Frugality is a wonderful thing. It helps you be more value-minded when spending, increases your satisfaction with simple pleasures, and helps you grow wealth at a faster rate!

But, like so many good things in life, frugality can reach a point of diminishing returns. It’s not a financial tool that fixes everything, and being frugal to the max can have major downsides.

In this post we’re going to run through the pros and cons of frugality, and talk about some ways you can develop a healthy embrace of frugality in your life.

Pros of Frugality

The truth is that developing a frugal mindset will save you more than just money. It lends itself to being more content as well because you’re less tempted to consume.

Here are some of the positive things about living a frugal lifestyle…

1. Easy & Immediate Savings

Frugality and finding ways to cut back is a move that virtually everyone can make. You can literally spend less money and start saving more- today.

It doesn’t take much if any research, does not require opening a special account, it doesn’t require you to go and get a 4 year degree… Frugality is a democratic approach available to all!

When you pay less for something that provides you the same value, you can pocket (and invest) that excess money without affecting your quality of life. Being frugal means not paying extra when it’s avoidable. It means controlling your wants which will limit your expenses. 

Not everyone will come to the same conclusions about where to cut or reduce expenses. For example, some people will opt to cut their hair at home in order to save a few extra bucks, others wouldn’t even consider that as an option. But the ability to be creative and to choose your own adventure in order to save money is one of the factors that makes frugality a legit superpower.

Related: How to calculate your savings rate (and improve it!)

2. Sooner & More Flexible Retirement

Not only does frugality allow you to begin saving and investing more now, but by maintaining a frugal lifestyle into retirement, it effectively means that you need to set aside less money in order to actually become financially independent too.

Sometimes we refer to it as a double-edged sword. But really it’s more of a triple-edged sword! Increasing your frugality now means spending less and saving more in the near term, but it also means more years of financial freedom over the long haul.

3. Less Stress

One of the biggest stressors for people in life is money. Humans are riddled with money fears, anxiety, financial FOMO, and every other negative feeling under the sun.

But being frugal can ease financial stress significantly. Because when you spend less money, you can naturally avoid debt, create a bigger savings pile, and otherwise build more financial security in your life. This directly contributes to more mental ease!

Having a more solid financial foundation means you won’t stay up at night worrying about how to make ends meet. This is one of the reasons we encourage people to create a bare bones budget. Even if you don’t use it, just knowing that you can reduce spending and live a very frugal lifestyle (and survive just fine) can put you at ease if unexpected disasters strike.

4. Eco-Friendly & Sustainable

Frugal folks know how to reduce, reuse, and recycle. Why buy new things when old things still work perfectly fine?

Buying secondhand items and extracting more value from them is a win/win/win situation. It helps the person trying to get rid of things, the person buying gets a good deal, and it also helps the environment. Because when we recycle old stuff, we end up manufacturing and creating less. In a way, frugal people are helping save the planet.

Another cool skill that frugality teaches is thinking long term, and buying quality and durable goods – even if they cost more up front. Instead of spending $40 on a jacket that is likely to wear out in two years, a frugal shopper may pay $300 for a jacket that will last for the next three decades.

5. Greater Life Satisfaction & Appreciation

Frugality means buying new things only when absolutely necessary. The opposite of this is being a spendthrift, spending money willy-nilly, often in an attempt to placate yourself emotionally. 

And it’s a slippery slope when you believe that you never have enough in life. Overconsumption and always wanting more only gets worse the more you accumulate.

This is why frugality leads to more satisfaction in life. Frugal folks have a much better understanding of when they have “enough”. They are able to appreciate the stuff they already have, instead of pining for the stuff they don’t yet possess.

Cons of Frugality

Changing where you shop for groceries is ‘smart frugal’, but eating only rice, beans and ramen is extreme frugality run amok. It’s unsustainable! So clearly there’s a line in the sand where frugality provides diminishing returns.

Most of the downsides come into play when frugality is taken to the extreme. Here are some of those obvious cons to frugality…

1. Fear to Take Risks

When you don’t have the right information and knowledge, frugality can be a default behavior in order to be ‘safe’ with your money. In this case frugality might be rooted in fear, rather than a logical, mathematical approach to your finances.

Some of that might stem from childhood experiences with money, being told often that your family just couldn’t afford something. Or it could be a hangup you developed in early adulthood when your first job offered a meager salary.

Either way, making money decisions based on fear isn’t healthy. It can lead to an overly conservative approach to investing (or never investing at all), being too scared to buy a house or take on “good debt”, and not taking advantage of opportunities.

2. Less Focused on Income

If you’re obsessed with living as frugally as possible, you’re going to be less focused on more powerful money levers, like pursuing a fatter paycheck.

And the reason I say it’s a more powerful lever, is because unlike spending less where there is only so far you can cut back, there’s almost no limit to how much money you can earn! 

We’re not going to preach a Tony Robins-esque message here. While there’s power in visualizing something, you can’t just manifest a gargantuan paycheck. But it is possible to have frugal tunnel vision, missing out on the other levers that can increase the health of your finances.

Frugality is a tool, but so is increasing your skills to move up the career ladder or negotiating for more pay. Don’t neglect the other ways that you can reach your final goals. Using frugality alone won’t get you where you’re trying to go.

Related: Earning more or spending less, which is more important?

3. Conservative Investing

We’ve talked about spending less, and earning more, but of course there’s something else that you need to do with your money: invest it! And one of the downsides to becoming laser focused on frugality is that you might be less inclined to invest your money.

