The secrets of wealth that frugal people know, that average people don't.

Over the years, I’ve learned that money isn’t just a number in your bank account; it’s a tool. The way you use it has a profound effect on the quality of your life, and yet most people misunderstand its true purpose. They use it to chase happiness through things and experiences but end up sacrificing their financial peace. But what if we shifted that perspective? What if, instead of just spending money, we allocated it to improve our lives?

I want to explore these ideas and share some principles that have helped me, and many others, use money more wisely—not to accumulate things, but to buy freedom and peace of mind.

Money is a Tool To Build Wealth And Enhance Your Life

Money is latent energy, just waiting to be used. But here’s the thing: you wouldn't spend your energy recklessly if you knew it was limited. So why spend money if you know that it's the same? Money is meant to be *allocated*. There’s a subtle difference here—spending implies a lack of direction, but allocating means you’re using money with intention, directing it towards something that adds value to your life.

Think of it like this: if you allocate money towards experiences that bring you joy or items that improve the quality of your daily life, that’s money well spent. That is living a wealthy life. For example, if buying a high-quality mattress means better sleep and more energy, that’s an allocation of funds that enhances your life. But if you buy it just because it’s on sale or because you want to impress someone, you’re not using money wisely.

The Purpose of Money

Most people use money to chase happiness—buying things and collecting experiences in an endless loop, hoping to feel fulfilled. But the real way to win with money is to bring *financial peace*. You achieve this through investments, savings, and careful spending. When you approach money this way, it starts working for you, rather than against you.

Let me ask you this: when was the last time you felt at peace with your finances? If you’re like most people, it’s probably been a while. Why? Because money is often spent impulsively to feel good in the moment, but then you’re left worrying about bills or debt later on. That’s where the difference between financial happiness and financial peace comes in. Happiness is fleeting, but peace is lasting.

One way to achieve this peace is to build a savings cushion or investment portfolio that you can rely on. Imagine knowing that, no matter what happens, you’ve got enough to cover your basic needs. That kind of security lets you sleep better at night. Instead of spending money to fill emotional voids, you’re investing in your future self’s well-being. That’s true financial freedom.

Living Below Your Means

One of the simplest yet most powerful principles of managing money is to live on less than you earn. It sounds basic, but think about it—when you live below your means, you automatically put yourself in a position where you have extra money left over. Every month.

This is something a lot of people struggle with because we’re bombarded by consumer culture telling us that *more* is better. But living on less than you earn puts you in control. You’re no longer a victim to your paycheck or expenses. You can save, invest, or even take time off work if needed because you have financial breathing room.

Here’s an actionable tip: if you find it hard to live below your means, try automating your savings. Set up a system where a portion of your paycheck goes directly into a savings account before you even see it. Out of sight, out of mind. Before you know it, you’ll have a growing pile of savings that gives you more options and flexibility in life.

The Difference Between Frugality and Cheapness

It’s crucial to understand the distinction between frugality and cheapness. Being cheap is about finding the lowest price, regardless of quality. But being frugal is about finding the best *value*, even if it costs more upfront. Frugality is about making thoughtful decisions on where your money goes.

For example, you could buy a $20 pair of shoes that fall apart in six months, or you could invest in a $100 pair that will last you years. While the initial investment is higher, the long-term value is significantly better. Frugality is about looking at the big picture, not just immediate cost savings.

If you’re trying to embrace a frugal lifestyle, start by asking yourself: “Is this purchase going to provide long-term value to my life, or is it just a short-term fix?” Learning to spend money on quality, rather than cheap thrills, will save you more in the long run and improve your overall quality of life.

Learning How to Spend Money Wisely

This might come as a surprise, but learning how to *spend* money is just as important as learning how to save it. Spending wisely is a skill that can make you feel rich without having millions in the bank. It’s about spending abundantly on things that matter to you while cutting back ruthlessly on things that don’t.

One resource I recommend for mastering this is Ramit Sethi’s philosophy of “conscious spending.” He teaches that it’s okay to spend lavishly on what you love, as long as you cut costs on the things you don’t care about. For instance, if travel is important to you, splurge on it. But if you don’t care about designer clothes, don’t waste money there.

Here’s an actionable step: identify three things that you genuinely value, things that bring you joy or improve your life, and give yourself permission to spend on those things. Then, identify three areas where you’re spending money that doesn’t add much value and cut back mercilessly. This method can completely change your relationship with money, allowing you to enjoy it more without feeling guilty.

How to Put These Ideas into Practice Today

If you’re looking to gain financial peace and feel more in control of your money, here are five actionable steps you can start with today:

1. **Set up automatic savings**: Have a portion of your paycheck transferred to a savings or investment account each month.

2. **Track your spending**: Identify where your money is going and what’s actually adding value to your life.

3. **Invest in quality**: Start making purchases based on long-term value rather than short-term savings.

4. **Create a “fun” budget**: Allocate money each month to spend on things you love without guilt.

5. **Build an emergency fund**: Even having just $500 set aside for emergencies can reduce a lot of financial stress.

These steps aren’t about becoming frugal for the sake of it or cutting back on everything you enjoy. They’re about becoming intentional with your money so you can live with more peace and freedom. Once you stop using money to chase happiness and start using it to build financial security, you’ll find that you’re in control—not your bank account.

The outcome? You’ll start to see money not as something that controls you, but as a tool you control. You’ll experience a shift from financial anxiety to financial peace, knowing that each dollar is working towards something meaningful. This mindset will help you live a richer, more intentional life without needing millions in the bank.