Is Frugality a Tool?
Is Frugality a Tool?
I have been pondering as of late why our community sometimes feels close minded. We, as a group, are not always open to the idea of luxury purchases. In many ways, I think this is often due to the opportunity cost fallacy. This theory, that money spent on the unnecessary (depending on whose viewpoint you agree with) could be invested and compounding, often leads to heated debates on social media. The fangs come out, and such words as justify and wasteful are thrown about with callous disregard to the unique viewpoints and financial situations of the audience members involved. On further inspection, it appears that the emphasis on spending, per se, is misplaced. What we are really talking about, in essence, is frugality. Is frugality a tool or a way of life?
How you answer this question depends not only on your world view, but also on the meaning you find behind financial independence in the first place.
Frugality as a Tool
Is Frugality a tool? Many high W2 income earners think so. They make a lot of money and enjoy spending it. They balance this joy with the deeper contentment of reaching financial independence. Often these folks only like to be penny wise because they have to. They would rather drive expensive cars and take expensive vacations, but realize that in the long run this is not the right path.
This caricature (and it is only a caricature because people don’t fit so neatly into a box) believes in saving a high percentage of income. But, if they had their druthers, would rather do that by increasing income and not decreasing spending. They maximize their W2’s and excel at the side hustle.
You will see many of these high income earners achieving financial independence. But, they will do so with a larger nest egg and a higher yearly spending allotment.
In these circles, there is no shame in driving a nice car or even foregoing travel hacking.
I fit squarely into this group.
Frugality as a Way of Life
The grand majority of financial independence seekers do not see a high income as the ticket to financial independence. In fact, there are loads of hacks and life optimization strategies that almost completely leave out income from the equation. In fact, there is a certain glory in rising to such heights without the benefit of a boatload of money coming in every year.
When you ask them if frugality is a tool, they answer no without hesitation.
It’s a way of life.
For this group, the use of money has nothing to do with utility. Frugality becomes not just a moral issue but also a badge of honor, an identity. And there is good reason.
Studies show that after a certain point, spending does not improve happiness. And we all know about the hedonic treadmill and hedonic adaption.
This group rightly argues that frugality not only helps reach financial independence, but also is one of the pillars of happiness and contentment. To live more on less.
Anyone who has ever read the minimalists knows what I’m talking about.
So it is not unfamiliar, nor unfair, to see a frugality blogger who now makes millions on their blog or marketing schemes. I would argue that they hold true to their frugal lifestyle regardless of how much money is coming in. They formed their philosophies as lower wage earners. Does the amount of the money coming in change the rightness of the worldview?
In Conclusion
I am desperately searching for an all-inclusive umbrella for the financial independence community. Whether you see frugality as a tool or a way of life, we all believe in living under our means, saving, and investing. We all dream of side hustles and getting out from under the thumb of the W2 man.
If you see frugality as a tool, you are likely to spend as much as you can within your FI budget.
If you see frugality as a way of life, you will probably cling to your frugal ways no matter what fortune brings to your bank account.
Either way. In this man’s humble opinion.
There is plenty of room for both.
Nice! I’m squarely in the frugality as a tool camp… even though compared to you Doc’s, a household income in the mid 100’s wouldn’t cut it as high income…. but this is where i want to focus my efforts…. growing income to the 2, 3, 400K mark… i think that will really put the path to FI in full gear.
The income lever should be more of a focus for everyone. And then frugality should come after that. Definitely not extreme frugality though!
I think the income lever is important. Many overlook it.
Like anything I think there is a continuum for any label. There are the extreme frugal people (who live almost a bare bones nomadic existence) and those that consider themselves frugal because they spend far less than they earn but because of high income still have high consumption items that at an outsider at a lower income might think is a luxury spend). I’m more in the latter camp.
Being frugal is a good tool in path to FI because it allows you to adapt to a less expensive lifestyle and thus reduce the overall amount needed in retirement.
After 1k you spend less a year is 33k less you need for your nest egg
But can frugality go too far? Once we have enough, can the grip be loosened?
Frugality can certainly go too far. It goes too far if it negatively impacts happiness, health, and well-being.
Can spending go to far? Even if you can comfortably afford it?
Interesting. Maybe spending can go too far if it negatively impacts other people’s happiness, health, and well-being.
