Why Pinching Pennies Is the Secret to Building Wealth

by | BiggerPockets.com

I’m constantly arguing with my partner in crime Dominique because she keeps calling me a tight a** and saying that I have a peasant mindset. Maybe this is because I like disputing $2 credit card charges that I don’t think I owe. I do that because it’s $2 today, but maybe it’s $20,000 tomorrow. Where I’m going, those amounts will be $20,000 one day. Look, I guess I remember the days when we didn’t have much money and were literally eating peanut butter for breakfast and drinking $1 gas station coffees. I had $36 bucks in my account in 2014, which is not that long ago, right?

You Only Control Your Own Finances

But one thing that I keep telling her is and I want to share with you is something that is going to be contrary to popular belief. It goes against all the gurus seminars, events, and articles you are reading to motivate you to make more money. I’m not trying to kill that dream for you by any means, but I do want to set things straight here. You only control what is in your account. Let me rephrase that: No matter how good your product is, no matter how good your service is, no matter how good you at selling, and no matter how motivated and inspired you are, you only control what is in your account. You don’t control what I have in my account. So it really comes down to whether I want to buy your product or I want to buy your service.

What I’m saying is that just because you’re making more money and doing better, that doesn’t mean you should automatically go out and spend more. Think about it: The money in your account is what you control. You’ve got the login details, and you decide if you are going to spend it or save it. Now, no matter how good your product or service is, you do not control what someone else does with their account or money. So, when you earn the money and you have it in your account, save it. Don’t be stupid with it, don’t spend it, and don’t expect that someone else is automatically going to buy your product or buy your service. If you truly want to ensure wealth, you’ll need to penny pinch, dispute $2 credit card charges, buy gas station coffees if you have to, and eat a teaspoon of peanut butter to survive.

Related: 5 Advanced Excel Tips for a Better Home Budget

Draw From Your Current Budget to Pay for Important Expenses

Now, let me talk about another cool strategy that I am implementing right now with Dominique, my loved ones, and my family. Let’s say you’re going to go from earning five figures to six figures to seven figures. You might start seeing these popups for Ferraris, Lamborghinis, and all kinds of cool stuff that you have dreamed of since you were a kid. I’m sure that because you are starting to earn six or seven figures, your income can allow you to go out and buy all of these glamorous things. Where people get caught with their pants down is thinking that they are going to keep selling, thinking that their business is going to keep thriving, thinking that they’re going to keep making so much money that they can now go out and spend more money, right? Wrong. 

I’ll give you a recent scenario. I’ve got a very nice car—it’s pretty expensive, a dream car. Now, Dominique is saying she wants to put Jay into Montessori school. Interesting. That sounds good, but how much is it? She says $1,500 a month. Oh crap, that’s expensive, right? Now, can I afford that? Yes, I can, but will business stay the way it is for the next 10 years? I don’t know that because again, I don’t control another man’s pocket; I only control my own. So you have to be very good at planning and organizing too.

So what I’m doing now get rid of the car so we can use those funds and put that towards Montessori. I think that is by far the best way to manage your funds. But I don’t want you to start getting stupid and go out there and buy another car and another property. Then get into all these expenses, debt, or costs just because you think you’re going to keep doing well. Instead, be cautious and make every transaction that you do a wash. So, if you’ve got $1,000 that you need to commit to something important, try and figure out a way where you can use $1,000 from your budget instead of making more. Don’t think about making more—think about using $1,000 differently. Now, by all means, go out and make more money, but keep in mind that you only control what is in your account.

Now, the point at which you can stop creating these “wash” transactions is when you have so much passive income coming in that you don’t need to think about money anymore. What I mean is that the first of every month, you’ve got hundreds of thousands of dollars coming in from your investments and you’re protected against any kind of economic downturn in a particular industry. Then, in my opinion, you can go out and spend it all because there is always going to be another month. Of course, do not be that stupid, but you get my drift. Once you have passive income and a lot of money coming in, you’re a little safer and within budget to commit to more expenses.

Otherwise, pinch pennies, dispute charges, eat peanut butter, and drink gas station coffees. You control only what’s in your account. And yes, go out and make as much money as you possibly can. 

What do you think? Is living frugally integral to building long-term wealth?

Weigh in with a comment!

About Author

Engelo Rumora

Engelo Rumora, the Real Estate Dingo and your favorite Australian, quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties. He is currently in the process of launching an ICO that will “Decentralize The Real Estate Industry.” He’s also known for giving houses away to people in need and his crazy videos on YouTube. His life’s mission is to be remembered as someone who gave it his all and gave it all away.

10 Comments

  1. Tiffany Johnson

    I try to manage my finances the same way, and kind of enjoy the challenge. If a big expense comes up, I won’t pay from savings. I plan for it, then go into extreme frugal mode to pay for it. It’s a good reminder that we can always live on less.

  2. Gabriel Hernandez

    Love the article Engelo, I’m constantly getting in discutions with my wife regarding the finances. We make decent money with our rentals and our 9 to 5’s but I agree you have to be frugal to continue grow your business and protect yourself from unforseen events.

    Thanks

  3. Cindy Larsen

    Engelo,

    You are right on the money here. You have to control your own finances. This doesn’t mean never spending money on luxuries like going out to dinner. It means never spending money you don’t already have, and making sure that money is spent on necessities like paying the bills before deciding whether or not it makes sense to go out to dinner, or save those extra $ to invest.

    The method I use is to buy almost everything using cashback credit cards that are setup for autopayment in full every month. When you know the money you are spending is going to come out of your checking account this month, it makes you think before spending it. It also makes it easy to track where you are spending your money. It is also another source of income. Every $100 I spend on groceries earms me $6. Every $100 I spend on gas earns me at least $3. Everthing else I spend earns me at least 2%. I pay utility bills, pay contractors, buy materials for remodeling and pay countless other expenses with my 2% back credit card.

    And all that cash I get back adds up to thousands of $ per year. And best of all the cashback I earn is NOT Taxed. It doesn’t count as income. the IRS sees it as “discounts”. So, almost all of my living and business expenses are tracked with no effort on my part: the credit card companies do it for me. And I earn tax free interest on those expenses. Sadly, my mortgage companies do not take credit cards. And ther are still a few contractors who don’t either.

    But think about it. If you have expenses of $50,000 per year, that you get at least 2% back on, that is an extra $1000 or more a year, tax free, And with the autopayment in full policy, you never spend money you don’t have, you can go online anytime to see how much you spent on what, and you never pay interest on the credit cards.

    • Engelo Rumora

      Thanks Cindy,

      What you’re saying is music to my ears.

      We only have credit cards just for the points and nothing else.

      I have run my business in a “cash only” way from day 1.

      Only now have we started dabbling with using leverage.

      I love the Amex Platinum perks and they just upped our limit so much that we could buy houses hehe

      Do title companies accept credit cards? lol

      We probably earn half the American income every year just in points.

      I process everything on the CC even tho we have money sitting in the “kitty”.

      Much success and thanks again for your comment

  4. Drew Kessler

    Nah, no thanks. Pinching pennies is miserable and time consuming. Not to mention spending time with those who are overly frugal isn’t pleasant either. I don’t sweat the small stuff and focus on the larger picture of making more money.

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