I recently wrote a post about how to be a contented investor which suggested that it wasn’t just the total return you accumulated that was important, but also the manner in which it was done. If someone experiences sleepless nights with their investments , then arguably settling for a slightly lower return may be worthwhile considering.
Similarly, the manner in which you save and build up your savings is probably just as important as how much you save. In my case, we like to aggressively save our money, but we can’t do without some of “our basics” such as the occasional nice dinner out, bottles of wine, laptops, tablets etc.
In my view, there are a few different types of frugality
The frugal lifestyle – This is the person who is focussed around eliminating any and all cost out of their budget. No expense escapes review, whether it is transportation, food, clothing. With limited affiliation to brand name, frugal lifestyle is able to aggressively review and eliminate any and all expenses at a far higher rate than the rest of the population. These are the types of people with the highest savings rate to disposable income, and who are likely best positioned for investing success by virtue of the sheer amount of available income they have. Saving rates to disposable income can be as high as 80% for this group.
The frugal minded - These people actively look for opportunities to reduce costs around non core items. There may be certain types of expenses that they are just unwilling to compromise on (“core expenses) but these items likely form a minority, rather than a majority of their expenses. They may look to pay their credit card expenses in full, and exercise some diligence in what goes onto those cards in the first instance. Outside of their core expenses the frugal minded are actively focussed on eliminating cost and substituting cheaper items. Saving rates for this group can be as high as 40-50% of disposable income. While reasonably well positioned for investment success, this group could do more to save, if they really wanted to.
I would say that we probably fall into this category. In our case, while we are prepared to punt on cable tv, while we find that we cant find it in us to forego that occasional bottle of wine, or dinner out, and even that nice set of new clothes ( probably more in my wifes case i think!).
The “Frugal-No thanks”. This group have an intense desire to consume. Spend today and worry later probably typifies their attitude to life. Rather than having an aggressive savings plan, its quite possible that they may be looking at additional debt to fund purchases. It’s fairly important that if you think you may be in this group that you take steps to work out where they may be areas to start cutting out excessive spending in your life. Savings rates in this group could be anywhere across the spectrum, potentially even negative. The good news for this group is that they have the largest upside potential to see significant increases in their savings rate and investments if they choose to make the effort.
Of course, the reality is that people may find themselves somewhere across a blend of all these stereotypes, and we can’t always neatly stereotype spending and attitudes to spending into a nice package.
But back to my central question, is it possible to be happy being frugal?
In my view, this comes down to whether you have accurately matched your attitude to frugality to your lifestyle. If you have done so, I would argue that you can in fact be extremely happy being frugal. As you start to see exactly how much you are able to save up each month, there exists almost a hidden drive to outdo yourself in terms of how much you can save the next month, and the next month. Provided you aren’t being frugal to the degree that you are eliminating things that are core to your happiness (and who knows, that morning cup of coffee cold be one of those things!) you are likely to find a strong and stronger desire to save more and more money each week.
And one of the very interesting things as a dividend investor is that you start to see the direct linkage with what you save and the amount of dividend income that you earn. Eventually, you begin to draw the correlation that any excess consumption that you can cut directly contributes to the amount of annual passive dividend income that you earn.
That’s probably enough to bring a smile to anyone’s face. I think if you can match your frugality with your lifestyle and you can see the efforts of your frugality in your investment success, then yes, being frugal can indeed make you very happy.
What do you think. Can being frugal make you happy?
I agree with you. Happiness and frugality depend on how well your lifestyle matches up with your personality, needs, and wants. I’m somewhere between cheap and frugal, and if it wasn’t for my desire to save at least 50% of my income I would like to move closer to the spendy side of frugality gradient.
I make certain categories of spending off limits to frugality. For instance, I have a huge grocery budget even though I’m single. Because I like meat, I like wine, and I like cooking. Making great meals gives me pleasure, so I spend on it.
MyFI,
Food definitely falls into our “core” area where we don’t look to economize or attempt to cut costs. It gives us too much pleasure and we don’t feel inclined to sacrifice here.
Integrator,
I think everyone’s view on quality of life and what increases/decreases it is individual.
I also think frugality i something that one can adapt to, as in hedonic adaptation. Just the same as you quickly adapt to that new car or the bigger house, you also adapt to a smaller food budget, a small apartment and less discretionary spending in general. At first I found it to be a bit tough, but now frugality is no longer a means to an end but rather the end. I quite enjoy not only the saving of money, but also the the reduction of materialistic desires. It’s quite freeing.
