Campaign Against Financial Myths:
Part 8 - Frugal Living

(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.)

  1. Myth: “Frugal living = Being cheap”

  2. 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.

  3. Myth: “Frugal living = buying things second hand.”

  4. 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.

  5. Myth: “Frugal living = giving up on all your indulgences.”

  6. 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.

  7. Myth: “Living frugally will make me rich.”

  8. 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.

  9. Myth: “Instead of worrying about being frugal, I should just focus on making more money.”

  10. 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.

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Jenn @ Frugal Upstate said...

Great Post. I just love when Personal Finance Bloggers highlight frugal living.

I'm not broke by any means, but I practice frugal living. Not because I have to, but because I want to. . that I can spend money on the things I truly enjoy. So we have motorcycles, and are buying a new home (which is actually an old home, 1899) etc etc.

I sort of got flamed for the house choice a few days ago because a reader couldn't understand that and seemed to think frugality was about not spending money at all.

Anonymous said...

Frugal living is almost always more earth-friendly, too.

I'm thinking more before I make a purchase, all the way through to whether it will eventually end up as landfill.

..and can I re-purpose something I already have to fill the need?

..and I've found that less stuff mean more personal freedom

Anonymous said...

I agree with Anonymous, Sept. 3. I wish people who breed animals, dogs, cats, horses, would think more about where the offspring will wind up, many in the dumps. This is just part of responsible living, thinking of the eventuality.

kellys said...

My favorite myth about being frugal is that you aren't allowed to spend money on yourself. My philosophy is to live within your means so that you CAN enjoy the finer things in life -like dinner out with your spouse - without having to feel guilty for paying a babysitter. If you have stayed within your budget, and budgeted a date night a couple of times a month, then you don't have to fell guilty about it. It's all about a budget. Not just cutting costs.

adam lehman said...

grad money man,

i’m a college student who is looking for some free software to manage my various accounts (savings, checking, etc.) and a place to track my daily spending. I am currently using an excel doc, but do you know of anything better?

you could write a post about it or reply. I read all your stuff.


James said...
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