What’s more effective than setting financial goals? Developing money habits.

Goals give you something to reach for — they help you visualize what you’d like your life to look like five, 10, or even 20 years down the road.

But habits require action, and action is your best friend in the financial world.

Here’s a list of 10 important habits that frugal people know and follow. No matter what your financial situation is, you can put these tips into action today to start saving more money and building your future.

Habit #1: Create a “to buy” waiting list

Instead of declaring that you’ll never make an unnecessary purchase again — a totally unrealistic goal, since we all give in to our impulses occasionally — give yourself permission to dream by creating a “To Buy” list.

What’s fascinating about “To Buy” lists is that not only do they reduce impulse purchases, research has shown that they eliminate the urge to buy something altogether. 

A leading willpower researcher, Roy Baumeister of Florida State University, explains:

“…telling yourself I can have this later operates in the mind a bit like having it now. It satisfies the craving to some degree.”

Habit #2: Strive for continuous optimization

Frugal people are constantly optimizing their finances. These little optimizations may seem insignificant in the moment, but compound them over time and they yield very big results.

As Darren Hardy explains in his best-selling book The Compound Effect, “Small, seemingly insignificant steps completed consistently over time will create a radical difference.”

When it comes to your finances, here are two small steps you can take today that will make a big difference down the road.

  • Save more the easy way. Increase your 401(k) contribution by 1% every six months (set a calendar alert if your company doesn’t offer automatic increases).
  • Make money in your spare timeSurvey Junkie pays you for taking surveys in your spare time. They have the highest rating on TrustPilot among all survey companies with 8.7/10 stars. You’ll get paid instantly with cash via PayPal.


Habit #3: They know when refinancing makes sense

study in the Journal of Financial Economics found that 20% of homeowners who could have benefited from refinancing didn’t. As such, Americans paid an extra $5.4 billion in unnecessary interest payments. 

A mortgage is likely the largest debt you’ll ever have. A frugal person knows this and understands how much they can save by refinancing. 

As I write this in June of 2019, interest rates are at historically low levels. As such, it’s worth making sure you’re not one of the 20% of homeowners who could benefit from a lower mortgage rate. There are no guarantees interest rates will stay this low, so time may be running out to save money.

You can find out quickly if you qualify for a lower rate at Credible, which compares rates from multiple lenders in less than three minutes. 


Habit #4: Take advantage of easy wins

Frugal people know that there are certain actions that take a little time and effort but offer tremendous rewards. For example, taking 10 minutes to optimize their 401(k) investments allows frugal people to potentially retire years earlier than people who never think twice about their investment funds.

One of my own favorite frugal wins is maximizing cash-back on online purchases. To get up to 20% cash-back, I use a cash-back app called Swagbucks.

Here’s how it works: Simply sign up for Swagbucks, and then visit your favorite stores — from Amazon to Target — by clicking the links available in the Swagbucks app and website.

This works for purchases large and small. As an example, when I purchased a mattress online, I went through Swagbucks and got $200 cash-back.

You won’t regret giving Swagbucks a shot the next time you purchase something online. Use this link to get a $10 bonus just for signing up


Habit #5: Improve their credit score

Like it or not, your credit score matters. The chart below, from the New York Times bestselling book I Will Teach You To Be Rich, shows how much one can save on their mortgage with a high credit score over the life of a loan (about $70,000 on a $200,000 mortgage).

comparing mortgage rates with different credit score

It’s not just your mortgage where your credit score makes a difference, or even other types of debt (such as auto and personal loans). Having a high credit score can save you money on things like home insurance, auto insurance and your cell phone bill. Plus, it can be the deciding factor when you’re trying to rent a home or a commercial property.

As you can start to see, it’s no wonder frugal people know what makes up their score and what can be done to improve it. 

This all starts with knowing what goes into your credit score. The five factors are:

  • Payment history (35%) – Your ability to pay your bills on time (you never want to miss a payment).
  • Credit utilization (30%) – The percentage of available credit you have borrowed vs. the amount of credit you have available (the lower the percent, the better).
  • Length of credit history (15%) – The length of time each account has existed (the longer the better).
  • New credit (10%) – The number of new accounts opened (you want to minimize opening a lot of new accounts all at once).
  • Types of credit in use (10%) – Your mix of credit.

One great way to check your credit score (and get recommendations for improving it) is to sign up with Credit Sesame. This is the site I use to keep an eye on my score and see if there’s anything I can do to raise it.

When you sign up, not only will you get to see your credit score right away for free, but you’ll get a very handy Credit Report Card, which will tell you exactly what you need to do to improve your score.


Habit #6: Utilize effortless couponing

My Grandma was my frugal role model. She was cutting coupons in her 90s, despite some in the family giving her a hard time. 

The fact is that coupons can save you a lot of money, especially in helping reduce grocery expenses. The problem is that they’re difficult to remember to use, and finding them takes time. 

Fortunately, technology makes that problem a thing of the past. Ibotta is an app for your smartphone that gives you easy digital access to the best coupons available.

