If you asked the average person their strategy for building wealth, they’d probably talk about skipping Starbucks and investing in their 401k. In short, they’d discuss frugality.
Frugality can be useful in building wealth. It is the percentage of your income you save, rather than your income itself that determines when you’ll be able to retire. Yet, frugality is only helpful up to a certain point.
If you’ve ever been a digital nomad, for example, you may have seen people talking about the cost of living between Chiang Mai, Thailand and Saigon, Vietnam. While nomads in Chiang Mai may spend $700/month, perhaps Saigon nomads spend $850/month.
It’s a small amount of money. Perhaps saving a hundred dollars or so per month is important your first couple years as a nomad. As someone in your late 20s or 30s, however, cost of living between two cities that similar shouldn’t even factor into your decision.
The fact is, you can only reduce your expenses so much. It’s possible to live as an expat in Vietnam for under $500/month. I know, I’ve done it before. Yet, consider an income of $2,500/month.
Reducing your expenditures from $1,000/month to $500/month would allow you to bank $2,000/month. Or, you could continue spending $1,000/month and increase your income to $3,000/month. Both would result in you saving 2k per month, yet there’s no limit on how much you can increase your income.
Plus, when your budget gets really low, you start to sacrifice on food quality, social life, networking, and things that’ll give you a higher quality of life and more professional opportunities later on.
In short, the rich get rich from expanding their incomes more than just trying to live off bread and rice. That doesn’t mean to get caught on the hedonic treadmill and hire people to shine your shoes and drop grapes in your mouth.
It merely means to live a balanced life. Spend money when doing do will lead to better health, increased networking opportunities, and leisure activities that will bring you true happiness. Be frugal, but not overly so.
It’s better to invest that excess frugal energy into increasing your income once you’ve already gotten your spending down to a reasonable level.