Could Frugality Actually Be Making Your Finances Worse?

The frugal living trend isn’t new, but it is growing. And the influencers are loving it. A quick Instagram search just threw up 966,000 posts tagged #FrugalLiving.

It’s easy to see why. The cost of living crisis. Stagnant wages. Spiralling costs for education and healthcare — which are inevitably leading to higher levels of student and medical debt.

Being frugal is not a bad thing. It can impact your budget and help you pay down debt faster. But the frugal millionaire myth is misleading and the idea that frugality alone will make you wealthy is a lie.

Perhaps more concerning, the current extreme frugality movement simply isn’t healthy. The American Psychiatric Association suggests that frugality can be a symptom of obsessive-compulsive personality disorder (OCPD) if taken too far.

Too much frugality can even make you poorer. It can put all your focus on making relatively small tweaks that often come with the smug satisfaction of having saved money, without having actually saved you anything long-term, and sometimes while costing you more than you saved.

There’s still a pervasive idea that it’s designer coffee and avocado toast that’s stopping young people being able to afford things like buying a house . But It’s been pointed out many times –  by many personal finance writers and vloggers – that while skipping that workday $5 latte and weekend $15 brunch makes a difference, saving $40 a week still means it will take you around 24 years to save up a $50,000 house deposit.

What’s more, the level of extreme frugality some influencers are advocating doesn’t save you $40 a week. Some people are prepared to clip coupons and drive around town looking for cheaper alternatives to save around $0.75, and that — quite frankly — doesn’t make much of a difference.

The Trouble with Extreme Frugal Living

Extreme frugality is problematic. Here are a few of the reasons why.

It’s burning up your time — you’re spending an hour researching how to save two bucks, or spending a day driving to five different stores to save $10.

It gives you the feeling you’re saving money and in control of your finances whereas if you look at the big picture, you’re talking tiny drops in a very big bucket.

It often leads to savings so small they’re not actually worth investing for the future, so they’re likely to be frittered away on something else you want or quickly sucked up by something else you need.

It distracts you from other more important things you could be doing that would actually lead to solid income, like upskilling, changing jobs or starting a profitable side hustle.

It creates a scarcity mindset where you end up very engaged with – and in some ways committed to – the concept that you can’t afford things, so you stop looking for growth opportunities that would enable you to afford more.

It has natural limits and they’re really quite low. There’s only so much you can save with constant belt-tightening, and often the less money you have to spend the smaller your savings will tend to be. Frugality, basically, doesn’t scale.

It can be expensive. Always buying cheap has big drawbacks. The car that constantly breaks down. The cheap appliances that break. The second hand stuff that wears out quickly because it was already half worn out. The wrong kind of frugality can be costly.

What to Do Instead

These are my favourite three ways to avoid the traps of extreme frugality while still being reasonably frugal in all the ways that make sense to me.

Earn more. This may sound like an obvious but ridiculously difficult to implement idea. But in fact it’s often easier to earn more than to spend less. Take the time you’re spending driving around town trying to save 20 cents on gas and spend that time on upskilling for a better job or starting a low-cost side hustle. Instead of aiming to save that 20 cents, aim to add an extra $1,000 a month to your income.

Invest the extra. It’s not worth investing 20 cents. It may not even feel worth investing the $40 a week you saved by dropping your lattes and brunches, but it’s definitely worth investing $1,000 a month. You could even spread it across different investments to create a diversified portfolio over time. If any of your investments have tax benefits, dividends or other perks, even better.

Think twice about purchasing things as cheaply as you can, and learn to recognise a false economy. It definitely is worth saving money on some things. If the generic version really does the same job as the branded version, or the second hand version will last as long as the brand new one, with the same running costs, go for it. But be prepared to invest in quality when you know it will pay off in the long run.

The aim is to keep your frugality at a level that is genuinely helpful to your long-term budget, not at the level that the APA defines as a mental illness. There’s plenty of wiggle room in there, so it’s just a case of finding a level where you’re comfortable.

About the Author

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen