(This article is a part of the series aimed at dispelling some of the popular financial myths. Please refer to the full index for myths related to other financial topics. Oh, and a quick disclaimer: I am not a financial advisor. I have made every effort to research the facts before presenting them here. But, if you have a reason to believe any of the statements are incorrect, please feel free to correct me.)
- Myth: “Frugal living = Being cheap”
- Myth: “Frugal living = buying things second hand.”
- Myth: “Frugal living = giving up on all your indulgences.”
- Myth: “Living frugally will make me rich.”
- Myth: “Instead of worrying about being frugal, I should just focus on making more money.”
This myth is one of the biggest psychological barriers that prevents people from incorporating the concepts of frugal living in their daily habits. While one extreme of frugal living can mean being very cheap, you need not go to such extremes. Being frugal is a lifestyle choice, and you can choose the degree of frugality you are comfortable with and adopt it. There is a lot written on this topic in the personal finance blogosphere and you can find some interesting reading material here, here and here.
Frugality means different things to different people. The extent to which you want to incorporate it in your life should be decided only by you. Buying things second hand is definitely a great way to live frugally. But that does not mean you always have to buy everything second hand. Determine what works for you. Maybe buying books second hand is OK, but buying clothes second hand is not. Maybe buying the furniture second hand is OK, but buying a mattress second hand is not. You have to find what works best for you and go with it. Here is a thoughtful article by Golbguru about this topic.
Frugality does not mean you have to give up all your indulgences – it just means that you have to get creative about finding less expensive alternatives. Or cut down in other aspects of your life to be able to accommodate the indulgence. For instance, if you like hanging out with friends, you can opt for these frugal things to do, and still have a blast. If travel is your passion, you can use these tips to save for the trip of a lifetime. If you love having some quite time over a steaming cup of coffee, you can still do so – just make sure that instead of getting the coffee from Starbucks, you brew your own cup. Here is an interesting commentary on indulgence and simple pleasures.
Frugality is not a magic wand that will make money appear mysteriously! But, getting into the frugality mindset can help prevent you money from disappearing mysteriously :) You make what you make. At the end of the day what matters is how much of it you can keep. If your spending habits are not in control, even without your knowledge, you could end up throwing away a lot. Incorporating frugality in your lifestyle can help you keep more of what you make. So while it may not make you rich overnight, in the long run, you can be richer than what you would be otherwise.
There are two flaws in this argument. (a) If you increase how much money you make, but don’t keep an eye on how much you spend, you will eventually still be left with very little money at the end of the day. It is a general tendency for most of us to increase our lifestyle as our income increases. Unless we make a conscious effort to stay frugal and save, it is very easy to wake up one fine day that you are making $100K in income and still have fewer saving than when you were a student. (b) If you need to have $X more, then you would have to make $X + $Y more in order to account for the cut you have to pay Uncle Sam. Depending on how much you make, the value of $Y (the taxes) varies. But as you make more, the chunk of the pie that you have to give away in taxes increases. So, it just makes more sense to keep as much of what you already have than to try and make more and more money to fulfill your desires. Here is a great article that discusses Why Frugal Living Makes Sense than just trying to increase how much you make. Ideally, the best thing to do would be to live frugally *and* try to increase your income :)
That is the list of myths I have on the topic of frugal living. You can check out the myths related to other topics using this index. Watch out this space for more myths on more topics.