Buzz
Frugality is often seen as a simple way to save money—cutting back on expenses in an effort to stash away more cash. However, some financial experts caution that this approach can hold you back. They argue that excessive frugality might prevent you from achieving more significant financial objectives.
At Two Cents, we discuss a variety of personal finance topics, some of which offer conventional advice. While this advice may seem basic, it's important to note that not everyone agrees with it. That's completely fine, because sometimes it's worth rethinking traditional guidance. In our "Money Advice the Experts Don't Agree On" series, we dive deeper into these seemingly straightforward topics and explore alternate viewpoints on the matter.
The Impact of Frugality
Many advocates of frugality view it as more than just a method of saving. In the book Your Money or Your Life, authors Vicki Robin and Joe Dominguez elaborate on this idea, emphasizing its broader significance.
...the culture of "more is better" is a relatively recent development in America. Our foundation is built on frugality, and it's about time we embrace both the term and the practice.
The authors proceed to explain what true frugality really entails. Here are a few key traits of a frugal lifestyle:
Appreciating and fully experiencing what you already have
Making the most of your time and possessions
Maintaining a high joy-to-material ratio (happiness comes from less)
Keeping your spending low so that you can invest your money and 'life energy' wisely.
"Big Wins" Vs. Frugality
Although frugality might seem like an easy concept to grasp, some financial experts contend that simply cutting back on expenses isn't the key to achieving wealth. In an article for the Huffington Post, personal finance author Ramit Sethi suggests that you should forget frugality:
The common advice of cutting back on lattes is a prime example of personal-finance 'experts' going off track. Not only does this tip often fail—since most people find their daily caffeine fix an essential pleasure—but even if it did work, saving $3 a day wouldn’t amount to much. There are far more impactful areas to focus on, such as automating your finances or negotiating a better salary. For instance, securing a $5,000 raise early in your career could translate to over $1 million throughout your professional life.
Sethi introduces the concept of "big wins." This approach emphasizes dedicating your time and energy to financial strategies that will have the greatest positive effect on your bank balance. He identifies seven key big wins:
Automate your finances
Begin investing early
Boost your credit score
Land your dream job
Negotiate a raise
Earn extra income on the side
Negotiate your rent
Yes, each of these areas is easier said than done, and they require time and effort—which is exactly Sethi’s point. He argues that rather than focusing on being overly frugal, you should concentrate your energy on achieving these big wins.
The Problem with "Don't Save More, Earn More"
Some call them big wins; others refer to it as "earning more." Either way, the concept is to shift focus away from frugality and dedicate your efforts to increasing your income instead.
Although this might seem reasonable in theory, Amy Daczyczn, author of The Complete Tightwad Gazette, describes it as a "one-sided approach."
And it comes with a major flaw. Almost everyone who earns more ends up spending more. As a result, many families, regardless of their income, seem to have just enough to make ends meet. Telling people to earn more instead of saving more is like advising, "Don't eat less, exercise more." When I realized that walking a mile burned the same amount of calories as an apple, I began to wonder how many miles I'd need to run to burn off a candy bar. It made more sense to simply give up the candy bar. Most Americans are running to burn off their candy bars. They rush out the door, rush to the daycare, rush at work…all to afford candy bars, video games, fast food, and designer shoes.
The core idea is that, even when people earn more—or focus on big wins—they often end up further behind because they expand their lifestyles by neglecting frugality.
When Frugality Fails
While frugality can be a worthwhile pursuit, some argue that it can sometimes prove to be a waste of both time and resources.
Matt Giovanisci, the host of the podcast ListenMoney Matters, explains that frugality can be a hindrance when your frugal habits don’t align with your true desires in life.
I consider myself frugal in that I don’t overspend or try to maintain a facade of "success" through my possessions. I’m mindful about what genuinely matters to me and I draw the line at eliminating things from my life that I truly care about. For example, I value coffee and beer more than almost anything, so I have no hesitation spending on them. However, I don’t place value on cable TV, so I don’t pay for it. I can either be a slave to a BMW or a free man with a perfectly fine Honda Civic… It’s important to decide what you truly value in life.
Giovanisci further points out that a frugal mindset can fail us when we fall for gimmicks that claim to save money. He mentions extreme couponing—spending hours going through ads and clipping coupons, only to stockpile things you don’t even use.
That time would be better spent earning money, rather than trying to save small amounts on insignificant purchases. If you’re going to be frugal, focus on the big wins.
His argument aligns with a topic we've discussed previously. Some suggest that it makes sense to concentrate frugality on the three key areas that create the most impact:
Housing
Transportation
Food
Finding the Right Balance
In her book, Dacyczyn argues that the debate over frugality boils down to finding balance. The goal is to focus on both earning and saving more, ultimately aiming for the highest possible quality of life.
When you start earning more money, resist the urge to automatically spend it. In essence, frugality and big wins can complement each other if you learn how to balance them effectively.
In Your Money Or Your Life, the authors suggest that true frugality lies in achieving that delicate balance.
Frugality is akin to this—not excessive, not lacking, but perfectly balanced. Nothing goes to waste or remains unused. It's a well-oiled machine...that magical word—enough.
Ultimately, it comes down to one key idea: increasing the gap between your income and your spending. Frugality helps reduce expenses; earning more increases income. Ideally, you’d do both, though we've also discussed how you have a finite amount of willpower. In the end, you need to weigh both sides to make the wisest use of your financial willpower.
