Does Being Frugal Make You Feel Richer?
It's easy to rationalize why frugality makes sense today. We’re seeing higher prices at the pumps, the grocery stores, and everywhere else. When costs climb, it’s time to focus on the things that truly matter and identify those that could wait a bit longer.
Frugality helps keep more money in your pocket but can also hinder your finances. How frugality impacts you depends on your approach.
When Frugality Makes Sense
During times of economic uncertainty, it makes sense to budget your money and rationalize spending. Rationalizing your spending habits is good for everyone. It allows you to grow more aware of how and where you spend your hard-earned cash.
Do you need that $2,000 Cartier shoulder bag you’ve been eyeing, or should you hold off for a bit? When inflation is wreaking havoc, leading to higher prices everywhere, it might be better to consider starting a sinking fund for something you want but don’t necessarily need. This way, you’re not bursting your budget, but you’ll still get what you want in the end.
Cutting back on buying unnecessary items isn’t a bad thing, nor does it need to be a permanent habit. Instead, cutting back allows you to free up more funds to cover your and your family’s needs while facing higher prices during uncertain times.
Working on a Goal
Like creating a budget, having specific goals makes sense for frugality and pairs well with it. Buying a house is a major life goal for many. The problem is producing the down payment and closing costs, assuming you want to avoid paying private mortgage insurance or mortgage insurance premiums for the next 20 or 30 years. Down payments don’t come cheap, either. They’re usually 20% of the price of the home. Closing costs often factor in another 3% to 5%. So, if you hope to buy a house with a sales price of $400,000, you’ll need to save upwards of $100,000 to cover the down payment and closing costs.
Not every goal is huge, though. Maybe you want to save for a car or a vacation. For that, a little research on what your goal will reasonably cost will help you set a smart goal, and frugality is the mode that’ll help you reach that goal.
When Frugality Doesn’t Make Sense
There are also times when frugality doesn’t make sense and can harm your finances rather than help them, thereby sabotaging your efforts.
Buying in Bulk
It’s hard to beat a great deal. Anyone who loves shopping can attest to that. Sometimes it’s easy to go overboard and buy more than you intended, all in the name of saving a few bucks.
That mega package of toilet paper might be a great deal for someone, but if you’re the only one at home, do you really need 30 rolls?
There’s nothing wrong with stocking up and keeping a few essentials on hand, especially during periods of inflation, when the supply chain is struggling, and sometimes items are harder to find. However, take care not to go overboard. Instead, recognize your needs and habits and buy according to what you’ll need and use.
Sacrificing Too Much
Sometimes frugality takes a different meaning. Instead of stocking up on household items, it means cutting back – way back – and sacrificing too much. Yes, it is possible to be too frugal.
Sometimes we sacrifice quality for quantity.
That bundle of no-name paper towels, for example, might seem like a bargain until you try pulling a few towels off the roll only to have them shred and fail to sop up the mess now running off the kitchen counter.
There’s a separate argument for quality products vs. the alternative. It’s better to value quality over quantity.
The Final Word
Inflation and economic uncertainty don’t last forever. Kiplinger reports that recessions tend to average about 17.5 months. While some may choose to stick to a frugal lifestyle, living frugally now doesn’t necessarily mean you must live frugally forever, and it can help you stretch your money further.
Making smart choices with your money is important, but take care not to sacrifice essential items just to a few bucks.
Aim for quality over quantity and consider doing a budget analysis to get more in touch with how and where you spend your money. Extraco offers a free online budget analysis calculator for your convenience. Make frugality more about prioritizing how you spend your money and less about spending as little as possible. In this way, you can still enjoy some of the things you care about.