We review the common advantages and disadvantages of adopting a frugal lifestyle. 

It is a big misconception to assume that frugal means cheap. In truth, the classic definition of frugal is closer to resourceful than cheap.

Here’s the main conceptual difference between the two terms; Cheap is usually associated with cost while frugal is associated with value.

Frugal can be described as being economical in use or expenditure, or not being wasteful. Frugal people will spend on important items but not unnecessarily. On the other hand, cheap is focused on low costs and inexpensive attributes of products or services, and to willfully stringe on things that are considered important.

Being frugal saves you money. You would refrain from using up your money in many aspects of life, including food, luxury, and living expenses, among other things. Frugal habits help you to derive or optimise the financial value of things by being as resourceful and as mindful as possible in your actions and decisions.

This may come easily or naturally to some people, and they may have been taught to manage a tight financial ship from an early age. Others may need to culture this habit. Whichever category you fall into, be aware of the pros and cons so you can motivate yourself and also avoid pitfalls.

Pro #1. Develop a Habit of Saving

The most essential benefit of being frugal is that it establishes a habit of saving money, which is critical because most people find it difficult to save money and end up taking on too much debt, which leads to them paying debt and interest for the rest of their lives.

Saving money is simple to understand but difficult to put into practice, and thrifty people acquire this ability, giving them an advantage over others when it comes to money management.

Pro #2. More Money for Saving and Investing

Even though this is the most important benefit of modest living, it is nevertheless worth discussing. You will have more money for saving and investing if you live a frugal lifestyle.

It’s a straightforward concept: the less money you spend, the more money you keep. That means more money saved, more money invested, and a steadily improved financial status.

Think about Warren Buffet, the investing legend himself, who is clearly well-versed in the art of frugality. He know how to hold, manage, and spend money in ways that benefit him in the long term, instead of spending every last penny on short term gains.

Pro #3. Earlier Retirement

The best thing is that if you live a frugal lifestyle before retirement and make it a priority to get out of debt, live within your means, save, and invest, then your investments will be substantial and you can enjoy a more opulent retirement lifestyle.

At the same time, having already a habit of living frugal, your retirement costs will be minimal as your carry similar lifestyle choices into your golden years. This helps stretch your retirement fund even further.

Pro #4. Higher Risk Tolerance

When it comes to investing, bigger risk equals higher potential profit. And when you live frugally and within your means, your ability to tolerate risk naturally develops. This is as you would be more likely to have more funds available as reserves or in diverse investments allowing you to take on a bit more risk when it comes to investing. However, if you are living beyond your means, making multiple loan payments each month, and having little or no savings, you don’t have much room for financial error.

If you live frugally, debt-free, and within your means, consider diversifying your portfolio with higher-risk assets.

Pro #5. More Ability to Give Generously

True frugality requires an emphasis on generosity. The most significant distinction between thrifty and cheap people is that frugal people are generous.

A cheap person is willing to put someone else’s financial condition on hold to better their own. A thrifty person, on the other hand, is prepared to decrease their spending to give generously and meaningfully while staying within their means.

Con #1. It Can Be Socially Embarrassing at Times

Another disadvantage of being frugal is that it can be embarrassing for the individual as well as family members. Some situations may require leniency in terms of spending, especially when navigating social situations.

Understandably, some social judgement will be out of your control at times, since the misconception between frugality and cheapness are so closely intertwined. However, you can control how much flexibility you choose to exercise depending on priorities. If it really means much to someone that you spend a little more on something once in a while, it may be worth doing so.

Con #2. Easily Falling into the “Cheap” Trap

As with any new passion, hobby, or habit, sometimes we may take things too far.

It takes some time and practice to know how far and wide ranging your frugal habits should extend to in order to still steer you within the frugal lane and not stray into becoming cheap. Likewise, it will also take some time and practice to adjust your habits to apply to particular situations.

At the end of the day, make sure your frugal choices are positive ones that are needful and bring value.

Con #3. A Difficult Habit to Break

The major problem of being frugal is that once it becomes a habit, it is extremely difficult to break free from it. Even if one has enough money and there isn’t a need to be very strict in your frugal ways, old habits die hard.

Know your financial goals and work with your licensed financial planner to gain more clarity on your wealth to help keep things real.

Yes, there is plenty of benefit from staying frugal even after achieving “enough” wealth. However, one should avoid getting into the scenario of having enough money but being too frugal to enjoy it, even a little bit.

Conclusion

Whether you intend to adopt a frugal lifestyle completely, or whether you intend to learn certain traits that frugality has to offer and apply them to your life, either way it’s bound to be a good thing. Like everything, control and discipline over excess should be practiced. The frugal life is commonly misunderstood, but only those who understand its potential payback (especially in uncertain times) are willing to go down the path.

 

What other pros and cons have you observed from frugal living?

 

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