According to the BLS’ 2016 Consumer Expenditure Survey, we spend about 90% of what we make. The average American has a pretax income of just under $75,000.
After a year of spending, only a shade under $7,000 remains. And on a month to month basis, we aren’t doing much better. A study was done by Pew Research showing 46 percent of Americans spend more than they make during the month.
Meanwhile, the cost of living continues to rise. Statista uses a specific measure to determine the cost of living. In the United States, this measure increases by about 4.8 percent each year.
So many of us are spending more than we make. The rest of us are barely getting by to save. To top it all off, the cost of living is going up. Oh, and wages aren’t growing to match either.
What’s the answer then?
The easiest way may seem to make more money. But that’s not always so easy, is it? Another way is by living far below your means. But doesn’t that mean being cheap?
Embracing frugality, with a dose of trying to earn more money, can change your life. In this article, I’m going to do a deep dive into frugality. I’ll share what it is and why it’s so beneficial. Finally, I’ll finish with some ideas on how we can start living more frugally.
First, let’s define frugal living.
What is frugality?
What does being frugal mean to you? This might be where the disconnect is for us. Many of us don’t understand what being frugal actually is.
In its purest form, being frugal means you’re living well below your means. Living below your means is a crucial element to saving money.
And saving money is a crucial step to financial freedom. So by that logic, frugality can lead to financial freedom.
If you haven’t read David Bach’s The Automatic Millionaire, read it. The advice he gives is advice we already know, but we’re not putting it into practice.
In his book, he talks about the psychology of money enough for the average person to connect with. The primary focal point that stood out for me was that we don’t have to budget. In fact, by budgeting, we may be hurting ourselves.
He compares budgeting to counting calories. It might work for a short period, but eventually, human nature is going to kick in. And we are going to get sick and tired of doing it, then we’ll go on a binge.
Think about all the information we take in around money, being frugal, and retiring early. Must of this stuff we already know.
But we keep reading it, don’t we?
Perhaps it’s because there’s a void in our life that we need to fill. And reading this kind of information is the catalyst to kick us in the right direction. That’s my answer at least.
That’s why I keep reading. That’s why I keep writing, as well.
Before moving on, define what being frugal means to you. Keep that in the forefront of your mind as you read through the rest of this post.
The benefits of frugality
Now that we’ve defined frugality, here are some of the benefits of living a frugal lifestyle.
1. You retire earlier
This seems obvious, right? Then why aren’t we all retired yet?
It’s the same reason as I discussed above with David Bach’s book. This advice is standard, and it’s everywhere, yet we aren’t taking it.
One of the reasons is due to something called opportunity cost neglect. According to Shahram Heshmat Ph.D. of Psychology today:
“In a world of scarcity, choosing one thing means giving up something else. When we spend money on one thing, it’s money that we cannot spend on something else, now or later. So there is an opportunity cost to everything we do. And that cost is expressed in terms of the next-best alternative. For example, the true benefit of buying a new car can be assessed in terms of other equally significant items we could have done with the money.”
So there’s something in the human brain that helps us explain why we do certain things. Let’s see how this looks in real life.
Say you have a friend in town and you take them out to dinner. You spend $200. If you instead saved that money and made a home-cooked meal, you could invest the $200.
Imagine that you put the $200 into an IRA and let it sit for 30 years without touching it or adding to it. Let’s assume that it grows at a rate of 6%, which is a fair estimate these days. I will also compound interest monthly (6 / 12 = 0.5). Here’s what we’re looking at after 30 years:
Okay, so $1,204 alone won’t help you retire early. But the point I’m making is that making small changes NOW will lead to bigger changes later. Again, this is advice that’s been given a million times by tons of “financial experts.” Yet the median retirement savings of families between 32 and 37 is a measly $480. That’s disturbing.
2. You get rich quicker
I’m having fun using this age-old concept of the time value of money, so let’s keep rolling. I remember when I first learned about the time value of money in college. (Yikes – we should be teaching our kids sooner).
It was in an introduction to finance course with a guy named Mario. I remember memorizing the definition for my test but not grasping the concept of what it meant. Big mistake.
Understanding the time value of money is one of the most critical steps to becoming rich.
