If there is one thing a personal finance blogger knows it is that you don’t have to earn a lot to retire well. There are many other factors to consider besides salary. Obviously a higher salary makes things much much easier but anyone that reads johnnymoneyseed.com, Mr. Money Mustache or Dividend Mantra knows that a disciplined approach to your finances can produce great results.
In a recent survey of those with a net worth of $5M or more individuals cited hard word, smart investing and frugality as the biggest reasons for their success. I’m not a millionaire yet but I completely agree with these statements and I hope that they will work well for me and and my fellow disciplined dividend investors out there.
Frugality In Investing
One area where I think I’m different from some disciplined personal finance gurus is frugal investing. I don’t think I’m smarter than anyone else, but I don’t like to through my money into mutual funds. Why? Because they charge me a fee for something I can do myself. And I’m better off by doing it myself because of what I learn and the experience I gain.
With access to the information we have today it doesn’t take much to be an intelligent investor that invests consistently in the best non speculative companies. But if research and risk taking are not for you then there is always the option to just buy the stocks these funds own directly. When you consider the fee’s these funds charge it make a lot of sense to stay out of them.
Finding ways to have fun
Extreme early retirement and living below the poverty line are not for me but I do believe that living frugally is a must for middle families.
My wife and I like to travel to far and away lands and stay at nice resorts. That doesn’t lend itself well to saving money. In fact it can cost thousands of dollars to fly to Europe and stay at luxury hotels. So what is a wanna be first class traveler to do?
Over the last couple of years I’ve become a points enthusiast. I earn points at hotel brands and airlines through credit card churning and bonuses. This doesn’t take much of my time and has never harmed my credit score.
I currently have over 1 million travel points, making me a part of the elite world of point millionaires. These points, like many other things, are just a means to an end. It means my wife and I can travel just about anywhere we want, stay just about anywhere we want, and only pay for food while we are there. This isn’t a travel blog and I’ll leave that content up to the experts but if you want to learn more the points guy or frequent miler can help you get started.
The point I really want to drive home is that living a frugal life is a very important factor in building wealth. That does not mean that those of us middle class earners cannot have a little fun along the way. There are plenty of ways to do fun things, even extravagant things for cheap.
A few summary points:
- Being frugal is a requirement to build wealth on a middle class salary.
- Be frugal in all areas, including investing.
- Being frugal doesn’t always mean cutting something out. Sometimes its about finding a better way.
“Being frugal doesn’t always mean cutting something out. Sometimes its about finding a better way.”
I really liked that statement. So often I hear people protesting against being frugal but you’re completely right that it doesn’t always mean you’re giving something up. There’s so many easy things you can do yourself to cut your expenses.
I’m not a big fan of mutual funds because of that fee. And it irks me even more that they get to charge that fee even if you lose money. I understand that for an index fund, but if it’s an actively managed fund, then they shouldn’t get paid for losing money.
Congrats on the million points. That’s quite impressive. My wife and I will most likely be buying a house in the next year so I’m staying away from churning, but once that’s done with I’ll be getting into it. Free flights and hotels for your trips? Sign me up.
Very wise to wait until after you buy to start churning for points. It’s a lot of fun to build the points and know you can go anywhere in the world at the drop of a hat for free.