Because of financial difficulties, my wife and I decided to live more frugally. It was initially hard to live with, but it allowed us to get out of debt and start saving for our future.
The challenge of being more frugal became apparent when we looked at modern life. There are many reasons to be more frugal, such as the fear of being cheap.
After we started living a frugal lifestyle, we started to appreciate the many hidden advantages of it.
Pros of Frugality
Starting today, becoming frugal can transform your life in the most profound way. It can become the solution to a myriad of problems commonly faced by people living in modern society. It is truly a life changing mindset and behavior. Why? There are many reasons. Let’s take a lot at them one by one.
Less Debt & Fewer Money Problems
These days, debt has become the number one source of anxiety for many people. It is also the root cause of most if not all money problems. Credit card debts, college loans, graduate school loans, mortgages, car loans, medical debts – the list goes on and on.
While there are many superficial reasons why we are in this mess, there is only one fundamental root cause – we got into this out of control debt problem because we spend too much money, more than we should.
Frugal living solves the debt problem by directly attacking its underlying cause: spend less. When you spend less, you stop racking up new debt. When you spend less, you have more money available to pay down your existing debt.
The average US household expenses amount to $5,102 in total every month, which includes housing, groceries, healthcare, eating out, entertainment, travel, gadgets, cars, etc. Reduce that by just 15% and you have an extra $765 every month to pay down your debts.
The average credit card debt of US households is about $5,700, according to the Survey of Consumer Finances by the US Federal Reserve. Also according to the US Federal Reserve, the average credit card interest rate in the US is 14.52%.
If you plug those numbers into any one of the widely available online credit card repayment calculators, you will see that by living frugally and cutting expenses by just 15%, you can free up an extra $765 every month.
Using that extra $765 to pay down your credit card debt, you can completely pay off the typical household credit card debt in just 8 months.
Think about it, by adopting the frugal way of living you could be credit card debt-free in just 8 months!
After credit card, you can start paying off other debts that charge lower interest rates such as car loans, medical debts, school loans, and mortgages.
Alternatively, you can invest the money you have freed up to build a nice rainy day fund and nest egg. That brings us to the next reason why being frugal is important – being frugal is a great way to build wealth.
Savings & Wealth
After you have dealt with your debt problem, it is time to turn your attention to savings. Everyone needs to start saving and build up their wealth.
You need a rainy day fund to deal with any emergencies that may come your way. You may get laid off. There may be another pandemic. There will be another recession. You may get seriously ill and need some expensive medical procedures. The list goes on.
You also need a nest egg for your retirement. Do not rely on social security alone. Max your IRA or 401(k) contribution every month, but also set aside extra money every month to put into your investment account.
Let compound interest works its magic. Slowly at first but quickly eventually, your savings will snowball into something very significant. How significant? Let’s do the math.
Using our previous example, living frugally and reducing your monthly expenses by just 15% means you get an extra $765 every month. After you have paid off your high-interest rate debts such as credit card debts, you can put that $765 into an investment account.
So every month you put $765 into an investment account. Let’s assume that amount will increase by 3% every year as a result of inflation.
Also, assume your investment has an annual return of 10% – which is the historical return rate of the stock market index Standard & Poor 500. How much do you think you will have after 30 years?
You will have $2.2 million after 30 years. Amazing isn’t it? That is the magic of compound interest. Small things just snowball into something huge given enough time.
$2.2 million just by cutting your expenses by 15%. If you get even more frugal and cut expenses by 30% instead, you will end up with $4.4 million.
Start living the frugal lifestyle at 25 and by the time you are 55 you can have an extra $2.2 million to $4.4 million sitting in your bank, enough for you to have an early retirement.
According to the American Psychological Association, money is the No. 1 source of stress for Americans. This finding has also been confirmed by other research. Money, more than relationship problems, more than work problems, is the biggest source of stress in our society.
According to another study, 69% of workers are stressed over their finances. Americans’ credit card debt hits an all time high of $1 trillion in 2020, according to Federal Reserve. Ever since the Great Recession, student loan debt has ballooned 150% over just a decade to an all-time high of $1.4 trillion. Add car loans, mortgages, and medical debts on top of that, no wonder Americans are so stressed.
By living frugally, you can cut down or eliminate your debt. You can also build up a rainy day fund so you know you and your family will be OK even in case of an emergency.
Having this freedom from debt and this peace of mind will do wonders to lower your stress level.
Being frugal requires behavioral changes that very often end up giving you more free time as a fortuitous side effect.
For example, being frugal means cutting down on going out to bars and restaurants. That behavioral change will not only save you money, it will also give you more time to spend on other activities.
