You can be too frugal. Here’s how to know when you’re being too frugal and how to balance saving for tomorrow while living for today.
It’s possible to be too frugal.
Saving money is savvy, but stinginess can only lead to tears and regret.
You’ve probably heard the story of the person who worked hard, scrimped and saved for that one big holiday in retirement, only to pass away before being able to enjoy it (isn’t that the opening premise of the movie Up?).
It’s a bit of a conundrum.
Frugal living is all about saving money for the future.
But a happy life is founded on focusing on the present and living in the now.
Consider the ‘latte factor’.
The latte factor is where you add up just how much a cup of coffee (or other small regular expense) is costing you over the long term to give you an idea of what you could enjoying if you just skipped the coffee.
At $4.50 a coffee, 5 days a week, that adds up to $1,170 a year. Think of all the things you could do with an extra $1,000.
But what if you really enjoy that coffee? What if it’s something you look forward to each morning? Should you choose the long term gain of $1,000 or should you enjoy your daily caffeine ritual? How do we reconcile saving for the future with enjoying the now?
The key is to find a balance. Don’t wait until you’ve climbed the mountain to enjoy the view.
4 questions to ask yourself to get the right balance
1. Do you spend less than you earn?
We all want a magical formula or silver bullet to solve our problems and make life easier.
And everyone will tell you there is no magical formula. Well, actually there is!..when it comes to managing your money:
S = E < I
Success (savings) comes when your expenses are less than your income.
In other words, are you spending less than you earn? Are you socking away some money for emergencies, retirement, savings goals, bills etc. and avoiding debt?
You could always save more money. But if you’re looking for balance, focus on saving enough, not as much as you can.
Set some goals, have a plan, put your plan into action and then get on with living life to the fullest.
2. Do you prioritise your spending?
If you want to set yourself up for financial failure, create a budget.
I know, right! Everyone goes on about how important budgeting is. I’ve written plenty about budgeting in the past as well.
But here’s the thing about doing up a budget. You spend ages trying to work out how much you need for the bills, groceries and expenses and then you try to save what’s left over.
In a budget, savings come last.
The thing is, there’s usually never any money left over at the end of the month. It just get’s swallowed up in day to day expenses.
You think: that’s ok, I can buy that, there’s money left in the bank. And then poof, your good intentions are gone.
Instead, savings should come first. Prioritise your retirement, emergency fund and financial goals.
Next, prioritise your bills. Use a savings plan to put aside each week enough to pay the upcoming bills and any debt you might have.
Then, last of all, live off what’s left.
Savings first, bills second, spending last.
When you’ve got your ducks all in a row, you can spend what’s left guilt free.
3. Do you have a guilt-free spending allowance?
What happens if, after you prioritise everything else, there’s no money left over for carefree spending?
Or what if you really want to supercharge your savings and reach a financial goal faster? Does that mean you should never have any spending money in the meantime?
Personally, I think having some guilt-free spending money, even if it’s just a few dollars a week, will create a better balance between living in the moment and always forward-thinking to the future.
So take just a little bit from the future to enjoy the now.
It doesn’t have to be much, just a couple of dollars a week if your budget is really tight – you can get most of your in-the-now happiness for free. But a few little luxuries can really make life worth living.
And it can keep you sane over the long haul. If you’re too tight with your money, you are more likely to throw it all to the wind and have a major blowout.
Both frugal hubby and I have a small ‘allowance’ (for want of a better word). I unashamedly spend it on coffees and he buys lunch at work occasionally.
And I really enjoy a coffee at the coffee shop a few doors up from where we live, and on the walk home from school drop-off, shared with my three-year-old daughter (she has a baby chino). Which brings us to the final question:
4. Do you spend money on what really matters to you?
There are a trillion businesses competing for our money and it’s pretty easy to waste it.
To spend money on what really matters ask yourself:
- Is this expense a need? Do I really need it? Is it important?
- If it’s not a need but a want, do I really want it or is it just a fleeting fancy?
You’ve probably heard of the KonMari* method of decluttering, where you’re supposed to hold every item you own, one at a time and ask whether it brings you joy. If it doesn’t, it’s time to let it go.
I don’t think that’s such a crazy idea. But we should be asking that question before we even buy something.
Is this thing going to bring me joy?
The best way to judge whether an item you’re looking at buying is really important to you is to distance yourself from the purchase. Write it on a wish list and come back to it a couple of weeks later. Do you still want that thing?
It’s surprising just how often the answer is no! The reason is because our emotions are fleeting and we often buy stuff to fill an emotional need.
A lot of us are out of balance because we spend too much, and that can be detrimental to our wellbeing. But being too frugal can be bad too.
To find the balance, put a savings plan in place (and a debt repayment plan if necessary) and enjoy the rest guilt-free. Get your ducks in a row for tomorrow and then focus on living today.