The main benefit of frugality and saving is that they are good habits that lay a strong personal finance foundation. That being said, being frugal definitely has its limits. Although scrimping and cutting corners can result in significant savings, at some point, it simply becomes impractical to cut anymore. Meanwhile, those trying to save their way to prosperity will sadly discover that it’s a painfully slow process.
The bottom line: Frugality has its merits to be sure, but for those looking to build wealth or get out of debt as fast as possible, increasing income is a much better strategy.
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I find a good way of living financially better is to spend less than you earn. Your saving will increase slowly but surely. And just enjoy life with what you spend on the necessities.
I agree. When it comes to cutting costs, I’m careful not to do anything that will reduce my overall quality of life significantly. You can take frugality too far. There is a fine line between holding on to your cash and living a miserable life.
I’m right there with you on this Len, I’ve written a post or two on the topic as well. Frugality can be the equivalent of being on a permanent diet.
And there’s a complication with it that might be missed by many. Back when you could count on not only employment for life, in a job that paid a living wage WITH full benefits AND predictable increases in pay, it was possible to cut corners and save your way to prosperity.
Here in 2011, jobs and long term employment are no longer certain, benefits are being cut, and raises–if you get them–are paltry. Against that backdrop, frugality has become more of a survival strategy than a wealth building one.
In this environment, the only way to improve your lot in life is by increasing income, and that’s an entirely different strategy, requiring a very different mindset. The mindset of increasing income is offense, the mindset of frugality is defense. It’s hard to increase income when your financial mindset is set on defense.
Live within your means certainly, but thinking that frugality is the answer can be counter productive.
“The mindset of increasing income is offense, the mindset of frugality is defense.”
I love that, Kevin! I may have to borrow that one day (I’ll be sure to attribute it to you, of course!)
You and Ramit are on the same page today. I think he got paid more than you…
Maybe one day your brilliance will be more appreciated!
If he gets paid more than “free” then you’re right, Dr. Dean.
Increasing income is the biggest part – just to increase expenses to match. I think that is the biggest pitfall of higher income earners.
Frugality can be very similar to a diet. If it is a fast or very difficult, you will find ways to stray. If you embrace it as a way of life, you will continue the habit. Increasing income is just part of the equation. If you increase income and still spend more than you earn, you have a problem. Some of each is the answer.
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