Extremely frugal folks run the risk of adopting a hoarder like mentality. They can become so focused on ‘protecting’ the money they’ve accrued that it’s kept locked up in a super safe savings account. 

Having some money liquid is important, it’s necessary. But what happens when you’re so frugal that you avoid investing? Your money doesn’t grow nearly as fast as it could. In fact, inflation slowly erodes the power of those dollars. 

Being so frugal that you neglect to invest for your future will lead to real problems.

4. Limits Life Experiences

Going too hard in the frugal direction will limit your life experiences. You’ll forego that destination wedding, or potentially avoid taking a family trip that would have produced incredible memories.

Ultra-frugal folks can become such basket cases on the topic of money that they neglect to funnel some of their excess into areas of life that matter a whole bunch. They can be short-sighted, letting dollars and cents rule every decision in their lives.

But money is a tool to help us lead a fulfilling life! If we neglect to spend it on important experiences, we’re short-changing ourselves by letting our frugality run the show.  

5. Frugality Can Hurt Relationships

It’s hard to sustain a lifestyle of extreme frugality and still have a lot of vibrant social connections. You’ll find yourself saying no to things that you really could afford to do, all because you’re too focused on building up a massive nest egg.

That’s when frugality morphs into being cheap. Being ‘cheap’ is when it negatively impacts the people around you. Thinking only about yourself (and your money) will eventually be a hindrance to making and keeping friends. 

6. Not Valuing Your Time Enough

This is one of the biggest challenges that ultra-frugal folks face. They’ll do almost anything to save a buck, even if it means spending precious amounts of time that they’d rather spend hiking, playing games with friends, or just reading a book.

Sometimes it’s worth paying someone to clean your house so you can take the entire day off and relax. The most frugal folks often end up devaluing the most important resource of all: time.

How to Find Balance Living Frugally

OK, so we’ve run through the pros and cons of frugality. Now let’s talk about how to live a frugal life without going overboard. We want you to experience all of the upsides without the diminishing returns by going too hard in the frugal direction.

Be Frugal, Not Cheap

The terms “frugal” and “cheap” are often used interchangeably, but they have different meanings. Frugal people are careful with their money and avoid unnecessary spending. Cheap people are more concerned with saving money at all costs.

Although these two groups may seem similar, they have different motivations for their spending habits. Frugal people are motivated by the desire to get the most value out of their money, while cheap people are motivated by the fear of spending money.

Here are some different examples of frugal vs cheap activities:

All in all, if you stick to the frugal activities and stay away from the cheap ones, you’ll experience more of the joys that frugality can provide and fewer downsides.

Know Your Needs vs. Wants

Challenge your assumptions about what you need. Our buddy Katy Wolk-Stanley has a great saying “Use it up, wear it out, make it do, or do without.” If you follow this thought train when looking at the things in your life, you’re bound to live more frugally.

Of course, it’s possible to take that too far… Everyone lives life a little differently, and sometimes it’s OK to buy new things. But the main point is that buying new when you could easily buy used  is like taking the easy way out. And frugality is a kind of like a muscle that needs to be used and built up regularly.

Determining our true needs vs. wants can be tough. But it’s a worthwhile exercise, because humans can justify the most foolish of purchases in their minds if they really want to.

Related: Check out these fun money challenges to help shake up your attitude towards savings!

Give yourself Permission to Spend

While embracing a degree of frugality can be a great habit, we’ve seen how it can be a difficult one to shake when it’s time to actually start spending money. To some naturally frugal folks, it’s going to take some work in order to give yourself permission to spend.

We call this knowing your “craft beer equivalent.” Because craft beer is our favorite splurge! You might not care about beer at all. That’s totally fine. But figuring out what your “craft beer equivalent” is is crucial. It’s really just the little guilty pleasure in your life that you spend money on that might not make sense to anyone else. 

Spend with joy on the few items that bring you extra pleasure and happiness! Having a release valve of sorts in your budget, spending intentionally on those things month after month, will make sure you’re not leaning too hard in the frugal direction.

Budget According to Your Values

Once you’ve figured out your craft beer equivalent, see if there are ways that you can redirect existing expenses to increase your joy. Take a look at your spending. Where your money goes should be a reflection of your frugal values. Do your current expenses reflect what you care about? 

Can you redirect some of your budget funds to ensure that more money is flowing towards the things that truly provide your life with value?

For example, that might be cutting back on eating out to the tune of a few hundred bucks a month so that you can actually afford to take that family vacation. Or ditching a car from your life so that you can free up thousands of dollars, allowing you to take a work sabbatical.

The Bottom Line:

Ultimately, we want you to have a bigger vision beyond just saving money. Frugality is certainly one part of the equation. But if you focus too long and hard in that direction, you’re likely to miss out on the other side of the equation.. Which is spending your money in ways that bring you joy.

We shouldn’t feel guilty about spending within our means. The money stories that make me the most sad are the ones about the janitor or librarian dying with millions in the bank. They made very little, lived with common sense frugal habits, and amassed a fortune. But they also completely missed out on some of the joy that money was able to bring them while they were still living!

Yes, be frugal. But don’t view your whole life through that frugal lens or you may suffer some of the downsides that come alongside extreme frugality.

Related posts:

• Saving vs. Investing: Know the Difference
• 18+ Frugal hacks to try this year!
• 11 Free Services and Stuff to Take Advantage of

Beer tasting notes:

While talking about the pros and cons of frugality we enjoyed The Void of Perspective That Became You and Me by Burial. And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!

Best friends out!