Frugal, not foolish

Next week we will be taking a trip to Michigan to take a look at the real estate market out there.  In our real estate group chat (which you can join if you are interested in investing in our partnerships) I was asked which hotel I was staying in.  They recommended I stay in one of the homes we own but are rehabbing.  I told him that I am frugal but I am not foolish.  I won’t be staying at a house in the middle of the ghetto no matter how much money I can save.

We all desire financial independence.  We all want to be free from the burdens of working a 9-5 hoping for days off and living in fear of a pink slip.  For most of us however, we aren’t able to get a million dollar loan from our parents.  This means that WE have to be the person that gives ourselves that loan. You get that seed money by conserving your working income and playing the long game.  Frugality is the tool to facilitate this process.

Frugality gives you opportunities

Frugality gives you opportunities.  This is why I preach frugality.  I have real big goals. I want the Lamborghini, the Rolex and the estate. I want it bad. But I realize that nobody is coming to save me.  Nobody is coming to drop seed money in my lap.  You don’t get luxury without assets (business or real estate) because not many jobs are paying you enough for that level of living.  Therefore you have to strategically use that job as a means to that end.  Make a bunch of money, invest that money, LIVE out of what the investment produces.

Your career is the seed

My career, your career, that 9-5 is your seed money to make big money. You don’t get those things living hard out the 9-5.  This is because the 9-5 wont ever make you wealthy.  When I see people living hard out the 9-5 I just shake my head.  They think they look cool but in reality they look like fools.  Fools that will be trapped to that job and the limits on their income because they don’t think bigger than where they are now.  These people will see their freedom in a raise, then they will get that raise, increase their spending, and then be looking for another race.  That my friends is the rat race.

Being an employee is about making your boss rich, not you. Don’t ever think any different no matter what they tell you.  When you get around rich people focus on what they do not what they say.  Everyone has selfish motives.  Get what you can get out of your job but keep your eye on the target.  Never buy luxuries out of working income.  Only ASSETS buy luxuries.  If you don’t have assets you don’t get luxuries.  This would mean that by default  you shouldn’t even consider a Gucci bag OR a luxury vacation out of the 9-5. By default doing the play play out the 9-5 is a losing strategy.

I’m not ranting on why frugality though. This is about how frugality. I have already beat the frugality drum. Here we go.

9-5 is a part of the process

For the longest time I was against a job.  I never put much energy into work and I was always looking out for bigger opportunities.  I read Cashflow Quadrant and knew that the long game was never employee.  This caused me to lose several jobs.  That was dumb of me.  Instead I should have been going all in on those jobs with the mentality that the more I made on the job the more I could save and invest.  One day  I realized that the job is a part of the process if you do it right, if you live frugal the job is a tool not a burden on your time.  This is what you can and should do.  Don’t punt the job, but don’t bank on it either.

How frugality 

So the key here is to be frugal, not foolish. This means that you don’t put your life at risk by staying in terrible places. You don’t dress bummy and repel opportunities.  You don’t drive a car that is unreliable. All of those set you back because you are so frugal that you are constantly pouring money into a car, you can’t get taken seriously in business because you look like trash and you are dead because you stayed in a basement of a rental property in the ghetto.

On the other hand, you don’t waste money trying to be the best dressed because you don’t get extra points for Louis Vuitton shoes in business.  You don’t stay at the Ritz until you get there out the cash flow, you don’t finance that brand new car at the top of your budget because it is an instant negative net worth play as soon as you drive it off the lot and even more so as you get deeper into the loan as you drive it into the ground yet don’t make a dent in principal because of the interest on the loan.

Frugality is a balancing act between owning quality items that last and are timeless but not overdoing it to the point that you eat up all the margin that you should be building with.  Quality items cost more but last longer, this makes them a frugal candidate as long as you don’t over do it.  In fact, I recommend that you ALWAYS invest in the quality item and never the cheap, poorly made alternative.  This is what it means to be frugal but not foolish.  Frugal in that you don’t Louis it and go ultra luxury but that you don’t go cheap and unreliable.  Both of those will have you coming out of pocket more than you need to.

If you want, you can even own some Jays, but you can’t own all the Jays. You can own an Louis, but don’t own all the Louis.  You can own a BMW.  But don’t trade it in every two years.  You can have nice things, but don’t be foolish.

Frugal not foolish

Frugality opens doors but you don’t have to do it forever. One thing you realize when you live frugal is that when you give up the things you THINK you NEED (Louis Vuitton bag, new watches, the latest iPhone) you realize you never needed them in the first place.  I always tell the story about how I had to give up all my fly stuff to get through law school only to realize that all the things I thought I needed were holding me back and once I was liberated of those things I found out that I never needed them in the first place.  You don’t need all the things you think you need but by giving up those things you open up doors to wealth.

That is the key.  There is a hierarchy of needs that need to be satisfied (housing, transportation, food) and fake luxury items sold to you as status symbols are nowhere on there.  You need to punt those things and get the mortgage paid off, the car paid off and get some passive income coming in so you can free yourself from the income limitations of your 9-5.

At the very least, you need to punt those things, sacrifice a few checks, and build up a mini emergency fund ($3,000) as a hedge against job loss and as an “opportunity fund” to take advantage of opportunities that present themselves, make that money permanent, and then you can get back to your paycheck to paycheck life.  At least then you sacrificed a few meals and fun stuff and established some level of wealth for yourself.

So in conclusion, be frugal so you can eventually stop making your boss rich and start making your heirs rich. That is all.

If you are interested in joining any of our investment clubs we would love to have you. If you are interested in having your taxes prepared by our amazing preparers Email us at info@capitaltodd.com

Be great, invest well,

Todd Millionaire

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