Saving: A Lesson In Frugality

Courtesy of http://www.canindia.com

“I have learned to seek my happiness by limiting my desires, rather than in attempting to satisfy them.” John Stuart Mill

“He who does not economize will have to agonize.” 
Confucius

“Without frugality none can be rich, and with it very few would be poor.” 
Samuel Johnson

Proverbs 13:7

One man considers himself rich, yet has nothing [to keep permanently]: another man considers himself poor, yet has great [and indestructible] riches.

Ever since that day 7 years ago (it is 2014 at the time of this writing) when I read Robert Kiyosaki’s book, “Rich Dad, Poor Dad 3: What The Rich Invest In That The Poor And Middle Class Do Not,” that I started to think incessantly and considerably about the concept of saving. I looked at so many articles on About.com on the matter and watched plenty of Youtube videos as well. I tried to learn as much as I could. 

I found out how saving coincided with investing. That was an interesting and irritating discovery. Interesting because both have to do with the discipline of waiting in order to grow, and suppressing the desire to consume the money in any way. Irritating because it meant understanding as much as possible about investing (which feels like studying for a one-and-a-half to two-year college degree), and finding out which avenue I am most intrigued with and most likely to be skilled at.That would mean learning through trial and error and finding the balance  between the amount to be saved, the amount to be invested and thus leaving me with the amount to be spent. All this obviously cannot take place without the most crucial part: budgeting. 

My 5 stage process

The discipline required to follow through with this is very heavy. It is definitely not for the faint-hearted. For one to claim they can, or at the least, have the means and/or ability to apply them, must surely be put to the test. It is something I am doing my best to apply as well and I admit that sacrifices have been made in the process but are necessary for further financial development so as to reduce the amount of sacrifices in the future. 

Stage 1: Tithe

My ultimate tithing goal is to get from 10% of my income to 90% of my income. Essentially the first thing I do is to set aside 10% and tithe that only as often as I receive the pay check. In other words if you receive it weekly then you tithe weekly. If you receive it monthly then you do it monthly too. I currently do a single tithe (10%). I want to get to a point where I give double tithe, then triple, four-fold, 50% all the way up to 90%.. Giving that much to me is the greatest evidence of financial success. Yes there are a lot of people talking about financial freedom which is awesome, and if that is to be obtained, then I believe in addition to doing homework as to how and deciding how badly you want it and how hard you’re willing to work for it, you go at it with all your heart and give just as you have received.

Stage 2: Budgeting

NB: A budget is telling your money what to do instead of wondering where it went.

The main rule for this is Every dollar/rand (your currency) has a name. What does that mean?  I love the session on Wealth, Wisdom and the World that Dave Ramsey gave. He basically talked about how important it is to literally name the assignment every penny has. Spendthrifts have a good attitude in this department. They are constantly thinking about what assignment their next wage, salary, pocket money and allowance is going to get. The only problem is their application of it. They plan this mentally but not practically. In other words, it is not written down. I know motivational speakers on goal-setting talk about how the writing down is half the goal being fulfilled. I have sections (in my budget) for why the money is being used in that area not just where.

Stage 3: Saving

After finding out where and why the money goes to where it goes, I decide how much of the remainder will be saved. This is where the sacrifice comes to play. It is in the making absolute certain that there is always something to be saved. That would mean telling someone that you do not have cash (to spare) for them at that point in time. You would be reducing the number of people and times you say that the bigger your savings gets. Another sacrifice is shortening the Personal category in the budget list. Eating out, going to arcades/theme parks, spas, concerts and so on may need to be done fewer times in the month, just to start off. As time goes by you will find that you will be able to do all those things more often and still save money. How awesome is that!

I tax myself the amount that should be saved from every purchase. I begin with 5% then as my budget for anything and/or everything increases, so does my tax for saving. It helps a lot.

Why Save?

A few reasons:

1. It’s for a rainy day. Emergencies (which you should have a separate account for); helping family members or friends out of a real pinch; unexpected pregnancy. I don’t even know how that makes sense. A job lay off.
2. Spending with cash. I hate credit cards unless I have absolutely no other choice. There is nothing like “buy now and pay later” unless you have a plan for reconciling the debt you incur on that purchase. It is so much work finding out how you’re going to get out of debt knowing that you will get into it, when it can be avoided altogether.
3. For a long term investment so that you can retire with dignity and you can send your kids to college.

Stage 4: Investing

After setting aside the amount to be saved for the month, I find out how much from the savings is to be invested. If I see that I can save $500 then I decide that $250 is to be invested then that is what I go for. Of course there may be months where the investing plans work out in such a way that you will have to take all the savings (from the budget you form not the savings account) and invest that. When faced with such a decision I then plan how much of the R.O.I (returns on investment) will be saved. Basically the roles are reversed. The best thing with this strategy is that you have money growing for you while you earn some too.

Stage 5: Spending

This is where stage 2 comes in handy. Everything in the budget takes priority. That may sound like a common sense statement but the term, “Spendthrifts,” would not exist if it was. Tick off everything that you have chosen to spend cash on and then the remainder is essentially Pocket Money. You can either have a separate account just for pocket money or you have two parts for your savings account: General and Pocket Money. However you do it, make sure you know that it is your pocket money at the end of the day and not confuse it with anything else. The fun part comes when you get to include the items in the Personal part of the budget. It is a whole different feeling when you spend money on something you like after having planned on paper/screen for it. 

Conclusion

I don’t know why but I love being frugal, even the idea of being frugal is exciting. Some people would be like, “What? What does that even mean?” I believe it is the lesson in these passages:

Better is he who is lightly esteemed but works for his own support than he who assumes honour for himself and lacks bread. Proverbs 12:9

It is all about taking it one step at a time:

Wealth [not earned but] won in haste or unjustly or from the production of things for vain or detrimental use [such riches] will dwindle away, but he who gathers little by little will increase [his riches]. Proverbs 13:11

Work as hard as you can, as much as you can:

He who tills his land shall be satisfied with bread, but he who follows worthless pursuits is lacking in sense and is without understanding. Proverbs 12:11

Plan your recovery from disaster i.e debt

The rich rule over the poor, and the borrower is servant to the lender Proverbs 22:7

Save what you can, then save more than you can:

There are precious treasures and oil in the dwelling of the wise, but a self-confident and foolish man swallows it up and wastes it Proverbs 21:20

Remember to budget well and include a reconciliation plan in case you spend more than you budgeted for:

A man’s mind plans his way, but the Lord directs his steps and makes them sure. Proverbs 16:9

Know your investments and be skilled in your vehicle of choice ([a]stocks, which includes bonds, mutual funds, ETF’s [exchange trade fund], shares etc, [b] real estate which includes, houses, apartments, flats etc, [c], businesses which includes clothing stores, shopping centres, food courts, jewellery stores, hardware stores, computer stores etc, [d] commodities like crops and other items):

Cast your bread upon the waters, for you will find it after many days. Give a portion to seven, or even to eight, for you know not what disaster may happen on earth. If the clouds are full of rain, they empty themselves on the earth, and if a tree falls to the south or to the north, in the place where the tree falls, there it will lie. He who observes the wind will not sow, and he who regards the clouds will not reap. As you do not know the way the spirit comes to the bones in the womb of a woman with child, so you do not know the work of God who makes everything. Ecclesiastes 11:1-6.