How can you live a frugal life with simple rules and save more and more money every week,
every month and every year? Frugal living doesn't have to be complicated,
so today we're going to give you the only 5 rules you need to enjoy all the financial
benefits of frugal living. By following these rules, you'll be able to save more money and
achieve your financial goals simple and easy. As an example, one of these rules was the
main reason why people like Warren Buffett managed to build a big fortune and become
financially successful and in this video you will see how you can use this rule and 4 others
for yourself and your life. But before we dive into the topic : Hello
and welcome back to our channel ! And if you are new here : We are the finance nerds and
on this channel we are helping hardworking people like you to get more out of your hard
earned money by showing you how to use your money in the most effective way. Remember
to give this video a thumbs up at the end, if you got value out of it and now let’s
start. Know your financial Situation
The first rule is that you need to completely understand your financial situation. What
do I mean by that? You need to know exactly how much you earn, what your expenses are
and also how much you want to save and invest. So to sum it up: Understand exactly where
every dollar is going. If you skip this step it will be very hard to reach your financial
goals. It is the foundation of frugal living and everything else is built on understanding
what your financial situation is. But how exactly do you go about it?
I use 2 tools to understand and track my financial situation.
The first tool is a Net Worth Tracking sheet, where I document my assets and also my liabilities.
My assets include things like: my IRA, real estate, my portfolio, cryptocurrencies, savings
and also my cars. Under my liabilities fall things such as: mortgage, debt and so on.
I use a simple spreadsheet for this and if you want, I can do another video on how to
create a Net Worth Tracking Sheet for yourself. Just write me a comment with the word "Net
Worth Tracking Sheet'' and I will make a special video about it.
The 2nd tool is a simple budget that I keep weekly and track all my income and expenses
week by week. I'll link you to a video in the upper right where I show you how to create
such a budget for yourself within 10 minutes.
Live Below Your Means The 2nd rule is to live below your means.
This rule is where the magic begins, but you can't really implement it until you heed the
first rule, because if you don't know what your financial situation is, you can't determine
what it means for you to live below your means. With this rule you start to create the capital
that you can then use for your savings and investments that will bring you to your financial
goals. To live below your means, there are ultimately only 2 ways, which a viewer summed
up perfectly in a comment under a video of mine just the other day. ,,Either increase
your income (while avoiding the rise of living creep) and/or decrease your cost of living’’
So, to live below your means you either have to reduce your expenses, i.e. spend less money,
or increase your income, i.e. earn more money. This means that you have to increase the difference
between income and expenses and then spend less than you earn. The easiest way is to
reduce your expenses by identifying unnecessary expenses and then avoiding them completely,
such as subscriptions that you no longer use. So now, when you implement the first rule
for yourself, look at your expenses and ask yourself which ones you can avoid or reduce
in the future to increase the difference between income and expenses.
Know the difference between spending and investing The 3rd rule is that you need to understand
the difference between "spending" and "investing" and then put your priority on investing your
money so that you can make your money work for you.
Investments are things where you get assets in exchange for your money that either make
you more money or give your money a higher value such as when you buy shares in companies
with your money and get a return and possibly dividends on your invested capital. Expenses
on the other hand are things that don't give you a long term benefit or even give your
money a lower value such as overpriced clothing. Living a frugal life does not mean that you
should always choose to invest from now on, but that you know the difference and that
you should rather let your income, i.e. your money, work for you most of the time.
Avoid Consumer Debt The 4th rule is that you should avoid consumer
debt at all costs. The interest rates from consumer debt are like taxes for people who
live beyond their means. They reduce your income and therefore the amount you can save
and invest. There is of course the other option of incurring debt to invest in real estate,
for example, but that is another topic in itself. First of all, you should focus on
not incurring any more consumer debt and if you currently still have some, make it a priority
to pay it off systematically and predictably. How can you do this? A simple and effective
way is to plan this into your budget with for example a 50-30-20 approach. You divide
your income into 50% Needs, 30% Wants and 20% Debt payments. This means that you use
20% of your income to pay off your debts and if you have really high debts, swap the 30%
Wants with the 20% Debts. Then you don't use 20% of your income for your debts, but 30%
which has the advantage that you can pay off your debts much faster and you can start using
the remaining money for savings and investments earlier.
Know the difference between WANTS and NEEDS The 5th rule is that you should know the difference
between Wants and Needs, which also ties right into the 4th rule. What's actually scary is
how few Needs we really have. These can be summed up pretty quickly and easily: Food,
A Roof Over Our Head, and Good Healthcare. Knowing the difference between Wants and Needs
is the basis for making sensible purchasing decisions and avoiding impulse buys, which
brings us back to the theme of living below your means by avoiding unnecessary spending.
If you don't learn this skill, your wants will increase and your paycheck will decrease.
Just ask yourself before every purchase if you really need this item and what purpose
it should serve. to take your financial education to the next
level -> Watch the video in the middle now where I show you the 6 Timeless Money Rules.
With these rules you will build a solid foundation and understand the money game better.
And If you enjoyed the video and now want to know more about how to take control of
your finances check out the video description. There you will find more videos and resources
to help you to have more money at the end of the month.
And remember to hit the like button and subscribe to the channel if you are new here
We hope to see you in the next video.