Save a little money each month and at the end of the year you will be surprised at how little you have. - Ernest Haskins

Thrift simply means being very wise when spending your money. The reason why I felt it would be worthwhile including it in an FAQ on investment is that I don't really see what the difference is. When investing, you need to be thrifty with your investments, you don't go borrowing huge amounts of money to buy every single asset you can find, regardless of cost (unless you are Alan Bond), and if you want to invest you need money anyway. I know a lot of people drift into aus.invest full of half baked schemes like MLMs and a desire just to get into stocks and real estate, despite not actually knowing anything about those investments. Many people don't even have enough money to invest anyway, if you are spending your money as soon as you earn it then it is going to be simply impossible to build up any kind of savings or hold a portfolio.

A thrifty person is someone who recognises the value of money, and tries never to live beyond their means, and make the most of what they have, looking for the most frugal way to get what they need. A miser is a person that hoards money and wants to haggle everyone down on price because they live with a constant haunting fear that someone may actually make a profit dealing with them. There is a big difference.

Unfortunately our culture places so much importance on affluence that people find it shameful to be poor.  They find it so shameful in fact that they will live beyond their means so as not to create the impression of being poor.  Ironically, this is one of the major causes of poverty in Australia, people with reasonable paying jobs spend too much money to impress other people who similarly are faking greater affluence than they really have.  There are literally huge numbers of people who have been driven into bankruptcy after not being able to pay off their credit card debts, debts which they incurred in order to try to convince others that they were financially successful!

As I'll discuss in the "Mortgage or investing" question under mortgages, saving money is frequently better than earning money. If right now you are "poor" and on Centrelink benefits, and want to invest, you can start straight away by getting into a savings plan and sticking with it. You can trim your expenses by a vast amount, and yet still have fun.  It comes down to having financial good sense and discipline, and you don't need a PhD in financial derivative mathematics to get into it.

Although I am sure I will get some very irate e-mails for saying this, in the majority of cases at least in the first world people are only poor because they can't manage their money. Read the rest of this section, figure out some ways to trim the fat and then go see a good financial planner. It is important to know that how much you earn is always less important than how well you spend and invest. It is often said, and probably quite true, that if all wealth were redistributed and the great businessmen and investors had all their assets stripped, give it a few years and the formerly wealthy people would be comfortably well off or rich again. You can take away money, but you can't take away money sense.

It does not take money to make money. It is not true that the rich get richer and the poor get poorer because the poor do not have the money to invest, usually it is a lack of an education that keeps people poor. An equal number of wealthy people join the middle or working class because they cannot manage their vast inheritance, and a sharp intellect can propel the poorest struggling migrant to the very highest levels of wealth.

Warren Buffett, one of the richest men in the world, the most successful investor of all time, controlling billions in assets, has lived in the same old house for 40 years, drives a fairly mundane sort of car, and only grants himself a small living salary. If you are the sort of person who tells a rich person that if you ever had as much money as him you would never work another day again, and just live the good life, then that is probably why that guy is so rich, and you aren't.

This is why you see so many stories on those tabloid current affairs shows about Lotto winners who got the Powerball five years ago but now all they have to show for it is a big yacht with a leaky hull, a Porsche that no longer runs, and some big debts. The majority of millionaires today live in modest homes, drive a Ford or Holden instead of a Porsche - and own vast investment portfolios. Most "rich" people that you see driving around in their gleaming machines and sitting on their vast upper story balconies overlooking the ocean live like that because they have a lot of debts, and the majority of these will probably have to sell that car, and move somewhere cheaper, because their very high gearing leaves them extremely vulnerable to such things as interest rate hikes and stock market volatility.

The Lotto stories aren't all just anecdotal either. A survey was once done in Britain, keeping track of the fortunes won by people in the Pools. After five years less than half of all winners still had more than half of their earnings. After ten years, less than 1% were still wealthy. If you don't know how to save and build wealth, you will never keep it.

He is richest, who's pleasures are the cheapest.

Read The Millionaire Next Door for a realistic idea of how most self-made millionaires became so successful. They saved up their money for years to fund well researched investments, and worked hard to build up genuine solid businesses, avoiding wheeling and dealing like the entrepreneurs the pundits all admire. The thrift is as important as the investing, for without thrift even someone earning a huge salary will always manage to find the right toy to blow it all on.