How To Be More Frugal
Since I have recently written about how lower expenses are more important than high earnings, I think I should spend some time discussing my progress in that very endeavor. While you could reach early retirement just by having an absurdly high income and not paying much attention to where it goes, that is probably reserved for the top 1-2% of earners out there and not applicable to the rest of us. Frugal living is really a lifestyle choice that promotes experiences over acquiring things.
Not long ago, I was a single, well paid mid-manager that had recently relocated to the West Coast. Surprisingly, my frequent trips to Vegas were actually more like part-time work since I was making money playing poker on those trips and meals and accommodations were comped by the casinos. I wasn’t spending very much money on vacations, since my trips home were often worked around business trips.
Unfortunately, my Amazon prime account was not on autopilot. I would decide that I “needed” something and immediately go out, do some quick reviews and price comparisons, then make a purchase. I had a lot of disposable income and was only saving through my 401k, some Prosper investments, and partially funding a Roth IRA. I could have easily maxed out my 401k and Roth and still put money aside into Prosper and a taxable trading account. Instead, I bought a lot of stuff. Most of it was never used.
Fast forward a few years and I now have a wife and two young boys to think about (and a much more demanding CFO job). Adjusting the budget has been fairly easy over time, but I was still leaving huge amounts in the shopping, home, and miscellaneous categories. Amazon was a quick way to buy a crib mattress, baby essentials, or small gadgets. One day I realized that I would buy something thinking it was needed, but it was really just a nice-to-have convenience item or even a complete want.
Setting a goal is important
It turns out the main thing I was missing was a defined goal. Once I had a goal for our savings rate and early retirement, it became a lot easier to avoid spending on things we don’t need (and never did). I set our goal at 50% because it was a substantial increase, but not so high that we would burn out. I think having that goal to remind you of what else the money could be used for is a great distraction. Frugal living requires that extra step of asking yourself “do I really need this item” before you make a purchase.
I also don’t mind seeing the auto-debits on paydays to both Roth IRAs and savings accounts from our checking account because it doesn’t feel like paying bills. It feels more like investing in our future. Many people have said the key to savings is making it automatic. We don’t miss the money because we get used to it being moved immediately. Instead of feeling like we are missing out on buying something with that money paying extra on student loans or the mortgage feels good. Whether we try to retire early or not, committing to saving and knowing the capacity to pay any bills that might come up feels great.
How to stick to it
Both my wife and I are allocated about $150 a month for spending on things like clothes, haircuts, and other goods. Anything for the kids like toys, clothes, diapers, and formula are allocated in its own category. We also have categories for both auto and home maintenance for things like oil changes, small repairs, tools, and lawn and garden expenses. I often ask myself if the item I am holding at Lowe’s is both a great deal and something that will save me time or money later on down the line. Most of the time, the answer is no and I put it back on the shelf.
While giving ourselves that extra cushion is nice, many would say that makes us not frugal. I think there are many levels of frugal living and we are fairly moderate in our choices. We have prioritized retirement savings, but have also picked some activities and purchases that make sense for us.
The combination of the budget along with more long term goals have helped us avoid being a consumer too often. We used to go to the outlet malls and wander around buying things here and there. Now we go with a plan and make sure it is both needed and a great deal. Costco can also be a trap for those without a shopping list. Go in for $100 of groceries and come out with $100 of groceries and $200 of other stuff. That still happens occasionally, by the way.
A couple of recent examples can really show how much we have changed.
- We make our own bread using a $5 bread machine from yard sale, $14 for a 50 lb bag of bread making flour at Costco (and some wheat flour as well), and a large brick of yeast from Costco (at about 10% of the price from the grocery store)
- We have started to make some other cooking related items as well like pancake mix and salad dressings
- My wife just stripped, sanded, and is in the process of restaining two old dressers. Instead of buying new, we will end up spending less than $20 to have solid wood furniture
- I have not purchased any clothes or sports gear in probably 6 months
- We have re-purposed items instead of throwing them away and saved money in the process
- My wife got a haircut for $9 using Groupon (that is difficult for women with long hair)
- The Amazon prime account is used about once a month now and will probably not be renewed
- Instead of having someone install new closet cabinets for us, we plan to make them ourselves
I do still go to Lowe’s a lot, but many times we leave without purchasing anything. I don’t feel like we are sacrificing at all. In fact, I think we are happier from focusing more on experiences than from acquiring new stuff. We have also learned a lot while trying many new things.