I think it can go too far if it becomes the only goal (i.e. how frugal can you be). If you are denying yourself just for the sake of denying than I think it is gone to a pathologic extreme.
Frugality is definitely a tool to financial security. But there’s also the aspect that if everyone in the world lived like we do in the first world, the Earth would simply not be able to handle it from a resource and consumption point of view, it’s not sustainable. So I think the people who look at it as a way of life are looking at it from that angle.
Like most everything, I wonder if a mixture of these two views is best.
Those are the 2 extremes. Of course, I would like to drive a nicer car. Who wouldn’t? However, financial security means more at this point. I prefer money in the bank to driving a nicer car. I guess we lean more toward frugality as a way of life. I’m pretty sure that will change as we get older and more comfortable financially.
I guess the question is, what if you are financially secure and still can buy a nice car on top of it. Should you?
If it makes you happy, I say yes. Who cares about hedonic adaptation (which is really just mentality). As long as we value and appreciate what we do have (in this case, a nice car), then hedonic adaptation shouldn’t be an issue and we should not be any less happier by having the nice things that we cherish.
Very true.
Is frugality even a thing? Frugality is a comparison against non frugality. What is non frugality and who is comparing? When I retired I set a budget based on monte carlo projections of portfolio failure based on my portfolio size asset mix risk and reward for a 30 year horizon. My budget was set at 80% of my pre-retirement spending. Once I was retired I decided to see what my bottom line belt tightening was, so I frugalified and minimalized. I could easily cut another 30% out of the cost of my existence without being at bare subsistence. With a “50% spending range” I didn’t bother to go lower, but we likely could have (think 1929 crash). We were early in retirement and I was still getting a handle on moving parts. I highly recommend this experiment. At the low end my wife was still OK with our lifestyle and there is no point in gilding the Lilly. She was a good sport no point in pi**ing her off. So now I had a real apples yo apples understanding of my personal frugality, not based on some blogger or social media maven with an agenda selling me his/her soap. Frugality has it’s basis in proper asset and risk management and an in depth and granular understand of what retirement spending will be like during the various epochs of retirement.
IMHO that is more important than saving $50 on some deal. Hacks may seem to save you money but those hacks get paid for by you anyway. If you think your credit card is giving you “free sh**” you’re naive. You can save money with extreme coupon-ing if you want to live on a bunch of little cookie packs, or really need a closet full of deodorant. For example GCC decided his wife was going to make soap. So they got all the stuff needed to make soap. He dressed his wife up in protective clothing and googles because of the chemical danger. She made soap. I think in the end it cost more by a lot, than a bogo with a coupon down at the Kroger, but he had him a blog post, and that’s how he makes his money. If I asked my wife to make soap she’d punch me in the nose! (and then whip out a bogo coupon)
I like the concept of it being personal. I think we should all be very careful about hating over other people’s decisions.
Definitely in the tool camp. Honestly I don’t understand how frugality itself can make anyone happy other the as perhaps some sort of unwinnable race to the bottom competition. But utilizing frugality and other tools can lead to other things that actually bring hapiness.
As you know, I wouldn’t call myself per se frugal. I just don’t want much. Don’t spend much on myself.
“I am desperately searching for an all-inclusive umbrella for the financial independence community.” My theory is that we are ALL financially free already. Have been since we made our first penny. The way we make our choices, which are ours, sets the stage for whether we find ourselves toiling away because we want to spend more, toiling away because we like it, or being minimalists, like John Muir, selecting a path close to his own “nature”.
Okay, that’s my take, as my mind wanders hiking through Yosemite these last few days. Oh, the joys of not working (according to me)!
Yosemite….sounds great. Wisdom from nature.
I am so inconsistent that it would be laughable to even think of a label. I will not spend if I don’t need to but will think nothing of dropping coin on a luxury car. (For my husband) And I would happily still take the bus.
I will buy clothes from Patagonia since they stand by their products and makes my life easier. But I have never paid for a house cleaner ever.
I think it’s call value based spending. Whose business is it to tell you what or how to spend YOUR MONEY. How does anyone else know what your life set up is and what you value?
I’d never give a rats A$$ what any random person says about what I spend on or don’t.
MB. I like the way you think! I like the term Valuist. We spend money on what we value.