Frugalists are people who start saving a lot early by living frugally in order to become financially independent at a young age.
They optimize their spending by examining their fixed costs in order to invest even more in ETFs – without giving up things that make them really happy.
Here are six money-saving tips from frugalists.
Leaving work behind forever through frugalism at the age of 40 or even earlier – and without any inheritance or winning the lottery: What sounds like a dream that sounds too good to be true is the declared mission of the so-called frugalists. They don’t want to wait until they are in their mid or late 60s to turn their backs on the world of work. They fulfill their dream with a mixture of optimizing their expenses and investing a high proportion of the money saved in this way.
With these six tips you can also become a frugalist:
1. Frugalists keep a budget book
The budget book lists all income and expenses and becomes the basis of your expenditure optimization, many frugalists say. It doesn’t have to be an actual book—an Excel spreadsheet works wonders here. Divided into fixed and everyday costs, the largest items should get your attention first. Once written down, you really become aware of many expenses and their magnitude.
Being able to monitor your own progress after a few months is an additional motivation on the way to financial independence.
2. These fixed costs can be reduced, according to frugalists
For many, the biggest item is rent – would a smaller apartment suffice? Can I imagine living in a shared apartment or in a cheaper corner of the city? Living close to your workplace is particularly advisable, as some frugalists advise that you might even be able to switch from the car or bus to your bike.
Even when it comes to cell phone, electricity and internet providers, habit probably plays a bigger role for most of the price. Checking the prices regularly on comparison portals can be worthwhile. Many even offer a switching service where the new provider takes care of the paperwork.
Also, ditch subscriptions to streaming services that you don’t use much — Spotify, Netflix, Amazon Prime Video, and Disney Plus can all add up to a big cost. Which providers can you do without? Anyone who regularly monitors their expenses is well on the way to frugalism.
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3. What makes you really happy?
The frugalist Florian Wagner recommends being aware of which of the expenses are actually necessary to be happy. Frugalist Oliver Noelting also emphasizes that it’s not about letting thrift take the fun out of life – friendships, relationships and many hobbies are completely free of charge.
They advise asking yourself whether expensive material purchases are not more of a compensation for being dissatisfied with other things in life. We often want to “reward” ourselves with expensive items, for example for hard work – if you enjoy your job or get your “reward” from somewhere else, you don’t have these expenses.
If a new purchase is necessary, many frugalists recommend using second-hand portals such as Ebay. After all, very few items have to be really new in order to fulfill their function. What you no longer need can be sold here just as easily.
Frugalist Oliver Nölting, for example, says you shouldn’t let the little things in everyday life that save you a few cents stop you. This beginner’s mistake often costs a lot more time and only makes life unnecessarily difficult – sifting through discount store brochures or meticulously saving water in the household, for example.
FAQ: Frugalism
What is a frugalist?
Frugalists are people who want to achieve a high savings rate through frugal living in order to become financially independent early on. They are financially independent when they can live off their assets alone and are no longer dependent on a job.
How much money do you need for that?
That depends on your lifestyle and the expenses involved. Frugalism calculators can help plan savings rates and withdrawal rates, taking into account accumulated wealth and annual returns.
How much do frugalists save?
According to “statesmanBefore the pandemic, it was around ten percent on average. Frugalists want to save significantly more: Some frugalists describe themselves as such from as little as 30 percent, while others save 80 percent and more.
How is frugalism possible with high inflation?
High inflation makes frugalism more difficult. Because inflation rates are averages, some areas will increase more than others, including electricity, gas, petrol and heating oil. Saving here is worth more. There are many ideas – an electric heating blanket, for example, provides just as much heat, but is much more economical than heating the whole apartment.
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4. Know your savings rate
Once the household book is finished, you can calculate your savings rate. The savings rate then describes what percentage is left to save per year. It is an important tool for anyone wanting to start with frugalism. For example, if you have a net income of 30,000 euros a year and 20,000 euros in expenses, you have a savings rate of 33.3 percent.
The aim is to bring the savings rate as high as possible, after all, the savings should one day provide the income to replace the job. The higher the savings rate, the sooner frugalists can live off the capital gains. Frugalists can gradually increase their savings rate as they gain experience living frugally and climbing the corporate ladder.
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5. Frugalists invest their savings
Frugalists invest their savings in stocks. The assets grow slowly through price gains and dividends, which in turn can be reinvested. You don’t have to be a Warren Buffett to become a frugalist. That’s why the majority prefer ETFs, which limit their risk and have relatively stable returns on average. As a rule of thumb, frugalists expect a return of four to five percent a year.
Real estate is another strategy. The plan here is that the rental income sufficiently covers the costs to cover the loan and at some point only the maintenance costs are offset.
6. Frugalists plan a withdrawal strategy
Before you quit your job, you should plan exactly how much you’ll be taking out of your savings each year. Good planning is essential here, say frugalists. Ultimately, income from your stock portfolio will fluctuate, no matter how well diversified, and will never be free of risk.
If you take out too much too early, you may end up bankrupt in old age. If you plan with too few withdrawals, you will fall short of your potential. The rule of thumb in frugalist circles is four percent withdrawal per year. Oliver Noelting, operator of the frugalisten blog “frugalists.de”, has one on his site Frugalist Calculatorwhich can be used to calculate a withdrawal rate from the savings rate and the expected average rate of return.
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Disclaimer: Stocks, cryptocurrencies and investments are always associated with risk. A total loss of the invested capital cannot be ruled out either. The published articles, data and forecasts are not an invitation to buy or sell securities or rights. They also do not replace professional advice.