I was walking up to the checkouts at the store today, deciding which line to choose. I hate this decision. I always pick the wrong line. Every time. No matter what. Even when the person has just one item, it never works out.
Sorry for the side rant, it just happens too often. Anyway, this time I got in line behind a lady with a half-full cart. She unloaded her cart, and then proceeded to rummage through her purse. Great…coupons. Now, don’t get me wrong, I’m all about coupons here and there – they can be a great way to save in certain circumstances. But sometimes it just doesn’t matter.
I was watching this whole transaction unfold while I was waiting to checkout. The clerk rang up her whole half-basket of stuff and the total came to $64.17. Then the lady handed the cashier a small handful of coupons. He scanned them. The first one took off $1. The next one $0.50. When he was done, the total was $60.67. She had saved a whopping $3.50. That means her stack of coupons all had to be like $0.25 off!
That’s just not worthwhile. Sure, it saved her $3.50, but that’s not going to build wealth for her. Frugality just doesn’t cut it.
The Fallacy Of Frugality
I have a big problem with frugality for one reason – it’s usually just not worth it. Not in every sense, but in most circumstances, the money saved by being frugal is lost in other alternatives.
A prime example is coupons. In many cases, the money saved on coupons doesn’t make up for the time spent finding, organizing, and using the coupons. This isn’t the case every time, but it is the case most of the time.
To save the absolute most amount of money possible, couponing takes a lot of time, research, even spending money to buy coupons. How do you think the extreme couponers usually get their coupons? They buy them! Once they’ve collected the coupons, they have to research – figuring out which stores have items on sale, usually by spending time online or even driving to different stores to compare prices. More money spent.
Finally, when it’s all said and done, they typical savings of grocery store couponing saves $100s max. Usually over the course of an entire month or longer.
I would say the $3.50 saved by the lady I was watching at the store is average. I bet the lady at the store spent 30 minutes couponing to save that $3.50, for an effective hourly rate of $7 per hour. Less than minimum wage!
When Frugality Makes Sense
Frugality can make sense in a lot of situations, so don’t the fallacy of frugality stop you from caring in general. Just remember, frugality alone won’t make you rich, but it might keep you from being poor.
Some instances where it can make a lot of sense include bills such as cell phone plans, cable bills, and more. You should also be mindful of your insurance bills and even loans.
But do you see the difference there? When you are cutting coupons, you are saving money on items that are already usually less than $10. When you’re talking about items like cell phone bills, these could run you over $100 per month. If you could save $10 on your cell phone bill each month, that will save you $120 per year.
The other thing that these bills have in common is that the savings is pretty easy to achieve. Most of these bigger items can realize large savings with a simple 20 minute phone call.
Try it tip: I urge you to call your cable company right now and say you’re considering dropping cable or moving to a competitor like AT&T. Watch how quickly they offer discounts and incentives to stay. It will take minutes but you can get huge savings.
That’s when frugality makes sense.
Alternatives To Frugality
But the bigger issue here is that there is a huge alternative to frugality that most people forget. What is the alternative to saving money? It’s not spending money; rather, it’s earning money.
Here’s where wasting your time on frugality can either make the difference or simply be a time waster. When you are being frugal, you’re spending a valuable commodity – your time. When you are cutting coupons or searching the Internet for the best price, you could be producing and selling something during that time.
Simply put, you could be earning more instead of cutting coupons.
The biggest roadblock to building wealth via frugality is that there is a lower limit on how much you can actually save. You can’t live on $0 per month. It’s not possible. You could reduce all your bills, by say 50%. How much money is that going to put into your pocket? Maybe $1,000 extra? That’s nothing to scoff at, but that’s it.
But when you earn more money, there is no upper limit to how much you can make. Instead of saving $1,000, you could earn $1,000. But it doesn’t stop there – you could easily keep working at it and earn $2,000, $10,000 or more! The only limit is what you set for yourself.
Now earning$10,000 doesn’t happen overnight, but earning $100 more per month easily can. We have a list of 50+ Ways That You Could Earn An Extra $100 Per Month. Or, even better, you could turn your earnings into a passive income stream and watch it pay you every month. That’s what happens with dividend paying stocks and investments.
Or really, you could just start that side business that you’ve wanted to get going. Start by asking your 3 closest friends if they would buy from you. Post it on social media. Share it with everyone you know. If you can get 3-5 people to pay, you have a good idea.
Don’t feel comfortable going to your friends and family? Try looking online for work – UpWork, job boards, and more. There are limitless ways to earn extra money.
The Frugality Equation
The trick here is that you have to know when it makes sense to be frugal, or when it makes sense to earn more. In almost every situation, it makes sense to earn more. However, there are times when it makes sense to be frugal, and times when it doesn’t.
For example, most of the time at the grocery store, it just doesn’t make sense to be frugal. However, when looking at car insurance it makes total sense to have your frugality hat on.
You need an equation. This is the frugality equation, and it’s not the same for everyone.
If Money Saved < Potential Money Earned = Don’t Be Frugal
If Money Saved > Potential Money Earned = Be Frugal
Money Saved = How much savings you’d achieve by being frugal
Potential Money Earned = How much money you could have earned in the same amount of time, work, and effort
Let’s look at some more real world examples of how this equation works.
When It Pays To Be Frugal
Recently I was shopping for a new cell phone plan. My old plan was great, but my phone was dying and the company wouldn’t keep me grandfathered in. I had to buy a new phone and plan. But cell phone plan shopping is one of the biggest pain in the ass purchases you can make. It takes time, you’re rarely comparing apples to apples, and since there are salespeople involved, it’s always a bit sketchy on the information you receive.
But cell phone plans have a huge range of payment plans – the cheapest contract plans are around $10 per month, and they go up into the $100s. Finding the right plan for your needs could easily save you $50 per month – or $600 per year. That’s a huge savings.
But it can take a while to figure out what the best plan is – and it’s frustrating. Let’s say it takes 3 solid hours of work to figure it out, plus an extra 1 at the actual cell phone shop because they always take forever. I know I can make $100 per hour if I set out to earn more money.
Let’s put in cell phone plan shopping into the equation:
$600 < 4 Hours of Work * $100 per hour = $400
In this case, the money saved ($600) is more than the potential money earned ($400), so shopping around for a cell phone plan is totally worth it.
When It Doesn’t Pay To Be Frugal
A friend of mine is into the extreme couponing craze. She follows several “pro” extreme couponers online and on Instagram, and does a ton of research each week. She even buys the coupon inserts – spending about $15 per week on stacks and stacks of coupons.
I asked her how much time she spends trying to coupon, she estimated about 5-7 hours per week, or about an hour a day. How much is she saving? Well, she was excited because her last trip had the biggest savings ever – $127. But she said she averages about $50 per week in savings.
That’s huge, and you could argue that she’s getting her money’s worth, at least for what she spends buying coupons. But the gap is in the time commitment.
She spends 5 hours per week at the low end. And let’s say that she’s pretty new to earning more money, so she can only earn $50 per hour – that’s still $250 per week she could potentially be earning for the time she spends couponing.
Doing the math, she could earn as little as $10 per hour, and she would earn at least what she’s averaging. You can get a part time job at $10 per hour. That doesn’t even require effort. If she put a little effort into earning more, she could easily at least earn $20 per hour, or $100 per week.
The Goal Is Balance
We’ve discussed financial balance in depth quite a bit. I’m not advocating you simply “f–k” frugality and spend what ever on everything. That’s not it at all.
The goal is that we all should be balancing frugality with other financial tactics – specifically earning more. Frugality can be a great way to save – especially if you follow the Frugality Formula above. But frugality alone is only going to get you so far. And it’s definitely not going to make you wealthy.
Consider the time you’re spending being frugal. If it would be better spent elsewhere, say earning you more money, it’s time to consider a mindset shift to start building real wealth for your future.
What are your thoughts on being too frugal? Do you have any other examples of frugality being worth it or not worth it?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
I agree. Being frugal has its time and place. Being frugal through my college and early young professional years helped me to reduce my overall student debt and save up to pay it off faster.
But I think in an investing sense, being frugal i.e. stowing all your spare cash in a savings account paying next to no interest (in the current environment) is a terrible idea.
You’re far better off investing (stocks, real estate, a business) than taking the conservative (frugal) approach. It’s definitely worked for me and I’ve managed to grow my wealth exponentially over the past few years by doing this.
Robert, I remember watching my mom cutting coupons for up to an hour when I was a kid. I didn’t sit there the whole dang hour watching, but you get the point. I always thought, “there has to be something better to do than this”. Coupons are nothing but advertisements that suck you in and get you to spend more money IMO. I agree with you proactive view, I rather chase the earning instead of sitting around trying to “frugalize” what I already have.
Good job showing and explaining a different point of view.
I almost completely disagree with this article. I do agree that frugality can only take you so far and some measures are definitely not worth it. However, the whole equation of when it’s worth it is just off. First of all you are assuming someone would actually go out and earn a paycheck instead of doing the frugal task. Really, if it takes someone an hour to cut coupons and they save $10 they probably would not go out and get a second job for an hour a week. Instead they would probably do something leisurely. Maybe they don’t mind clipping $10 worth of coupons while they relax and watch TV, but they would mind bagging groceries for $10/hr. Also, you neglect taxes so really they would need to earn $15/ hour to net $10. True- Not all frugal tasks are worth it and sometimes spending time on your career or side business is a better move- but if you were just going to relax then spending an hour to save $10 is worth it if its while doing an activity you don’t mind doing.
Thanks for the comment Jill! My question is, why do you have to “go out and earn a paycheck”? Why not sit and earn money in front of the TV? It’s possible – and you’ll earn about as much as clipping coupons. I’m also not saying you can’t do both – that’s just a story that is an aside to the main point.
