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The most underrated financial principle


JOHANNESBURG – In the world of finance there are a few themes that are repeated to the point where you really have to be quite creative to add more flavour to the topic.

The wonder of compound interest, starting to save early, the impact of inflation and of course “if an investment sounds too good to be true, it probably is” come to mind.

A financial principle that rarely gets discussed though, at least in any meaningful manner, is frugality.

A quick find search on my computer, which contains hundreds of transcripts and articles I’ve written for Moneyweb over the past two and a half years, suggests that the topic was raised on only three occasions. Of course this is a horribly unscientific exercise and one shouldn’t read much into it, but it does provide some insight into the point I am trying to make: Frugality is seldom considered at investment seminars or during interviews and one would be hard-pressed to find an investment firm, retailer or other business advocating it.

There are logical reasons for this: Retailers wouldn’t have any customers if they started preaching a frugal approach (assuming such an attitude could even be taught successfully). Even on the investment side, advertising companies will probably have a trying time turning the concept into something investors could relate to. Being frugal is difficult. In investment terms it means making lifestyle sacrifices that can be uncomfortable – especially where friends, family members and colleagues flaunt their new cars or boast about their holiday homes or overseas holidays.

One of the survey participants in this year’s Sanlam Benchmark Survey perfectly summed up the “spend what you have” approach so prevalent in South Africa when she said: “I have learned this from my boyfriend. He says however much money you have left in your bank account, divide it by how many days there are left in the month and that’s how much money you can spend today. He is brilliant with his money.”

South Africa is a nation of spenders. We live in a consumption-driven economy often fuelled by credit, which means that consumers frequently artificially enhance their living standards not realising the impact debt can have on their finances over time.

Of course with very low real interest rates there are also structural reasons why consumers aren’t saving and investing.

More than semantics

The Oxford Advanced Learner’s Dictionary defines “frugal” as “using only as much money or food as is necessary”.

But in financial planning terms being frugal is about more than this: it is about understanding that just because you can afford something it doesn’t necessarily mean that you should have it. It is about realising that saving to buy a less expensive car in cash (or at least putting down a larger deposit) can go a long way when creating wealth. It is about appreciating that making sacrifices today will help ensure a more prosperous financial future tomorrow.

‘No one ever got rich by saving’

Of course, the world’s richest people are typically entrepreneurs who didn’t primarily accumulate their billions by being frugal.

However, there are several people who have used this strategy to their benefit in a very successful manner.

The principle is preached by blogger Mr Money Mustache who argues that “spending much less than you earn is the way to get rich”.

“If you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37,” the “financial magician” who retired at the age of 30 writes on his blog.

For most of us, saving 50% of our take-home pay is completely unrealistic, but increasing the current savings percentage (however low it may be) by just a few percentage points can make a significant difference over time.

In fact, a frugal lifestyle is something many of the millionaires interviewed for the The Millionnaire Next Door: The Surprising Secrets of America’s Wealthy, a book written by Thomas J. Stanley and William D. Danko had in common.

At a recent investment seminar one speaker told a story about the late wife of one of South Africa’s billionaires who apparently bumped into a friend at the local Checkers while doing grocery shopping. She greeted the friend saying something along the lines of: “So glad to see you shop at Checkers. Only rich people shop at Woolies.”

I have no idea if this actually happened, but I do believe the merits of a frugal lifestyle are highly underestimated by the vast majority of South Africans.

Closer to home

At the beginning of my financial journalism career I worked as a subeditor. While I learned a great deal during the period, rewriting other people’s articles isn’t really my forte and I can’t remember all that much about the stories I edited during that time.

But there is one article I recall vividly. It was a letter written by a reader in his late forties. His daughter had just matriculated with several distinctions and she was very excited about going to university.

Unfortunately the father had accumulated so much debt over the years by keeping up with the Joneses that there was no way he could help her pay for her tertiary education. By his own account his extravagant lifestyle had caught up with him.

The story struck a cord, probably because it was so strikingly different from my own situation. My parents, two middle class salary earners, made many financial sacrifices over the years to send me and my brother and sister to university. These sacrifices meant that we could all get a degree without any of us (or my parents) ever having to incur a cent of debt.