I’m going to use another concept that David Bach talks about in The Automatic Millionaire. And that’s his idea of the Latte Factor. Let’s go back to the previous example I used above. The one where you spent $200 eating out at a nice restaurant.. $200 on eating out isn’t crazy in today’s world.
Americans are now spending more on restaurants than they are on groceries. So let’s assume you spend $250 a month eating out. I’ll be conservative here and say you cut your spending on eating out in half. This way, you only spend $125 per month.
I’ll also assume you invest the other half. Using the same rate of return and time window as above, here’s what happens:
So a $125 monthly investment over 30 years equates to almost $127,000.
Now let’ get crazy. What if instead you cut the entire $250 on eating out each month and invested it all. Let’s look:
Almost $254,000 after 30 years making this small change. Wow.
What would happen if you started injecting more frugal behaviors to this concept? Let’s make up some other prudent changes, for shits and giggles:
- You cut out cable and only use Netflix, saving $80 per month
- You refinance your mortgage to a lower rate, saving $100 per month
- You start shopping at a grocery store like Aldi, saving $50 per month on groceries
- You cut out Ipsy, Spotify, and reduce your cell phone data plan by 1 GB, saving $30 per month
- You eat peanut butter and jelly for lunch at work each day, saving $2 per day, or $60 per month
- You switch to buying clothes at Target and local thrift stores, saving $50 per month on clothes
I can go all day, but I’ll stop there.
These six adjustments add up to an extra savings of $370 per month. Man, that adds up fast. And these are all pretty modest changes, don’t you think?
So with our monthly savings of $250 from not eating out, we have a total of $620 per month.
Holy crap. Let’s put that into our fancy calculator:
That’s almost $630,000 you will have in 30 years by making these monthly adjustments.
So again, this is common, public information. And was much more eloquently laid out by David Bach. But the point is – you know it. The question is – how will you act on it?
3. You learn how to want – responsibly
I want to stress the importance of wanting again.
First, it’s okay to want. You should want things, and it’ll drive you to be more successful in the long run. By practicing and committing to a life of frugality, you’ll learn to become a master at wanting.
In fact, one study found that wanting things made us happier than actually having them. By not giving in to all your impulses and buying stuff on the spot, you’re going to develop a more frugal mindset.
You’ll instead actually think about purchases you make. You’ll force yourself to decide whether now is the right time to buy something, if at all. In doing this, you’ll save money and create a wish to want something.
When you want something, you set up a goal. When you set up a goal, you drive yourself to exceed. Whatever that goal is.
The other side of this is that it’s okay to spend money. Like Mr. Bach says, pay yourself first, then live on the rest. If you can afford something you want by paying for it with cash, go for it. Just make sure it won’t compromise your other financial responsibilities. If you never give in to any wants, you’ll go crazy.
4. You can teach others
I’m incredibly passionate about educating people about money. I had some wild experiences growing up that taught me about money. But for most of you, it shouldn’t have to come by way of bankruptcy.
We should be teaching our kids and each other about money from an early age. Think about all the life lessons you’ll earn by living a frugal life. Hell, that’s why some people have even started a blog – to share those life experiences.
If I knew about:
- Living below my means
- Thinking about purchases before making them
- Paying myself first
- The “Latte Factor”
Or any other personal finance concept at an earlier age, I’d probably be retired now too.
Think of how powerful our experiences can be when shared with others. So why not do that?
If you’re living a frugal life but haven’t shared your wisdom with SOMEONE, I’ll ask you to think about what stops you. If you’re already basking in the glory of creating a path to early retirement, why wouldn’t you share that story?
If you haven’t already, I’ll urge you to start a blog to write about it. If you do, I’ll read it – post it in the comments here. Get on Twitter, share your story. Get the word out, because the less we do this, the less our world is going to change.
So if I haven’t been clear enough, get off your ass and share your story of frugality with someone.
5. You discover new interests and passions
Let’s again pick up the concept of the time value of money. Understanding this topic has gotten me to save more money and live a more frugal lifestyle.
Also during this period, I became more interested in the subjects of money and minimalism. These things are all connected to the idea of being frugal.
Once I started living this way, I started doing more research on personal finance. I learned new things, like how to invest, how to pay off debt faster, and how to live with less.
Sometimes in life, we move so fast we don’t stop to enjoy the moment. Through frugal living, you will begin to learn and try new things, all because of money.