What I am saying, though, is that no matter how frugal you are, you cannot build wealth on frugality alone. Even the “rich” frugal people who lived below their means their entire life did it through other choices beyond just frugal living. In the end, balance is essential (you have to be frugal and make smart decisions about earning more), because frugal living will only get you so far.
I think you’re right on Robert. Frugality can become a time-consuming obsession. Better to make a few really big decisions right about lifestyle (to control spending), then don’t worry too much about the little stuff and focus instead on earning.
Thanks Kurt!
The coupon argument is a straw man. Easy to knock down. Truly frugal people enjoy what they are doing. Cooking from scratch is fun and it is frugal and it saves substantially more than couponing. And lastly it tastes better!
Cooking from scratch is a great point, but where does it fall into the Frugality Equation? How much time do you spend cooking versus what it would cost to buy food and do something else? Now, if cooking is fun and is your hobby – cook away! That’s different than looking to build wealth. But if you’re shopping the grocery store aisles and meal planning because you don’t know of any other way to budget or get out of your current situation, there are better ways to do it.
Obviously cutting back spending can only go so far, but the less you need to live, the less you need to make. Clipping coupons is a great example not of being frugal, but playing into a company’s marketing. Being frugal is buying what you need to do the job, not just brand name or to impress other people. Being frugal is buying used and storebrand, buying just as much car and house as you need, doing it yourself. Reduce, reuse, recycle. Not only will you increase your freedom by reducing your reliance on an income, but you’ll reduce the over-consumption that is destroying the planet. Most frugality takes no more time at all.
I get that you are trying to encourage people to make more, which certainly is fine if they want to. But until you have driven efficiency into how you spend the money you already make, more money made is often just more money spent. And writing off frugality as coupon clipping is disingenuous and not helpful.
Thanks for the comment! I love your thought on coupons, I just couldn’t think of a way to articulate it well – but you’re right. It is marketing driven.
I think you make great points about frugality, and if you follow my Frugality Equation, any activity that takes zero time, such as substituting a store brand for a national brand, is a great thing, and can easily be included in the balance that you need to find.
The goal of the article is not to write-off frugality at all – only to show that it will only get you so far in terms of building wealth, just like the title says. No matter how much you substitute the store brand, or buy used, or DIY, you’re not going to growth your wealth to a level that can lower your reliance on income in the long run.
I think you are coming from an assumption that is not valid. You assume that one, people want to work and two that the savings from frugal behavior are squandered. Being frugal in college meant that when I moved with my husband to grad school, we had enough for a down payment for a duplex. The mortgage was the same as the cost of rent. Given we would have paid rent anyway, the income from our renters was pure profit. We more than made back our down payment and that money went straight into our retirement accounts. In addition, being frugal meant that when I got into the master’s program, I could quit my low paying job and just go to school. Being frugal means we could afford a kid, and will be able to afford college for her, so she won’t start off life with debt. Increasing your income is great, but other end, being frugal can be just as good.
It sounds like a lot of your examples of frugality were more about boosting your income. I didn’t totally follow your first example, but it sounds like you had renters paying off your mortgage – that’s awesome and pure business savvy. As for your masters program, I think that’s pretty borderline frugality as well. You had a real trade-off of earning more later versus struggling now. You knew you’d earn more so you went for it and took the risk.
Websters defines frugality as: the quality of economical with food or money, thriftiness.
While you show a little of that, you definitely strike a balance between being frugal and taking risks to boost your income!
My point with high examples, was that if I had not been frugal and saved money, we would not had the money to take advantage of opportunities that came about. If we had not been frugal and saved money, we would not have had the down payment to buy the duplex, therefore we would not have been able to buy. Being frugal meant that I had the money to pay for grad school and not take loans. You have many more opportunities when you save money. The important thing is to have money to save, no matter of you do it by earning a huge income and being less frugal or by having a more normal income and being frugal.
This article really has me thinking about how I apply frugality in my own life. I basically try to buy higher quality items, but I buy them less often. This translates into frugality as the items tend to last much longer. I marry this with a DIY attitude, which drives down costs even more. Though, I like your approach to not spend too much time realizing the frugality way of life. I would much rather study investments than coupons any day.
$3.50 saved on half a basket of groceries. A family of four probably consumes that basket in a day (if that). So $24.50/week, $106/month, $1274/year. If you make $100K per year, that is over 1% of your gross pay and over 2% of your net pay (I am Canadian, not sure about this site).
For that, why would I not spend an hour or two of my Sunday clipping coupons while chatting with my family about how my week was (or more likely watching the Kardashians while my kids play video games).
You make a great point how it scales, but even you put a timeline on it versus the value you receive. It’s all part of the equation about when to be frugal and when not to be.
Great article. I also think it depends what you are purchasing. A $350 dollar couch from iKea might only last you a year and a half till it no longer resembles what you purchased, while a $2000 dollar couch could last you 10 years if taken care of. Sometimes being less frugal can be an investment. 🙂