Do you know what’s more effective than setting financial goals? Developing better 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 money rules 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. Never say “never.” Just say “not right now.”

Create a waiting list for the things you want to buy at some point in the future. By putting items on the list, you won’t feel so deprived. They’ll be there waiting for you should you decide make a purchase down the line when you have more disposable income.

As 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: Take advantage of easy wins

Frugal people know that there are certain personal finance 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.

Other easy wins frugal people take advantage of include:

#1 — Refusal to pay banking fees

  • Quick action: If you’re paying fees of any kind for banking, you need a better bank. Head over to Fiona, which is a free search engine that helps you find the bank that pays the highest interest rate in your area. No personal information is required — just enter your zip code to get the results. When I did this, I found a bank that paid 22X the national average on their savings accounts! See what banks are paying around your area by checking out Fiona today.


#2 — They earn cash back on all their purchases

  • Quick action: Sign up for Swagbucks, which allows you to earn up to 20 percent cash back when you shop, both in-store and online, at over 2,500+ stores. There’s also a $10 sign-up bonus when you use this link

Habit #3: They know their purpose

In his book Drive, author Daniel Pink draws on four decades of scientific research to uncover what motivates us. He found that the three core elements of motivation are:

1) Autonomy — the desire to direct our own lives

2) Mastery — the urge to get better and better at something that matters

3) Purpose — the yearning to do what we do in the service of something larger than ourselves

Frugal people understand that personal finance positively impacts each of these three core elements. As such, managing money well allows frugal people to increase their life satisfaction.

Habit #4: 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 different down the road.

  • Save more the easy way. Increase your 401(k) contribution by 1 percent every six months (set a calendar alert if your company doesn’t offer automatic increases).
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Habit #5: 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 percent per year on your investment, you did pretty well. But you could have invested that same $1,000 in an index fund and earned 10 percent instead. In this case, you walked away from an additional 5 percent per year in returns by not taking the time to fully evaluate all your options. That 5 percent 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 percent per year on average through an index fund. In 10 years, that $100 per month could grow to $18,444 instead.

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 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 #6: They know where their money is going

What frugal people excel at is making the most of the money they have. To do that, they have a plan for where they want their money to go. Then, they track their income and expenses to ensure they’re on target.

For their landmark book The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko spent 20 years studying who the real millionaires are in America. To their surprise, they found that the majority of millionaires lived frugally.

When describing the traits of a typical millionaire, the authors explained:

They know that planning, budgeting, and being frugal are essential parts of building wealth, even for very high-income producers. Even high-income producers must live below their means if they intend to become financially independent. And if you’re not financially independent, you will spend an increasing amount of your time and energy worrying about your socioeconomic future.

Their research revealed that the majority of millionaires can answer “yes” to these two questions:

  1. Does your household operate on an annual budget?
  2. Do you know how much your family spends each year on food, clothing, and shelter?

In fact, they found that for every 100 millionaires who don’t budget, there are 120 who do. But what came as an even bigger surprise was the fact that people with higher net worths were relatively more likely to budget:

“Only those clients with considerable wealth want to know exactly how much their family spends on each and every category.”

Habit #7: They know when refinancing makes sense

study in the Journal of Financial Economics found that 20 percent 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 interest rates are trending up, time may be running out to save money. Take a few minutes now to make sure you’re not giving more money to a bank than required.

Head over to LendingTree to compare rates from up to 5 lenders in less than 3 minutes.

Habit #8: 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?

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Habit #9: They don’t tolerate hidden fees

Nothing can eat into your money quite like hidden fees.

Frugal people know to always read the fine print. They know where hidden fees are, and they know how to control them.

Hidden fees can be found everywhere. Credit cards have them, and so do 401(k)s. Even your checking account might charge hidden fees if you drop below an average daily balance for the month.

One simple trick to reducing hidden fees in your 401(k) — which average over 1.5 percent and are often hard to spot — is to get a free analysis of your 401(k) with Blooom.

Blooom is an SEC-registered investment advisory firm that the Wall Street Journal called, “one of the best online tools for retirement planning.” To get your free analysis, all you have to do is enter your name, birthday, and estimated retirement date. Then, let Blooom link up to your 401(k).

Blooom then uncovers any and all 401(k) fees. Plus, it tells you if you have the right mix of stocks and bonds.

Habit #10: 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).

The Ways To Wealth Exclusive OfferLaunch a blog for under $3/month with Bluehost. Get a FREE domain name ($15 value) and great customer service, too. That’s more than 50 percent off of the original price of $7.99/month when you use TW2W’s exclusive link.

If you’re interested in starting a blog, I have a free seven-day email course: How To Make Your First $1K Blogging.

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Check out these 10 tiny frugal living ideas and habits that will make a big difference in your finances and life. #frugalliving #frugal #frugaltips #frugality