All you have to do is download the Ibotta app (which is free), browse for coupons from your favorite brands and products, and save them to your digital coupon book with the tap of a finger.

When you’re done shopping, just scan your receipt — Ibotta will add cash-back to your account within 48 hours. Ibotta users save $240 per year on average, so you don’t want to overlook this opportunity. 

Habit #7: Lower their recurring expenses

Frugal people love lowering their recurring expenses. The hour or two it takes to find lower prices on fixed costs like insurance, cable, internet, and a cell phone plan saves frugal people hundreds if not thousands each year. 

I recommend looking at these fixed costs at least once a year, starting with car insurance.

Why car insurance?

It’s one of the quickest ways to save hundreds of dollars, and there are no upfront costs involved (such as buying a new phone). 

The best way to compare quotes right now is through Gabi Insurance. With Gabi Insurance, there are no forms to fill out. Simply link your insurance account (or send a PDF) and provide your driver’s license number. 

Once your account is linked, Gabi will:

  • Analyze your existing insurance plan, making sure that any new coverage is the same or better
  • Get quotes from up to 20 different nationwide and local insurers for that same coverage
  • Help you switch if you find a lower rate (all through your cell phone)

In most cases, Gabi will send you back quotes in just two minutes. 

By utilizing Gabi’s technology, the average customer saves $865 when shopping for their home and auto insurance. Furthermore, Gabi will automatically shop for your insurance once you become a customer, as their software monitors your policy for savings. 

See how much you can save with Gabi Insurance right now.

Habit #8: Understand opportunity cost

Frugal people don’t take sticker prices at face value. They dig deeper than that. They understand that everything has both implicit and explicit costs. It’s not just what you pay today that matters, but also what you could have done with that money instead. 

Simply put, opportunity cost measures the opportunities you lose by making a particular decision.

For example, if you invest $1,000 in the stock market and earn 5% per year on your investment, you did pretty well. But you could have invested that same $1,000 in an index fund and earned 8% instead. In this case, you walked away from an additional 3% per year in returns by not taking the time to fully evaluate all your options. That lost 3% is your opportunity cost. 

Equally important is the fact that for every dollar you spend, you’re trading something that’s far more valuable. You’re giving up your time, effort, and energy to buy that item. So it’s important to do your best to evaluate whether or not it’s really worth it.

There are multiple ways of making that evaluation, including calculating how many hours it would take to earn the money to make that purchase. But even when you look at it from that perspective, you’re still not considering the true loss: what would have happened if you had saved or invested that money instead.

For that, you can use the rule of 184.

Here’s how it works. Let’s say you’re thinking about joining a fancy gym. Let’s pretend that will cost you $100 per month.

If you saved that $100 every month and invested it, you might reasonably expect to earn 8% per year on average through an index fund. In 10 years, that $100 per month could grow to $18,444.

With the rule of 184, you can take any monthly expense and determine how much money you’d have after 10 years. You do that by multiplying the monthly cost by 184. This trick is just one way frugal people look at every expense — they look at more than just the price they pay today.

Of course, there’s more to life than numbers. Not going to the gym also has costs. You may not be as healthy, which could impact your lifestyle. And failing to get enough exercise might lead to increased healthcare costs as you get older. Even saving money has an opportunity cost, so take the time to think about all aspects of your finances in detail. 

Habit #9: Turn hobbies into businesses

Frugal people understand that hobbies can be a source of income. From pocket change to full-fledged businesses, many frugal people earn money from their hobbies. Common examples include proofreading, teaching music, tutoring, gardening, watching videos, sewing, freelance writing, photography, coaching sports, and baking. 

This blog is another example of a hobby turned into a business. As a voracious reader of money management books, I started The Ways to Wealth in 2016 to share what I was learning. After just a year, I left my full-time job in financial services to run this blog.

Hobbies make for the best blogs because any popular hobby has an army of people wanting to learn more. If there’s something you’re passionate about, consider starting a blog about it.  What’s also nice is that blogs take very little time, money, and knowledge to launch (read The Ways To Wealth’s Insanely Simple Guide To Starting A Blog). 

If you’re interested in starting a blog, I have a free seven-day email course to help you get started. 

Simply sign up below to have it delivered straight to your inbox: 

Habit #10: Ask the right questions before making a big purchase

When it comes to buying a car, frugal people don’t ask “How much car can I afford?” or “What’s the monthly payment?

Instead, they ask a totally different set of questions, including:

  • What is it that I actually want to gain by buying this car, and is there a better way to get that?
  • What is the total cost of ownership, including gas, parking, insurance, and maintenance?
  • What will happen if I don’t buy this car right now?

The specific questions will change depending on what you’re buying — e.g., a car vs. clothes online. The principle is what’s important: ask better questions if you want better answers.

Here’s a personal example. This is what I try to ask myself each time I buy something online.

  • What will actually happen if I don’t buy this item right now?
  • What is it that I actually want by buying this item, and is there a better way to get that?
  • Can I buy it through Swagbucks to save money?
  • Can I find a used one on Craigslist or Facebook Marketplace?