life (Bob retires at age 67).
How much do you think Bob could have earned if instead of buying the burger meal he invested that $7 in an IRA or another investment account? Let’s see the table to find out (assumes 10% annual return):
|Daily Investment||Monthly Investment ($35 per week x 4)||10years||20years||40years||45years|
The dollar amount is staggering. Those burger meals cost Bob $1,084,202 over his working career. Bob could have retired a millionaire if he did not eat those burger meals.
I hope you got the point of the story. The “burger meal” actually represents anything you buy that is non-essential. For example, your burger meal could represent buying clothes retail instead of waiting until they are on sale. It could represent eating at an expensive restaurant instead of at a less expensive restaurant or eating out more frequently than you really need to. I am not suggesting that you never buy anything. You have to live a little and enjoy life somewhat. However, what I am suggesting is that you need to have a plan to spend less and be more frugal than you are currently.
Reducing spending on non-essentials and investing money regularly are two of the best methods for creating wealth. Here is a partial list of companies I like that offer no-load mutual funds:
- Vanguard www.vanguard.com 877-662-7447
- Fidelity Investments www.fidelity.com 800-Fidelity
- Dodge and Cox www.dodgeandcox.com 800-621-397
Check them out and see if you feel comfortable with any of them. If you do not know much about investing, that is okay. I will delve more deeply into personal finance, analyzing and investing in the stock market, investing in real estate, and choosing financial professionals in future posts.
Of course there will always be some individuals who just don’t get it and say “I am going to purchase my burger meal whenever and wherever I want to and I don’t care what anyone else says I should do. Life is too short.” That is fine. We all make choices in this world. I choose to be wealthy and retire young.