Achieving financial stability is a goal for many Americans, but they differ in their opinions on how to get there. A recent personal finance survey conducted by Moomoo Financial Inc. found that just 15% of Americans believe that living a more frugal lifestyle can help them become financially stable. And while this might not be the best way to achieve financial stability, some aspects of frugal living can help you get there.
How To Survive on $500 a Month: A Frugal Living Guide
Learn: Pocket an Extra $400 a Month With This Simple Hack
“When many people talk about [being] frugal, [they] think about people that clip coupons to save a dime here or there. I think sometimes people miss some really great opportunities to be frugal with larger type things, [like] the biggest purchases you make,” said Justin Zacks, VP of strategy at Moomoo.
“The more money you are dealing with, the more money you can save,” he said. “So yes, you can save money by cutting out your coffee every day or ordering the small coffee instead of the large. But if you go into something like buying a car, and you decide to buy a six-year-old used car versus buying a brand new car, you probably can save about 10 years’ worth of coffee there.”
For frugality to be most effective, it’s better to focus on individual decisions that make a large impact rather than giving up something small in your day-to-day.
“If you say, ‘I’m going to give up that cup of coffee every day,’ you think about it every day,” Zacks said. “But if you say, ‘Normally I take three vacations a year and I’m going to cut it back to two,’ or, ‘Maybe I’m going to do other things with my family — go to the parks and take advantage of stuff that’s free,’ those are great ways to be frugal and save a tremendous amount of money with one decision, once a year.”
While being frugal does have its place on the path to financial stability, there are other things you can do that have an even bigger impact. Here are some examples.
Start Investing
The largest portion of those surveyed (37%) believe that starting to invest is the best way to achieve financial stability.
“Investing makes money on money, so you have that compounding effect that you don’t with frugality,” Zacks said. “Every time you save 10 cents, you save 10 cents and it takes the same amount of effort. But if you make $1 on your $100 investment and then the next year you make the same return, you’re going to get more money as it compounds over the long term.”
Even smaller amounts can become large sums of money when you have long periods of time for compounding.
“This can help people in their retirement or pay for their kids’ college education,” Zacks said. “The compounding effect is so important as a part of a path to financial freedom.”
Suze Orman: This Common Financial Choice Is the ‘Biggest Waste of Money Out There’
Pay Off Credit Card Debt
When asked about the best way to achieve financial stability, paying off credit card debt was the second most popular response, with 18% choosing this option.
“There are a number of problems with having revolving credit card debt,” Zacks said. “No. 1, the interest rates are really high now, so if you’re only paying the minimum or not paying [at all], that credit card debt is just going to grow and it’s going to be a debt you continue to owe.”
Having credit card debt can prevent you from reaching the milestones needed to achieve financial stability.
“In terms of being able to build up savings to take care of an emergency — a medical emergency, a family emergency — you’re not going to be able to do that when you have credit card debt constantly hanging over you,” Zacks said. “I think a lot of people realize that, particularly the people that are only paying those minimum payments. Oftentimes, it might take them 10 or 15 years to pay that off because interest rates are so exorbitant.”
If you have credit card debt, paying this down should be a priority — even over investing, Zacks said.
“Those are double-digit interest rates that people are paying, so when you’re paying it off, you’re almost earning that interest back,” Zacks said. “It’s very hard to make a double-digit investment. There’s only so much return you can make, but when you can pay those credit cards down, that’s the kind of return you otherwise would be spending.”
Other Ways To Achieve Financial Stability
Other methods for achieving financial stability that are highlighted in the survey include finding a job with steady income (14% said this is the best way to achieve stability), paying off a mortgage (12%) and paying off student loan debt (5%).
“Debts [like] auto loans [and] student loans can be an albatross around a lot of people’s necks, [preventing] them [from] achieving financial freedom and doing the types of things they want to do like owning a home, sending their kids to college or having a significant retirement fund,” Zacks said.
Finding a well-paying, steady job is also key to a financially stable life.
“The overlooked part for a lot of people is working,” Zacks said. “A lot of people are already working really hard, so it’s very hard for them to say, ‘OK, I’m going to work even more.'”
Instead of working more hours, look for ways to earn more by finding a better-paying job or negotiating a raise with your current employer.
More From GOBankingRates
4 Bills You Don't Have to Pay If You're Poor
9 Frugal Habits Dave Ramsey Swears By
4 Reasons You Should Be Getting Your Paycheck Early, According to An Expert
10 Ways to Turn Your Six-Figure Salary Into Generational Wealth
This article originally appeared on GOBankingRates.com: Americans Don’t Think Being Frugal Works: Better Ways To Reach Financial Stability
