I’d like to finally lay to rest the misconception that investing is more important than living cheap.

In the personal finance world, there are those who promote the idea of living below your means and there are those who reject it, pooh-poohing frugality as a form of self-deprivation. Robert Kiyosaki, author of the Rich Dad, Poor Dad books, is a prominent member of the latter camp. He argues that when you follow the advice of others who urge you to live below your means, “you wind up average because it is average advice.” Kiyosaki thinks you should focus instead on increasing your net worth through investments and business activities.

But the concept that you should live below your means is much more than average advice - it’s great advice! Here’s the reason why: you have more direct and assured control over your own spending than over any possible investment or business opportunity.

Investing smart is important - but beating a “couch potato” portfolio composed mostly of low-cost index funds is really, really hard. Warren Buffett, by some accounts the richest man in the world, says, “I believe that 98 or 99 percent - maybe more than 99 percent - of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs.”

Assuming this advice is correct, is it really worth it to pour your blood, sweat and tears into investing? Are investment activities truly deserving of your time and attention? My personal belief is that unless you fancy yourself a professional investor - and an exceptional professional investor at that - you should not devote a great deal of time or attention to investing. You should toss your money into an index fund and be done with it. Even most professional mutual fund managers cannot consistently beat the market.

As far as starting your own business, that’s great if you’re a businessperson, but keep in mind that more than half of all businesses fail to ever turn a profit (see this link). I’m not saying you can’t do it, but you’ve got to be good. You’ve got to put some serious time and effort into your business. If doing business is what you love, great. But if doing business is not what you love, or you just stink at it, there’s something anyone can do to assure long-term financial stability.

That thing is - you guessed it - living cheap. It’s much easier to increase your “returns” by living further below your means and pouring more money into smart investments than by trying to eke an extra 1 or 2 percentage points out of those investments. As mentioned earlier, most professionals can’t even manage to match the market’s performance, so just imagine what extraordinary capabilities are needed to outperform it. Instead of pursuing active investing, you should devote your effort to reducing your spending.

It’s not at all difficult for most people to cut back by 1 or 2 percent on spending. There’s always something you’re spending money on that isn’t strictly necessary. I fancy myself a hardcore cheapskate, yet even I could cut back my annual spending by a few percentage points if I had to.

Are you buying in bulk? Do you cook your meals at home? Do you use your freezer to stock up on sale items? Do you use the internet to look for cheap gas? Have you looked into biking instead of driving? Do you use credit cards to take advantage of cash back and float?

There are a million and one things anyone can do to cut back on spending. You don’t have to be a genius to live cheap. You have to be consistent, you have to be patient, and you have to think outside the box. It probably isn’t a coincidence that all these are qualities exhibited by truly genius investors. You can put these qualities into practice in your own life without devoting a lifetime to mastering the intricacies of stock-picking. I don’t know about you, but to me, that’s encouraging and empowering!

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