Best wishes!
DM,
Completely agree with you about quality of life and frugality being individual attitudes. I think people can be happy if they find the level of frugality that works for them. Interesting point about being able to adapt to frugality. I think peoples life changes also make a big difference on your ability to be frugal. Once we had kids, our level of frugality dropped dramatically.
Good topic, but always a hard one to measure because everyone has such a different opinion on the matter. I’m in the “The frugal minded” category. I look for every opportunity I can to save here and there, but I don’t obsess. Why? Because I believe that your effort is better focused on growing your income rather than reducing your spending. That’s not to say you shouldn’t be mindful of what you buy and whether or not you need it. But I couldn’t imagine cutting back to $1000 per month or something crazy like that. I think life was meant to be lived and your money is a tool to help you succeed at that. Investing and saving are all good, but there are experiences you only get when you open your wallet and live a little.
My Money Design,
I agree about needing to be realistic on what you can economize. Destroying your level of enjoyment of life by being too frugal will probably push you back the other way, which then defeats the purpose.
I definitely fall into the 2nd category. I live frugally because saving and investing is a major focus of mine. However I don’t take it to the level where I’m completely sacrificing the ability to enjoy life in the present. it’s important to strike that balance no matter where on the frugality spectrum you may fall.
The multiplier effect from $1 saved, invested and compounded would probably be huge. It would be interesting to see if people could see that equation up front whether they would be more motivated to be more frugal.
I believe in the long being frugal can make you happy. However I have to admit when I’m in the moment and can’t indulge in what I want, I dread it completely! Like you said, I believe in finding a balance. My family and I are past ramen noodles and peanut butter jelly sandwich diets. =)
Ramen noodles brings back memories of college life……oh never again! I’d rather dip into my last dividend dollar then have to go back there!
I am frugal and dont mind it at all, but I am not at the point where I am unplugging my tv at night. The way I see it is, “Do I need to have this?” Can I put this 5 dollars to better use? Obviously, my saving/investing it, I have a much better option and I can secure my future and piece of mind
Well said Mike. The day I tell my wife that we need to unplug the TV to save money to invest will probably be the day that my desire to save has gotten in the way of common sense. It all comes down to what utility you get out of that extra $5. The interesting thing is that $5 is probably more like $100 by the time its invested, compounded and discounted, but thinking too much in this way destroys your current enjoyment of life.
I’m more of a mix between the first 2. There’s some expenses that I have cut out, such as cable because my wife and I just weren’t getting much out of it. As a replacement we have just local channels and subscriptions to both Netflix and Hulu. However on travel I have no problem spending because I really enjoy it and love getting to see new places. I’m a strong believer in spending on what makes you happy and cutting the rest as much as possible. I lean a little more towards the frugal lifestyle but that’s more of a function of how my daily life is due to my job and that I’m really pushing hard for early FI.
We love travel also JC. I think along with food and spending on the kids that that’s an area which I don’t see us being able to economize on. Its part of our “core” so to speak.
I love being frugal !!!
I’m not extreme. I don’t use cloth reuseable hankies or toilet paper..even though I see nothing wrong with it. When our 4 children finished school we bought a 5 unit apt building. We all took a unit, and share the expenses.We rent out the family home. We have a shared phone line (because we all have cell phones), internet and cable connection between the units.
We travel about 8 months of the year in Australia.We own a campervan and use a lot of the free campsites along the way.We also housesit while there for families and so have all the comforts of home without any added cost (just need to bring our food & toiletries)
You’d be surprised how happy you can be, with only a few possessions. We buy many things used, and repurpose as much as possible.
On average, year round, we spend $12-$15k a YEAR. Our frugalness allowed us to have a parent home all the time with our children.Paid off our house,and used that equity to buy others (we own other rental properties). Retired from other paid employment at age 46 & 50…and free to travel.
So yes, being frugal is definately worth it
Make as much food from scratch as possible. If you have a certain treat food you like to buy..for example , pecan pie…buying it when it is on sale.If travelling, buy a cooked chicken and salad and eat at a park instead of going to a restaurant.
Whatever it is you want..just find a cheaper way to do it.
Thanks for coming by Kathryn! I agree that we can all use less clutter. To your point, if a frugal lifestyle that you are happy and comfortable with results in a significantly earlier financial independence, then thats something we should all look to try and integrate into our lives!