As another example, many frugal people prefer to cut their hair at home instead of going to a salon or barbershop. Not only do they save the money it would cost at a salon, but they also save the time it would take them to drive to a salon, wait in a line to get their haircut and drive back home.
Another way being frugal can give you more time is by cutting down the need for you to work long hours. Now that you need less money as a result of living a frugal life, you can afford to work fewer hours or to stop working that second job. You get less stress and more free time.
As we have seen above, being frugal can reduce your stress and give you more time. In turn, having lower stress and more time can improve your health. How? Let’s take a look.
Stress has been linked to a lot of health problems, including:
- High Blood Pressure & Heart Disease: A person under stress has a higher risk of high blood pressure and heart disease. Stress directly increases heart rate and causes the release of cholesterol and triglycerides into the bloodstream. People with high financial stress are 2 times as likely to have a heart attack than those with low financial stress.
- Obesity: Stress can cause overeating and overdrinking that directly lead to weight gain. Stress also causes higher levels of the hormone cortisol. Cortisol increases the amount of fat that is deposited in your belly. That’s right, stress can literally make you fat.
- Accelerated Aging: Stress can damage your chromosomes in a way that is similar to aging. Scientists have estimated that stress can accelerate your aging by 9 to 17 additional years.
- Diabetes: Stress eating and stress drinking can lead to obesity which in turn will increase your risk of developing type 2 diabetes by 3 times. Also, stress can raise the glucose levels of people with type 2 diabetes directly.
- Headaches & Migraines: Stress is one of the most common triggers for headaches and migraines. A 2017 study found that for many people, financial stress leads to more migraines.
- Depression & Anxiety: Unsurprisingly, stress is related to higher rates of depression and anxiety. According to one study, people with high financial stress have more symptoms of depression and anxiety than those who are not financially stressed. Another study found that financial stress is triggering anxiety and sleeplessness for 60% of workers.
- Gastrointestinal Problems & Ulcers: Stress is a common factor in many gastrointestinal problems such as heartburn and irritable bowel syndrome. One study shows that people who are under high financial stress are 3 times more likely to have ulcers and digestive problems than those who have low financial stress.
- Sleep Problems: Stress can disrupt your sleep pattern and cause sleep disorders such as insomnia. According to one study, the majority of the population (69% of women, 56% of men) suffer from sleep problems because they are worried about money.
By reducing your stress, a frugal lifestyle can improve your health by lessening or eliminating all the above stress-related health problems.
Additionally, a frugal lifestyle will give you more free time. With more free time, you can work out more, sleep more, and become less fatigued. All that will further improve your health.
Best of all, with better health you will spend less money on healthcare – there will be fewer doctor visits and fewer drugs to take. Lower healthcare expenses lead to even more savings and even less stress. Which leads to even better health. Which leads to even lower healthcare expenses, and on and on. It is a virtuous cycle!
Cons of Frugality
As we have seen in the section above, the advantages of being frugal are numerous. But that is not to say that there are no downsides to the frugal lifestyle. To get the full picture, let’s take a look at these downsides.
Frugal Lifestyle Does Affect Your Social Life
Does your current social life revolve around going out, getting drunk, shopping, or other activities that require spending money? Living frugally means drastically cutting back on these activities. No more going to pubs and clubs every Friday and Saturday night. No more weekly shopping trips to the malls with your friends. No more weekly dining out to “try out new restaurants.”
If you can no longer do these things with your friends, can your friendships survive? Realistically, for some people, the answer is no. Without these shared activities, their friendships suffer, and in many cases, they and their friends drift apart.
When you decide to adopt a frugal lifestyle, explain your decision to your friends and ask them to try out some new, inexpensive activities with you. Instead of going to the pubs, go on a hike together. Instead of dining out, have potlucks at home. You can also discuss the health benefits that tag along with these changes with your friend as well.
Not all friendships can survive such a change. Looking on the bright side, adopting to this lifestyle will not only improve your financial situation, but you also get to find out who your true friends are.
Being Extreme Frugal May Become a Fixation
Another disadvantage of being frugal is that it can turn into a fixation. You can become obsessed with deals and discounts. You might end up spending hours and days doing research just to say a few dollars. You might even forget about the whole idea of “sweet spot” and become fixated on finding the lowest prices no matter what.
Remember, living frugally is a way to reduce stress and improve your quality of life. It is not an excuse to engage in obsessive-compulsive behaviors. There is a fine line between being frugal and being cheap. Be conscious of that fine line and make sure you do not cross it.
Is Frugality Good or Bad?
Like most things in life, being frugal comes with both positives and negatives. On the positive side, being frugal can go a long way towards helping you solve your money problems. It is a great way to reduce your debts and increase your savings.
