How Frugal Money Habits Can Help You Attain Financial Freedom

Imagine living a life where you are able to follow your passions and desires as you have total control over your finances. The idea of financial freedom makes this feasible. By taking control of your money and making smart financial decisions, you can achieve a life of true freedom and flexibility. So let's dive in and understand the path to financial freedom.

What Is Financial Freedom?

The term 'Financial Freedom' has a wide range of meanings; generally, it means being able to live your life on your own terms. When you have complete financial control over your finances and aren't stressed about how to pay your bills, you don't feel the burden of debt. Financial Freedom also focuses on your long-term future by investing in mutual funds, enhancing your knowledge, and building an emergency savings fund for unexpected expenses.

Some individuals have a misconception that if you are earning a decent amount and can pay your bills, you are financially independent or have attained financial freedom. That's not true. These two terms may look similar, but there is a slight difference.

Financial independence is the capability to be self-reliant, debt-free and gives you the power to achieve your envisioned financial goals. Whereas financial freedom is subjective, it cannot be defined or quantified specifically because the sense of financial freedom depends on an individual's ideologies about life, money, and/or ability to enjoy the lifestyle one desires, which may differ with age. Financial freedom is the freedom to do what you want, when you want, without worrying about financial constraints.

Now to achieve financial freedom, saving your hard-earned money plays a major role, and when it comes to talking about savings, you need to know a lifestyle called Frugal Living.

What Is a Frugal Lifestyle?

The cautious management of material resources, especially money, is referred to as frugality or frugal living. In addition to working hard and being disciplined, you may increase your savings by adopting new lifestyle habits, one of which is Frugal Living.

Living frugally involves making very careful financial decisions. If you follow this strategy properly, you will prioritise spending money on the things that matter and reduce unnecessary expenses. A lifestyle idea known as 'Frugal Living' strongly emphasises simplicity (living within your means and avoiding indulgences).

Frugal Living is a concept that prioritises efficiency in the use of costs. A frugal person is usually mistaken for being stingy, although that isn't always the case. A frugal person will carefully analyse the benefits to be obtained for the incurred cost and would prefer goods at reasonable prices but offering great benefits. In contrast, a person who is stingy is solely concerned with the price of an item and has little regard for its quality or advantages.

How Frugal Living Assist You to Attain Financial Freedom?

A frugal lifestyle will allow you to get a step closer to financial freedom as it accelerates the process of saving and investing to achieve your financial goals.

Here's 5 tips that will help you practise Frugal Living:

1. Start by following a budget

Creating a personal finance budget is of utmost importance and is the first step to better control over your finances. A budget is simply an estimate of income and expenditure for a set period. It incorporates the process of planning and managing your financial activities.

This budgeting exercise will give you an idea of your monthly cashflows and where to cut down on avoidable expenses to increase your savings. Creating and sticking to a monthly home budget is the best method to ensure all expenses are paid, and savings are on track. It's also a daily practice that reinforces your goals and helps you resist the impulse to splurge. It may seem like a daunting task, but it isn't. You may consider budgeting tools/apps available online, which help simplify the process and gives you a calculated budget.

[Read: 5 Simple Steps to Create Your Personal Finance Budget for 2023]

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2. Reconsider your expenses

The next step is to limit the desires or reconsider the ongoing expenses. For instance, cutting on expenses that are above the basic comfort needs like you may consider using public transport instead of private vehicles to save cost on hiked petrol prices (this is also environment-friendly). Instead of spending time scrolling through your phone on online shopping apps to stay at par with the current fashion trend or high-end gadgets, consider the concept of thrifting. Simply put, thrifting means shopping at a thrift store, where you will find gently used items at discounted prices. Considering fast-changing fashion, this is a better option.

[Read: 8 Steps to Overcome Your Shopping Addiction And Becoming Financially Healthy]

Everything from ordering food to shopping is convenient when the world is at your fingertips. You will be more enticed to make purchases of items you most likely do not need the more often you use these applications. So turn off the notifications for these apps to start or uninstall the apps. In addition, the items you bought but don't use, you can list them on the online marketplaces and exchange them for cash. You need to ensure you are not spending money on goods or services that may not add value to your future and only provide instant gratification. Cutting off on such expenses will help you enhance your savings; remember, every penny counts.

3. Avoid Any Debt Burden

Debt is a drain on your resources; exercising frugality will aid you in breaking free from financial burdens. Debt is not something wrong or to be avoided. Even though you are in debt, your finances can still be said to be stable and safe as long as it doesn't exceed 40% of the income earned.

Being debt free is one of the most crucial aspects that help you gain financial freedom. In order to become debt free, make sure you refrain from using credit cards and create a solid strategy for paying off your remaining debts. Compared to living to fulfil prestige, choosing a simple life by applying the concept of frugal living is better. You don't need to buy expensive clothes if at the end of the month you are confused about paying for a credit card. Paying off your debt burden will clear the path for surplus money in your hands, which will increase your savings.

4. Take Advantage of Windfall Income

A frugal will take advantage of any windfall income such as annual bonus or incentives etc. You should ensure to utilise your bonus in the most effective way rather than splurging it on material things. There are many ways to use this additional income, such as pay off your debt or if you do not have debt consider increasing the size of your investments, boost your emergency fund or upgrade your insurance coverage etc.

Also, some individuals are eligible for overtime at their workplace; if possible, consider taking advantage of this element to generate a surplus above your fixed monthly income. Frugality is not limited to cutting off expenses; it is also intent on how you can increase your income.

[Read: Received an Annual Bonus? Know How You Can Make the Most of It]

5. Begin Investing Early in Life

Many are hesitant to invest in market-linked products due to the fear of losses with market volatility. However, having a long-term approach mitigates the risk of short-term volatility. Yet, there has historically been no better way to make your money grow than investing in worthy avenues. The power of compounding alone will grow your wealth, provided you have a long investment horizon to attain substantial growth.

It is never too late to start investing, but you should begin investing at the earliest possible. Even your small investments will be beneficial for you in the long run. However, creating a long-term investment plan that considers your risk tolerance, investment goals, and timeline is essential. Diversify your portfolio and regularly monitor your investments to ensure they align with your long-term goals.

Having said that, one may consider investing with a goal-based approach and align their mutual fund investments with their specific goals that would help them create the required wealth in the given time. Additionally, aligning investments with goals makes investors less likely to make impulsive decisions in response to market volatility, fostering a long-term investment approach.

To conclude...

Frugal Living is not challenging to implement; it may appear like that if you have never tried to live this way. That's fine! Since this is not a one-size-fits-all approach, don't be reluctant to make changes along the way. The above-mentioned are some of the common tips that an individual may practice to adopt a frugal lifestyle. However depending on your financial situation, you may find other aspects useful.

You can save a significant part of your income by reducing fixed costs, avoiding unnecessary expenses, or gaining surplus money by selling unused items. You must also have good financial knowledge so that you can identify the best ways to increase your wealth and make investments that will yield remarkable gains.

Lastly, being frugal doesn't require making sacrifices. When you have your money under control, spending on things that matter can be more manageable. To figure out which frugal living strategies work best for you, try out a few. Consider embracing frugality as a way of life and a starting point for your journey towards financial freedom.

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.

She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.