Writers on personal finance blogs and websites are, on the whole, a frugal bunch – or at least, we don't spend a ton. But: frugality for frugality's sake; is frugality a good goal? Is frugality overrated?
Frugality: Is It a Good Goal?
Personal finance readers are a diverse bunch.
You come to us in various stages of your journey: looking to retire debt, balancing spending and income, optimizing your investments, even approaching financial independence.
But: frugality qua frugality is a terrible goal. Frugality in the service of other, more meaningful goals is excellent:
- Be more self-sufficent
- Spend less money so you have more for other pursuits
- Show others cheapers ways to accomplish a task
- Reduce your burden upon the planet
As an individual goal, frugality is lacking. As points on a scoreboard and divorced from a broader purpose, frugality is not a good goal.
Chasing Nickels Around Dollars: Frugality's Failings
Reducing your expenses is an excellent goal. With more cash flow, you can do the things that are more important to you.
In fact, reducing expenses today is worth more than future planned income increases. However, there's a limit.
In theory, there is no limit to increasing your income. Here on Don't Quit Your Day Job..., we suggest cutting your expenses to a point - eventually it's worth it to turn your focus to earning more.
The phrase "penny wise and pound foolish" is a great summary.
Frugality is great when everything else is in order. It's great when you are trying to fit expenditures into a budget that has had a shock. In general, frugality is a great thing - once you clear out all of the other major obstacles to straightening our your financial house.
But – there is a limit to your frugality. Once you cut your expenses to a reasonable degree, you should turn your eyes to increasing you income. On its own, frugality is overrated. You should sweat the big stuff.
Is frugality overrated or worth it?
We're not trying to say don't be frugal – especially in the beginning of your journey. Not at all - in fact, early frugality in the service of reducing your expenses and therefore increasing your cash flow is awesome.
The other thing you need to keep in mind is how personal finance writers approach the topic. As you can see, 'Frugal' is an extremely popular topic, to the point where it competes with the broader topic of 'Personal Finance'.
Keep this in mind: people who write about frugality, blog and site owners – they're already optimized financially. They've already optimized a lot of the Personal Finance side; they make more than they spend and they have manageable debt.
If you're just coming to Personal Finance, know that there's a whole other side: earning more income. For many people, expenses are the first place you should look then it's time to look at income.
When is frugality suboptimal?
Again, as we mention these criteria, know we're only interested in knocking down frugality for its own sake. A dose of frugality is extremely useful when first approaching your finances.
Once you're optimized, you need to to think things through. There are four main reasons you shouldn't concentrate on frugality.
- Comparative Advantage - In this case, comparative advantage means there is an optimal way for you to spend your time which better helps your finances. It may mean sewing your own clothes. However, it's usually better to spend your time on big things like a mortgage refinance, investment re-balance, or side job.
Go after the largest problems first, then move on to sewing your own clothes and other frugal pursuits.
- Questionable Quantities - Some things only make sense on a cost basis if you have an unlimited amount of space.
Food and consumer goods are great examples. You may be able to get printer paper much cheaper if you buy ten cases, but there's a thin line between cost-effective shopping and landing on Hoarders. Buy in bulk if it makes sense from a space and dollar perspective... but stay on the right side of the line.
- Major Effort or Danger - It's certainly possible (in many localities) for you to grow a bunch of your own food. It might even be cost effective!
However, the sheer amount of time that would go into that pipe dream would be massive. Ditto when danger is involved. (If you aren't sure what you're doing, don't try to do electrical work yourself.)
Sometimes the promise of savings just isn't worth the squeeze.
- Sunk Costs - Sunk costs are costs that have already occurred and irreversible.
For example, if you already bought a bunch of tools to repair something and realize it's more dangerous or harder than you thought... stop. Hire out the work, and ignore the amount of money you already spent.
Before You Optimize Frugality, Sweat the Big Stuff..
Many people have their finances in order and enjoy the frugal lifestyle. For them, it's a great thing to pursue.
However, frugality straight out the gates is usually messing around at the margins. The majority of folks should be investing time and money optimizing their recurring payments, and paying down debts, reducing expenses, then trying to earn more.
All I'm saying is: if you're starting now, don't buy the chickens for the eventual eggs. Work on your expenses, and get those in line. When they're in good shape, try to increase your income.
If you want to come back to frugality after that? You know better, and you have good reasons!
However, on its own frugality is overrated.