In the world of frugal living, investments are somewhat of a myth that is rarely spoken about. After all, frugality is all about getting the most value out of your money while trying to maintain enough savings to cover any emergency situations. Frugal families know how incredibly important it is to maintain financial freedom, and it’s the secret to avoiding debt no matter what your situation is. No one wants to owe anyone else money because it can put a serious mental strain on your everyday life.
This is why investments are rarely spoken about in frugal communities. To many, investing in something seems like a massive gamble—even if you’re talking about investing into your child’s future college tuition. There’s no guarantee. Perhaps your child doesn’t want to study a certain subject, or perhaps they drop out to pursue a different career that you hadn’t anticipated. Whatever the situation, investments are difficult and if there’s a guaranteed outcome, you can’t call it an investment.
But what business do frugal people have with investments anyway? Investments are, at the end of the day, a way to make you money or give you some kind of return. If you invest in a business or stocks and shares, then you expect to be paid back something in return even if it’s not cash. However, investing is an extremely slow process and if you’re looking to make money, you can easily shave costs off your utilities and other monthly bills instead of relying on an investment.
But as pointless as investments sound for someone who lives a frugal lifestyle, it can actually come with some surprising benefits that could be worth your time and effort. All it takes is a little research and altering the way you think about how investments work.
What can investments offer you?
Let’s take a look at some of the most simple investments that people make. First of all, there is property investment. The frugal route would be to invest in another home for the sake of renting it out to people to make money. However, depending on the amount of money you can charge for rent and how much the house itself cost, you might find that this will take a lot of effort and time. It could take several decades for you to even make the money back, and you also need to factor in additional costs such as taxes, repairs and listing fees. If you do this through an estate agent, then you also need to pay them a commission fee for finding you tenants. All in all, it’s a tough investment to make, but what it offers is financial security on a long-term basis.
While it’s not completely passive income, it does mean that you’ll have a steady flow of cash until you decide to sell the home for a large sum of money, move into it yourself, or offer the house to your children. In addition, there is plenty of investment information out there that will tell you about how you can deduct taxes from your property. You can claim back certain things such as advertising fees, bank charges and management fees which will help reduce the costs of maintaining a property to rent out.
Another common investment that people make is in a business. However, this is a lot more difficult and isn’t guaranteed income unlike a property. People will always need homes to live in, but they won’t necessarily always need your products or services. Depending on your ideas and what you can offer, you could uncover a winning idea that will propel your business into stardom. However, it’s unlikely to happen and if you had not prior knowledge about running a business, then it’ll be very hard to get started.
However, much like investing in a property. It offers numerous advantages that shouldn’t be overlooked. For starters, running your own business has a higher return than working at a normal job. There’s no salary cap and the amount you make solely depends on your skill, knowledge and dedication. In addition, your frugal ways can be applied to a business to help you save money. Some of the world’s most well-known entrepreneurs, such as Warren Buffett, are known to be frugal. Even with his net worth that is measured in the billions, he still eats cheap food and indulges in simple pleasures. This has, without a doubt, led to his immense success as an investor. This goes to show that even frugal people can be capable of being investors—it just takes a little shift in your mindset.
Investing starts with educating yourself
Education is the most important factor that will determine if you become a successful investor or not. As frugal people, it’s understandable that you don’t want to go to a college or university to learn the basics, but luckily there are plenty of online resources that can teach you all about investing and how to maximise your time on the subject. Make sure you understand all the different forms of investing before you actually put money on something, and take the time to study.
The first hurdle you need to overcome is saving money to start investing. This should come naturally to you if you’re a frugal person. However, it can sometimes be difficult mustering up the will to save even more money to set aside for investing. It’s important to remember that you need to build capital and it should start from a separate pool of funds, not your own personal bank account. Investing should never eat into your own funds, and you should never invest more than you’re willing to lose because, as mentioned before, none of it is guaranteed. While investments aren’t gambling, the potential to lose more money than you make is very real.
So should the frugal bother with investments? No more or less than anyone else. You see, investing doesn’t mean you need to have a huge pool of money to start with because the idea is to build up capital. You start small and gradually build up funds that are separate to the rest of your income. If you build up some profit and withdraw it to spend on luxuries, then that’s neither being frugal or smart—that’s more akin to gambling. Investing can be done by anyone with any amount of money, and your frugal qualities will only make it easier for you to see success.