It can help you build up your savings to better weather any unexpected future emergencies. It can improve your health by reducing your stress level.
Last but not the least, it will put you in a much better position to deal with the next recession, not to mention your eventual retirement.
On the negative side, the frugal way of life can become a fixation for some people. They let this way of living take over their lives and affect their quality of life and relationships.
It can be a fine line to walk between being frugal and being obsessed with being frugal. Moreover, being frugal can have a certain impact on your social life.
If your typical socializing involves going to bars and clubs every weekend and getting drunk, adopting a frugal lifestyle is going to put a crimp in your style.
But all in all, the positives of being frugal are going to outweigh the negatives by far.
How to Live Frugally
Are you convinced by what you have read so far? Ready to join the frugal living movement? To help get you started, here is a list of simple and useful tips for effective frugal living:
- Live in a Smaller House: Housing cost accounts for the largest portion of a household’s expenses. Living in a smaller house will have a huge effect on reducing your monthly expenses. Over the last few decades, the average new US home has increased in size by more than 1,000 square feet, from an average size of 1,660 square feet in 1973 to 2,687 square feet in 2015. At the same time, the average household size has decreased from 3.01 persons in 1973 to 2.54 persons in 2015. In other words, the average living space per person has almost doubled from 550 square feet to 1058 square feet in just 4 decades. You do not need that big a house. Move to a smaller house and save a ton of money.
- Live in a Cheaper Neighborhood: Are you living in a gentrified neighborhood? Perhaps there is a “sweet spot” neighborhood somewhere else, a neighborhood that is still safe and nice but much cheaper because it has yet to be gentrified. Moving to a cheaper neighborhood will enable you to lower your housing cost substantially.
- Take Public Transportation or Ride a Bicycle: After housing cost, car related costs (car payment, gas, auto insurance, etc) account for the next biggest chunk of household expenses. If possible, get rid of your car and take public transport or ride a bicycle instead. By doing so, you can easily save $6,000 or more every year.
- Drive a Cheaper Car: If it is impossible to get rid of your car, consider driving a cheaper car or a second hand car. This is another way to significantly cut your transportation costs.
- Bring Lunch to Work: Instead of eating out at lunch every day, bring your own lunch to work. In 2015, the average cost of eating out for lunch was $11.14. When you bring your own lunch, you can easily cut that cost down to $2 or less. That is a saving of over $9 per day. Over a whole year with 260 working days, the total saving is over $2,300. That is a big chunk of change.
- Quit Getting Coffee at Starbucks or Other Cafes: The average price of a Starbucks drink in the US is $2.75. If you get one of those frilly Frappuccino drinks, it can easily cost you more than $5. Many people get coffee at Starbucks or some other cafes every day. Quit that habit and you could be saving $1,000 to $1,500 every year
- Cut Down on Cable Subscription: In 2020, the average household cable bill has grown to an astounding amount of $217 per month, which is higher than all other utility bills (electricity, gas, water, sewage, and garbage) combined. Do you really need that many premium channel subscriptions? Get rid of them and you can save over $1,000 per year. Better yet, be a cord cutter and get rid of your cable bill completely.
- Cut Down on Drinking & Going Out: How often do you go to bars and nightclubs? If you go out twice a week, each time spending $40 on drinks and $30 on cab or Uber, you will be spending $3,640 every year on your bar habit. You do not even need to stop going to bars completely. Just reducing your frequency of going to once a month and cutting down your bar tab to $20 will save you over $3,000 every year. If you find it difficult to cut down on drinking, at least drink at home. It is much cheaper that way.
- Quit Smoking: We all know smoking is expensive. A pack of cigarettes costs $6.28 on average. That means if you smoke a pack per day you will be spending $188 per month or $2,300 per year. Quit smoking today and save $2,300 per year, every year. On top of that, you will also save big on your healthcare cost.
- Quit Soda: While soda might not seem very expensive, if you drink a few cans a day every day that cost adds up quickly. In addition to that, soda is very bad for your health. Quit soda to save money and improve your health.
- Eat Out Less: Eating at restaurants can be an expensive habit. If you eat out for dinner once a week and spend $30 each time, you will be spending $1,560 every year. Cutting down on this habit and eating out once a month instead of once a week will save you $1,200 per year.
- Eat Less Animal Products: Adopt a plant-based diet will save you a big chunk. Eat more beans and whole grains instead of meat and cheese. Not only will you save money, but you will also improve your health and lose weight. It is also better for the environment.
Benjamin is a certified financial advisor, with over 10 years of experience in the industry. He is knowledgeable about various business and financial topics, such as retirement planning and investment management. Ben has been recognized for his work in the financial planning industry. He has also been featured in various publications.