The only six rules of frugal living you need to know

As a lifestyle, frugality doesn't need to be complicated. Here are the only six rules of frugal living you need to know.

We humans have a knack for complicating the simplest of ideas. Our lives are filled with shortcuts that aren't short, tips and tricks that trip us up, and helpful hints that are anything but. The same is true when it comes to frugality. Let's scrap all the circular talk and bottom-line it. Here are the only six rules of frugal living you need to know.

1. Know Your Money

By whatever means necessary, become ridiculously well-acquainted with how much you earn, how much you spend, and where every dollar goes. It's the foundation of frugal living. Without this baseline knowledge, successful budgeting and saving will always be out of reach.

2. Live Below Your Means

Living within your means is a great start, but living below your means is where the real magic happens. The surplus it generates is the capital for saving and investing and the fuel behind long-term wealth building. If you're unable to run a surplus a majority of the time — either by cutting expenses or growing your income — you'll never get ahead of the game.

3. Know the Difference Between Spending and Investing

Spending and investing might feel like the same thing, but they're completely different animals.

Investing is the outlay of cash in exchange for a tangible asset (think job training, a primary residence, or shares in a mutual fund). Spending, on the other hand, is the outlay of cash for something that will likely depreciate in value and not provide any long-term benefit (think dinners out or a new summer wardrobe).

Being frugal doesn't mean you always have choose investing over spending (after all, spending is part of living), but it does require that you understand the difference and know how to put your income to work a majority of the time.

4. Buy for Quality

Frugality isn't about always buying the cheapest product; it's about diligently seeking out the best value. Sometimes that means choosing quality over price. A pair of shoes that cost $20 might seem like a great deal, but they're not if you have to replace them every three months. A $75 pair that will last two or three years will be a far better value in the long run.

5. Avoid Consumer Debt

Frugal folks know it: Interest on consumer debt is a tax people pay for living beyond their means. And while a credit card can save the day from time-to-time, embracing easy credit as a way to pad your lifestyle can have disastrous consequences. Interest and other charges will bleed your budget and choke your chances at real financial security.

6. Know the Difference Between a Want and a Need

As I write this, there are throngs of advertisers plotting new ways to help consumers confuse wants and needs. It's big business. In reality, our needs are fairly straightforward (nourishing food, secure shelter, good healthcare, etc.).

But what about that self-cleaning, solar-powered, lavender-infused kitty litter box that you can control with your smartphone? What sort of primitive existence would you be reduced to without this life-changing gadget?

Let's face it: Being able to distinguish what we want from what we need is a prerequisite for making wise buying decisions. If you can't master this skill, your needs will be endless and your paycheck will never keep up. 

Here's the curious thing: Today, when we talk about the rules of frugal living, aren't we really talking about basic financial literacy? It seems over the past couple of generations, common fiscal sense has been reframed as an extreme lifestyle. Maybe it's time to change the conversation about saving and managing money — and make frugal living a far more fundamental skill.

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. This article first appeared in Wise Bread.