Frugality is a popular idea, especially among those who are looking to reduce debt or get their finances in order. To many people, being frugal means spending less on non-essentials, looking for deals, and saying no to big purchases. Common advice seems to suggest that frugality is a path to becoming rich, but that isn’t realistic financially or psychologically.
Frugality alone isn’t enough to help you grow wealth or retire earlier. However, it does have some valuable benefits, especially in freeing up space to reach your financial goals faster. But you have to pair it with something else, such as a high paying job, an aggressive debt-repayment plan, or investing for the long term.
A plan for frugality should recognize the importance of spending less now and use that to reach for more down the road. For many people, having a long term goal is key to staying motivated to change your spending habits.
Frugality is a means to an end, not an end in itself. Here are four realistic benefits you can expect from a frugal lifestyle:
- Creating breathing room. Not living paycheck to paycheck is a goal we should all aspire towards. While it’s true that some people will need to make more money to escape that cycle, others can benefit from spending less. Even a modest growth in your checking account balance can be a huge emotional relief if you’ve been living on the edge. This benefit is within reach for many people and a great starting point for frugality.
- Providing flexibility. Flexibility means the ability to make decisions purely from the point of what you want to do. Frugality by itself likely isn’t going to cause you to have more money than you know what to do with, but it can help pay down debt, build up a small emergency fund, or allow for a special purchase down the road. All of these benefits can make you feel more capable and less constrained by present circumstances.
- Building financial resilience. Living frugally won’t make you rich, but it will change how you adapt to challenges. Let’s say you decide to pay down your debt more aggressively to reach the point of having zero debt. You’ll be paying down more principal than interest each month and if an emergency hits, you’ll be in a stronger position to reduce your payments and still stay on track with other financial projects. There’s a sense of comfort in knowing that you are making progress and that you’ll be in a stronger position going forward.
- Accelerating progress. While you can’t get rich from being frugal and paying down debt, for example, you can certainly make more progress. That progress will feel even faster compared to the slow growth you are likely to see with making the minimum monthly payments or following the status quo. If you’re stuck and want to get things moving, frugality is a great way to pick up the pace and re-inspire yourself to stick with your financial journey.
If frugality isn’t a path to getting rich, then what is it good for? The purpose of being frugal is to free up space, and add financial maneuverability to your plan. Frugality alone can only take you so far, but that’s not the right way to think about things. The benefits of being frugal come from what they allow you to do. With more space in your budget, you could choose or mix any number of financial goals, including: accelerating your debt payoff, investing more, saving for a special purchase, or building an emergency fund. Take a moment to consider how far you could go in your journey if you had more space to work with each month.