The idea of living frugally has been gaining momentum in recent years. Every year, more and more people are taking the plunge to join the movement of frugal living.
Faced with economical challenges such as increasing inequality, lagging income, exploding costs of housing, college, and healthcare, and an unprecedented pandemic shutdown, it helps to change your habbit to frugal lifestyle.
What is a Frugal Lifestyle?
A frugal lifestyle is a way of living focusing on a well-balanced budget. People who live a frugal lifestyle tend to make smart decisions financially by prioritizing their spendings and know the value of their purchases.
Being frugal can help you lower your stress level, pay down your credit card and school loans, build up a rainy day fund for emergency needs, and even achieve an early retirement by boosting your nest egg. All you need is a persistent change in behavior.
Frugal living is not about being cheap and miserly. It is about being smart and enterprising. It is not about paying the cheapest price. It is about getting the best value.
What Is a Frugal Person Living in a Frugal Lifestyle?
A frugal person does not compromise essential living standards just for the sake of spending less money. A frugal person has a set of well-defined objectives in life – reducing debts, lowering stress, building up a nest egg, etc – and they set to achieve those objectives by being smart and resourceful with how they spend their money.
Being frugal does not mean basing your buying decision on pricing and pricing only and always going for the cheapest option no matter what. Being frugal means balancing quality and price and looking for the “sweet spot” of the best quality at the best price.
For example, instead of buying the cheapest available running shoes for $30 that end up causing knee pain and falling apart after 2 months, a frugal person would do the necessary research to find a pair of good quality runners that are long-lasting and gentle on their knees for $60 and further reduce that price to $50 by using a coupon.
At the same time, a frugal person would also understand that while a pair of top of the range running shoes that cost $200 is even better than the $60 runners they have chosen, the marginal improvement in quality is not worth the more than tripling in price from $60 to $200.
In short, a frugal person has an instinctive understanding of the 80/20 Rule (aka the Pareto Principle). They know that getting the best value hinges on finding that “sweet spot” where they can get the most (80%) of the benefits of the top-end option at a fraction (20%) of its price.
Difference Between Frugal, Thrifty, and Cheap
A frugal person is a smart spender who understands when to spend how much on what. A thrifty person is someone who saves and conserves as much as possible. A cheap person is a stingy individual who saves and conserves regardless of consequences.
There is a fine line between being frugal and cheap and it is important to understand that so that you will not cross that line. When it comes to money and spending, there are 3 types of mentalities and behaviors that are similar to each other but actually very different.
These 3 are: frugal, thrifty, and cheap. To clear up any confusion, let us look at them one by one.
- Frugal: Frugal people care about both quality and price. They have a very good understanding of “make every dollar count”, and they’re expert on finding “sweet spot” pricing of getting the best possible value at the best possible price.
- Thrifty: Thrifty people are very good at “repurpose and recycle”. Thrifty people are happy to utilize what they already have and tend to be very eager and creative when it comes to reusing an item.
- Cheap: Cheap people tend to focus on lowest possible price regardless of quality. They struggle with understanding the meaning of “you get what you pay for” and end up spending more to cover their misjudgments.
Behaviors That Make You a Frugal Person
- Buying a good quality jacket at the lowest possible price that is durable and comfortable. It is not a name brand designer jacket to show off, but it gets the job done adequately for a very long time.
- Buying a used car instead of buying or leasing a brand new car. Bringing a mechanic friend to used car dealership to check and test.
Behaviors That Make You a Thrifty Person
- Instead of buying a bird feeder on Amazon, cut a plastic bottle and use string/pen.
- Plan out a weekly cooking schedule. Buying frozen veggies in bulk from a warehouse club at a price cheaper than that at a regular grocery store.
Behaviors That Make You a Cheap Person
- Buying a drone even though already has one, all because it was found at a garage sale, in a working condition and was only $10. Guess what happens in 2 days.
- Loves deals and coupons. Keep stacking up unnecessary items in their house just because they were on sale.
What Does a Frugal Lifestyle mean?
Being frugal is a way of living that aims to lower expenses by being smart with spending. If a person lives a frugal style, they tend to make purchases that are the best values at the best prices.
- The frugal lifestyle has been gaining momentum rapidly in response to macro trends such as rising inequality, lagging income growth, exploding costs, overwhelming debt, and uncertain economic outlook
- A frugal person has an instinctive understanding of the 80/20 Rule. They know that getting the best value hinges on finding that “sweet spot” where they can get most (80%) of the benefits of the top end option at a fraction (20%) of its price
- Being frugal can help you solve your money problems and become debt-free
- Being frugal can build savings and wealth. 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
- Being frugal can reduce your stress, give you more free time, and improve your health
- Adopting a frugal lifestyle can potentially hurt your social life. You might need to find new friends
- It is important to not let your frugal lifestyle become a fixation
- Being frugal is different from being thrifty or cheap. Frugal people find the best value. Thrifty people make do. Cheap people go for the lowest price no matter what.
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.