Money makes us do crazy shit.
Let’s talk about landscaping. Before, I laid out some ways you can landscape frugally – one of which includes doing the work yourself.
If you aren’t living with the idea of frugality, you might pay someone to do the job for you. So what are you doing instead?
You might be out driving your leased car, shopping, or working. All the while, you’ll never know whether you:
- Are capable of doing the landscaping, or
- If you enjoy it
I never even considered the thought of doing my landscaping. Working 50 hours a week and being too exhausted, I guess I figured I could hire someone to make my yard look great.
I never realized how expensive it was to have someone do it for you, though. It was at that point I decided to give it a try myself, and I ended up enjoying it.
6. You think more strategically
It’s proven that money has a ton of weird effects on your brain, and causes you to act ways you usually wouldn’t. Just open one of those gossip magazines next time you’re in line at the grocery store.
I guarantee there’s at least one celebrity who got busted doing something stupid. Having more money means we have less wants. Meaning we lose motivation. Meaning we get BORED.
If you trick yourself into thinking you don’t have the money, you become frugal. Then you start to think more strategically. Here are a few examples of what I mean:
You plan your grocery shopping – what you buy as well as where you shop
You start to do things yourself that others would pay someone for, thus teaching you new skills
You understand money, budgeting, and the value of a dollar – so you’ll know when to buy something and when not to
You organize vacations in a way that nobody else does – you find a way to do it cheaply, and you avoid travel mistakes
The one that stands out to me is learning new skills. A frugal person naturally will read and research more. This is because they will want to do and fix things themselves.
My fellow millennials may connect with this example, but there was a game called the Sims that came out in the 90s. In the game, you had to train your character to learn new skills. You’d force them to sit down on the couch you bought for them and read books. This way they’d become more self-sufficient.
Same concept here – so imagine you’re a Sim:
7. You have improved relationships
This isn’t to say that you have to be frugal to have a good relationship. But being on the same page with money will help yours. If you’re both big spenders, you’ll realize you’re not building wealth, so someone has to be frugal right?
It’s no secret that money causes issues in relationships. In fact, 31% of adults with partners said money is a primary source of conflict in their relationship. If you’re frugal with money and your partner is a spender, I imagine there’d be an argument about money at some point.
That leaves one option – both committed to being frugal. And there are varying degrees of frugality. So you can have different views on money, but still be frugal.
If you pay yourself first and live off the rest, you might still buy nice things that you enjoy. But you’re still getting your frugality on. You might also be cheap and never buy anything – and you’re frugal to a different degree.
Commit to frugality as a lifestyle together. This way, you’ll both learn to live with less. You’ll be happier, be less stressed out, and retire early. All while still being able to enjoy the things you love.
8. You have lower stress levels
Money is the #1 leading cause of stress for Americans. Think about that for a moment. One study found that the reasons for this included the following:
- 64% of Americans have financial worries as a significant part of their stress
- Many people still feel “squeezed” financially
- Two factors contributing to the fear are inflation and wage stagnation
- 20% of Americans think starting a conversation about money is taboo
- Over 33% of Americans say talking to family about money is uncomfortable
- We deal with this stress by doing things like watching TV, listening to music, or exercising
Do you get a little sick to your stomach looking at those six points? I do.
Let’s break it down a bit further…Here’s the way I’m reading this:
More than half of Americans are anxious and stressed by money. And many of us are still living paycheck to paycheck. Wages aren’t going up, so we’re not making any more money, and we don’t even want to talk about. Instead of addressing it, we chill out by running, watching TV, and listening to music.
Imagine if we all did the following:
- Learned to cut back on our spending
- Paid ourselves first
- Stopped using credit cards
- Lived below our means
If this were the case, we’d start going all frugal on ourselves.
At that point, we wouldn’t be “squeezed” financially. We may be more open to talking about finances. And we wouldn’t have to worry about whether our wages were increasing. Because no matter what, we’re living below our means.
All these things, in turn, would cut our stress and solve this problem. Now if we could just solve world hunger through frugality. (Maybe we can? Note… new post idea…)
9. You’ll enjoy things longer
Do you get a new phone every two years when your contract is up? Frugal people don’t.
Why in the hell would you get a new phone if your current one is working fine? The only reason is… well, there isn’t one.
