Frugality The Simple Way

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All of personal finance can be summed up in less than 10 words:

Spend less than you earn and invest the difference.

Your whole personal finance journey will consists of unpacking that simple statement and applying it to your life. And the simplest place to start, is at the beginning: Spend less.

Frugality isn’t the only skill you need to master, but for a variety of reasons it makes sense to address it first. In the sections that follow we’ll start by making the case for WHY frugality is so important and should be the first area you tackle, then we’ll lay out a game plan for HOW you can practice frugality as simply and effectively as possible.

Why Frugality?

Here are six reasons why it’s important to limit your spending:

Frugality is Faster

Making money is great, but it doesn’t happen over night.

Think about getting a new job. You have to search for openings, fill out applications, go on interviews, and even after you land a job, it will take a few weeks before you receive your first paycheck.

Making money outside the traditional 9-5 is different, but still slow. Any entrepreneur will tell you that income can be a tough flywheel to get moving.

For most people, paychecks come in a few times a month, but money gets spent basically every day. This means that virtually every day you have the opportunity to tighten the reigns and control your spending.

A Dollar Saved is More Than a Dollar Earned

When you save a dollar, you increase your net worth by a dollar. When you earn a dollar, you increase your net worth by a dollar minus taxes.

And the way the tax system works, the last dollar you make is the one that gets taxed the heaviest.

A Cheaper Lifestyle is Easier to Fund

Another way of saying this is that frugality protects you from risk. I like to say that frugality provides you with a margin of safety.

Think about it like this: which of these two people will be in more trouble if they lose their job?

  • Someone who is both making and spending $40,000 a year
  • Someone who is both making and spending $70,000 a year

Obviously the person making and spending more is in more trouble, but they’d be in a lot less trouble if they had been making $70,000 and only spending $40,000. This is both because it’s easier to find a replacement income of at least $40,000 and because the surplus generated by earning $70k and spending $40k could have been used to fund a safety cushion such as an emergency fund.

Fighting Consumerism

Here are a few questions worth pondering:

  • How many advertisements do you think your great-grandparents were exposed to every day?
  • How many advertisements do you think your grandparents were exposed to every day at your age?
  • How many advertisements do you think your parents were exposed to every day at your age?
  • How many advertisements do you think YOU are exposed to every day?

Hopefully it’s obvious that the number of ads has been increasing dramatically. The point of an add is to make you feel insufficient so that you will buy something.

There are a lot of ways in which life has gotten much better as a result of increased wealth in industrialized countries, but in a world with many shiny objects far too many people define their worth by their stuff.

You aren’t your house. You aren’t your car. You aren’t your TV. You aren’t your clothes. You aren’t your phone. None of those things make a statement about your value as a human being.

Practicing frugality reminds us that there’s more to life than consumerism.

Fostering Contentment

This is similar to the last one. I don’t think it’s wrong to buy nice things or to have purchases that your dreaming of making.

But I do think that you should take as many opportunities as you can to remind yourself that your life is already sufficient. You already have what you need, you are on a quest to obtain things you merely want.

Turbocharging Your Path to Freedom

One of the best uses of money is to buy your freedom: Freedom from the need to earn an income so that you can gain autonomy over the more precious resource of time.

To save enough to never need to work again, you need to spend less than you earn to create a surplus for investing. You can create this surplus either by spending less or by earning more (or both)

But here’s the trick: when you generate a surplus by cutting spending instead of increasing income, you simultaneously free up more money to save and reduce the amount that you need to save. This is because a cheaper lifestyle requires a smaller nest egg to support than an expensive one.

How to Be Frugal

Being frugal doesn’t mean being a cheapskate, it means being disciplined and intentional about how you spend your hard earned money.

It also doesn’t mean cutting your spending with 1,001 frugal life hacks, because not all money-saving hacks are worth your time:

  • Some are easy and some are hard
  • Some save a lot and some only save a little

Since we have two dimensions that each have two categories, it’s the perfect time to create one of those fancy quadrants! Behold, the four-fold frugality framework:

The frugality quadrant

We end up with four types of money saving strategies:

  • Unicorns seem like the best of the bunch: they are easy and save a lot. The problem, as the name hints, is that it’s hard to find opportunities like these
  • Quick Wins don’t necessarily save a lot, but they are easy to come by, and therefore worth it.
  • Time Wasters are the trap you want to avoid. They require hard work to save little money. Technically, you could save money if you turned all your double ply toilet paper to single by hand, but I don’t recommend it
  • Big Wins might be difficult, but the potential for big savings makes it impossible to ignore

From this grid, we derive the following universal principle of frugality:

If it doesn’t save a lot of money, it better be easy, if it’s not easy, it better save a lot of money.

Let’s take a closer look at our to main categories: Quick Wins and Big Wins. Remember, I’m not saying that you need to be frugal in all these areas to be some kind of Personal Finance Rock Star. If you can spend big on something and that’s what you want to do, go for it. But if you are in a position where saving money is a top priority, these are the areas that it makes sense to target.

Quick Wins

The easiest way for most people to get quick wins is to look every bill that they pay regularly and figure out how to cut it down or eliminate it.