I am forever grateful for this as it allowed me to start my own financial journey without the added burden of debt.

To my mind, frugality is the most underrated financial principle.

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Agree 100%. But similarly, exercise and correct diet can lead to a perfect healthy body. Problem is: we all know this but do not do it! Thanks however, for the reminder. I will pass this on to the wife before I leave on my expensive fishing and golfing trip in Bahamas!!

There is no universal correct diet, and it is hard to determine the right amount of exercise that is optimal for any particular individual.

It’s imperative to have a budget. There are several free apps that can be used, or simply set up your own in Excel. Importantly, make it a *fun* exercise, so you don’t get bored. Try to record all expenses. Jot them down as they arise, and update your budget every day. I use an Excel date function to calculate how much I can spend each day until the end of the budget period.

Beyond consuming less that what you have, the concept of frugality can be broadened to include value, individual perceptions of value, and what value is relative to human needs and wants, which sadly, remain foreign to the average, solely brand-consciousness driven South African.

Examples include,
Do you use all of your pricey phone’s features ?
How much of your car’s tech and power do you use ?
Do the portion sizes at my favorite food outlet warrant the price ?
How much am I paying at Woolies (sorry Woolies, you are just an easy target) for the experience vs the goods in my trolley ? Etc Etc….

It’s through understanding what getting ‘value for money, Rand by Rand’ is, first and foremost, that one can then know how to spend less than what they can afford.
I think it’s called Financial Literacy, there are too many clueless people out there with money to burn, that status-themed advertising will continue to attract.

Many years ago when I was a student at Stellenbosch University, I once rode on my bicycle past the late Dr Anton Rupert’s house. I overheard his wife tell the gardener “How can you let the garden hose run when it is not necessary? Water is so expensive.” I struck me there and then, that people who have money do so, because they are frugal with what they have and because they don’t waste it. Like your story about the girl with the many distinctions, I learned a valuable lesson from it, which i never forgot. Of course, I hate it when people are tight-fisted and e.g. cut matches in half to save money. However, vanity purchases such as cars are the downfall of many South Africans.

Agree all round especially Cars cars cars it seems to be an SA man thing. They are the biggest but if you as a man does not do the car thing before patting yourself on the back think of the other stuff you do. Knives, guns, watches generally bling can also be a bad vice.
I watched through my life others enjoying themselves while I tightened my belt. My ex also used to say “but you are worth so much blah blah blah, why can’t we also….” Used to tell her there was free cash and then not free cash. Not free cash was accumulating/invested to accumulate for later. Free cash could be used for the day to day. I think it paid off, retired at 59, have a great life still frugal but do the things I held back on, not overseas trips but treat myself occasionally.

Why isn’t this principle being taught in school? Instead of sharing random facts about AIDS in our school system (during Life Orientation class), why not teach them how to save and the principle of compound interest? It would solve a lot of problems in SA.

What is cash anyway? Live a frugal life and then you die rich. Your kids will surely not appreciate your sacrifice. What is wrong with driving a nice car?

There are nice BIG cars, which cost an arm and a leg. There are also nice small cars, which do not reduce you to penury. Small cars also have the advantage of coming with indicator lights, which apparently are not fitted to the big ones (or rather the use of them is considered by the drivers to be beneath their dignity).

An excellent article, thanks for the reminder. We call the envelope system! I agree that it should be taught in school and parents should teach their children this important principle.

Yes, but if everyone become adopted a frugal lifestyle we would be in a recession for ever.

Not so, frugality will lead to surplus, and after a few (or many?) years of surplus there will be enough to enjoy the fruits of frugality.

Bravo on this article! I’ve been reading MoneyWeb for a while now and I’m so excited to see frugality highlighted. I’m also a Mr Money Mustache reader so nice to see him get a mention here. My wife and I have recently started a blog ( about living frugally and seeking financial independence in South Africa – hopefully serve the purpose of increasing financial literacy. We’re both teachers and we do spend time trying to teach some of these basic principles to our students.

If I’d saved like that I’d have missed out on a lot of enjoyment in my younger days, and of things I simply could no longer do when I was older.

End of comments.





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