Being frugal, you don’t need the latest technology and the newest things all the time. This is because you’re impermeable to marketing. Every time we get a new piece of tech, a faster, sleeker and a more powerful version comes out shortly after. Then companies like Apple market the hell out of it so you feel like you have to buy it.
Here’s a secret – YOU DON’T.
If you do, you aren’t living frugally. With frugal living, you’ll find ways to get the most out of your devices – such as cell phones, tablets, and computers.
When it’s on its last legs, you find a way to reinvent it. This way, you can still use it instead of trading it in for something newer and better.
Here’s a scary statistic – most children have a cell phone before they turn seven years old. Yikes.
If we’re buying our kids phones that young, then buying new ones every two years – that’s a lot of dough you’re wasting. That’s $100 per year when you divide it out. So look at that example above to see what saving a hundred bucks a month can do for you.
Another example is clothes. They are a necessity – but when do they become an accessory?
Frugality will teach you to make the most out of your clothes and wear them until they can’t be worn anymore. Why would you buy new pants when the six pairs you already have are fine?
As a frugal dude/dudette, you’ll also find incredible deals on clothes and places to buy them for dirt cheap.
I can go on with hundreds of examples of ways you’ll enjoy things longer by being frugal. But I’ll skip that and get straight to the point.
Frugality means you watch your money, think strategically, and live below your means. This means you’ll end up buying less – yet you’ll buy right.
You’ll find great deals on high-quality products that last a long time. When they break or wear down, you’ll get creative and find ways to keep them alive.
This is what frugal people do – they make the most of what they have.
10. Experiences matter more than material possessions
So you’re living thrifty, right? This means you don’t need to buy material things because the ones you have are fine.
You’ve probably figured out how to pay yourself first and live off the rest. You’ve also probably begun amassing some wealth.
You may have even gotten good at controlling your wants, putting extra money aside for investing.
So what do you do with that money?
Because you’re a smart, frugal person, you know that buying more things will build more clutter. Clutter will cause you stress. You’ve already taken care of your savings goals, too.
So what the eff do you spend your money on?
EXPERIENCES. And sometimes that doesn’t even cost a dime.
Let’s compare two things that you’d spend your money on for a moment. I’ll do the best job to estimate the cost of each to make it even.
Let’s say you have $5,000 to spend (for the sake of argument saving isn’t an option). You can either buy:
- A MacBook Pro
- A 70-inch LED TV
- An iPad Pro
- A PlayStation 4 Pro
- A wireless BOSE Bluetooth speaker
- Take a trip to Turks & Caicos
Which would you choose? Those gadgets do seem pretty nice.
Let’s say you go with the devices.
You now can do all kinds of cool stuff on your new Mac and play music from it to your Bluetooth speaker. All while playing the latest Call of Duty video game on a 70-inch, badass TV.
Fast forward five years.
How do you feel about that stuff now?
What about ten years?
In 10 years all those gadgets will be completely obsolete.
Let’s say you took the prize behind door number two and chose a trip to Turks & Caicos. Turks & Caicos features the number one beach in the entire world, according to TripAdvisor.
You get to spend a week there. You lounge on the beach, swim in the crystal-clear water and eat local foods.
Initially, the lifespan of enjoyment on this is shorter (one week), but I’ll pose the same question as above.
Fast-forward five years. How do you feel about that trip now?
What about ten years?
You’ll look back at that trip as one of the best experiences of your life. You got to see one of the most beautiful beaches in the world, a journey that most people would envy.
Look at your neighbor who went and blew his wad on all those cool gadgets five or ten years ago.
Who’s laughing now?
How to become more frugal
By now you understand what frugality is and why it rocks. Now, take a few minutes to watch this video. It will show you tips on how to become more frugal TODAY. Go on, I’ll wait:
Well, there you have it. My take on why frugal living is so liberating.
Again, most of this stuff is already known, but we need to commit to putting it into practice.
Question for you:
In what ways do you enjoy living frugally, and how is it liberating to you? Please share your thoughts in the comments section below!
Chris is the founder of Money Mozart, a blog about personal finance. He discusses frugality, minimalism, and achieving financial independence by living well below your means. He’s also an avid craft beer lover and an aspiring minimalist.
Last update on 2019-12-05 / Affiliate links / Images from Amazon Product Advertising API