Here’s a (non-exhaustive) list of the kinds of expenses I’m talking about:

  • Car Insurance
  • Homeowners/Renters Insurance
  • Internet
  • Phone
  • Gym membership
  • Cable/Netflix/Streaming Services
  • Newspaper/Magazine Subscriptions
  • Miscellaneous Subscriptions (Spotify, newsletters, food delivery, monthly box of goods, etc)

For each of these services, go through the following questions:

  • Can I cancel it altogether?
  • Can I get a similar service from a cheaper competitor?
  • Can I downgrade my service to save money?
  • Can I bundle with another service to save money?
  • Can I change my payment schedule to save money (e.g. paying your insurance premium up front instead of monthly)?
  • Can I negotiate this down?

With something like car insurance, simply calling around and getting quotes from competitors can often be enough to get you a discount. You get even more potential for savings when you bundle your home and auto insurance or agree to pay your premium up front as opposed to monthly.

With the internet, you might be lucky enough to have more than one provider, but even if your city is under the grip of a monopoly like mine is, you have options. I have successfully asked for and received a discount several times. I ask for a discount, they say I can have $10 off a month for the next twelve months, and I make $120 for a 15 minute phone call.

These savings are relatively small, but you can do this project in a weekend. To keep you motivated, remember how the math works out: Every time you cut your monthly bills by $84, you save $1,000 a year.

Don’t Sweat the Small Stuff

The power of focusing on recurring bills for your quick wins is that the decisions are all made up front and the savings are put on autopilot.

This is much easier than agonizing over the difference of a dollar or two on every one-time purchase you make.

Lock in the savings and move on with your life.

Related Post: Quick Wins The Simple Way: The Fast Path to Frugality

Big Wins

Remember, big wins aren’t easy, but their worthwhile because of how strong of an impact they can make. It’s not a stretch to say that the easiest way to be able to balance your budget is to go for big wins in the areas that we cover below.

But first, we need to understand how we choose the categories to focus on for big wins.

The Pareto Principle

The Pareto Principle is sometimes known as the 80/20 rule. It comes comes from the observation that in the arena of human striving, 80% of the outputs are usually caused by 20% of the inputs. For instance:

  • The top 20% of authors make 80% of book revenue
  • The top 20% of programmers write 80% of usable code
  • The top 20% of companies make of 80% of the value of the stock market

This rule doesn’t hold true with rigid accuracy; sometimes it’s really more like the top 15% accounting for 79% of the results. The important thing is that the 80/20 rule is a pretty close marker for real-world results most of the time.

Typically, peoples’ expenses follow something like a Pareto distribution. If you take a look at how someone is spending their money, the top 2-3 categories can easily account for well over half their total spending. This means that the best way to look for big wins is to look at the categories that people typically spend the most money on. It turns out that these categories are:

  • Housing
  • Transportation
  • Food


If you’re looking for the next place you’ll live, be sure to look long and hard for a good deal. Moving is a pain, but by far the easiest way to save money is to be realistic about what you can afford before you buy or sign the lease.

If you’re not in a position to move, one thing that can help is to recruit others to help pay the bills. Find a roommate, rent out a spare bedroom, just make it so that you aren’t the only one on the hook when the first of the month comes around.


There’s no way around it: cars are expensive. They’re expensive to buy. They’re expensive to maintain. They’re expensive to fix. They’re expensive to insure. They’re expensive to operate. They’re expensive to license and register. Depending on the situation, they’re expensive to park. Heck, if you take them to a car wash, they’re even expensive to clean.

If you live somewhere where it’s feasible that you can get around without a car, that is almost certainly the cheapest option.

If you’re a two-car family and think you could become a one-car family, that’s certainly a good goal to strive for.

If you need to buy another car, you can save some money by buying a late model used car.


Food is a little different than the other two categories because we make food buying decisions so much more often.

Here’s the simple way to think about it: For every $1 you slower the average cost of a meal, you save $1,000 per year. That’s because you eat roughly 1,000 meals a year. And of course, that’s per person in your household. So if you have a family of four and the per-person cost of an average meal falls from $7 to $5, you’ll save $8,000 a year.

Related Post: The Math Behind Why Cooking is So Much Cheaper Than Eating Out

Related Post: Big Wins the Simple Way: The 80/20 Approach to Saving Money

Graduating From Frugality U*

The biggest problem with frugality is that it’s subject to diminishing returns. You start with the low hanging fruit, cutting the things your least likely to miss and finding the most obvious opportunities to save. After you make some progress though, all the easy pruning has been done and there are opportunities to save are much harder to spot.

Basically ever dollar of spending you cut makes the next dollar more difficult.

This means that before too long the right move is to shift your primary focus from saving money to making money.

So in a certain sense you get to graduate, but in another frugality will always need to be part of your life. Most peoples’ spending rises in lockstep with their earning. They never get ahead because their spending rises to match their earning. They live paycheck-to-paycheck whether they are making $20,000, $50,000, or $135,000 a year.

You might want to increase your spending as your income increases, and this can be a fine strategy, but you still need to flex your frugal muscle to keep your expenses from matching (or worse, overtaking) your income.

When you think about it, frugality is nothing more than accepting the reality that you don’t have all the money in the world and acting accordingly.

*Yes, I’m aware of the unfortunate acronym. I went over this several times in my head and the university metaphor is the clearest way to concisely convey the idea of this particular subhead. We also can’t use The University of Frugality because I don’t want to besmirch the real UF (The University of Florida) which is my alma mater. So we’re stuck with FU. I’m very sorry. I can do better. I will do better.

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