Can You Be Too Frugal

Recently I’ve seen a lot of posts from various FIRE blogs about how they had a bad habit of saving much more than they needed and needed to learn how to spend, often calling it toxic frugality. Since this is the new trendy topic I thought I would hop on the bandwagon and give my two cents. Even if I’m probably a little late to the party at this point.

The Problem, so They Say

From my reading, I’d sum up how others describe the problem. I’d present one of the following: “I was so focused on saving money that I passed up on, and continue to pass up on, experiences that I think would have been meaningful. I regret missing out on these experiences.” I’ve also seen something along the lines of the following, “I was so focused on saving money and pinching pennies that I was making myself miserable and adding additional financial stress to my life.”

In the interest of transparency, a lot of the views I’ve seen have a lot more nuance to them than I can capture in a short sentence or two. I’ve tried here to distill them down to the most common problems that people are trying to address.

The solutions often posed are one of the following, “I’m trying to spend more now to try and avoid missing these opportunities” or “I should have spent more time enjoying the now instead of sweating over every little purchase.”

I agree with both of these solutions in principle. If you are able to without majorly disrupting your financial goals, you should spend some cash focusing on experiences. If cutting out your daily latte is making you miserable and it won’t majorly upset your financial planning go for it. Saving money is a marathon and not a sprint, choosing a pace that you can maintain is important.

Is There Such a Thing as Too Frugal?

At their core, I agree with both of these problems as well. I’ve mentioned before that I think one should strive to find a balance between meaningful spending now and saving for tomorrow. I do think you can be too frugal, with some caveats.

You can quickly go too far in either direction. If your saving efforts are so extreme that you’re passing up participating in meaningful events I think you’re being too frugal. For instance, this December a very good friend of mine from college (technically two good friends) is getting married. It’s going to cost me at least $400 when all’s said and done (travel, a gift, etc.). Yeah, I could save that cash and be $400 closer to FIRE, but this is an event that will never come again. It’s worth the expense to me. I think this is a nonissue if you’re focusing on the things that matter to you in the first place.

I think that for the complaint about missing out on things that would have been meaningful, it is really an opportunity cost problem. In this case, it is that individuals failed to weigh the opportunity costs of events at the time. They traded an event they would regret missing out on for saving money (be that in service of FIRE or some other goal). Now granted, in the moment they had to choose they may not have had all the information needed. As I don’t know these individuals’ thoughts at the moment, they may have simply assigned more value to whatever the savings goal was than it really had or misread how important these events would be in hindsight. I think the solution here is just to try and take a deep look at these opportunities when they arise.

To pull an example from my own experience, I have a list of things I want to see or do one day, if we restrict it just to the things I want to see or do in Spain, It’s a fairly sizable list. I could take a vacation every year or two to Spain and spend a few weeks seeing some of these things and cramming in what I could before coming back to work or I could pass up on the opportunity to travel while I’m younger but be able to take an extended vacation to Spain where I can see these things at my leisure (and probably discover more). The opportunity is that I can see the more important of these things now and know I’ll be able to see them even if it means delaying FIRE or waiting until I’m financially secure and then I can see them at my leisure. I’ve come away with the latter being the better choice as I’ll have more time to prepare and can go at my leisure.

However, for some of the things closer to home, I have a list of state and national parks. I’m willing to go on the occasional trip. If the occasional $100 for a weekend expenditure craters my FIRE plans then I’ve probably got too weak of a plan to be realistic anyway.

On the other side, I don’t think saving money should be something that causes you an undue amount of stress. For instance, if you’re too spendy you could be stressing about how to pay for it all when you just need to cut back. The same goes for saving too much, if you’re stressing over small expenses like the cost of your daily coffee that’s not helping. The focus should be on the areas where you can make huge jumps. While little steps are important, you should try to focus on putting your energy to better use, especially if focusing on the smaller steps is causing you a lot more stress than the bigger ones. If this extremely thin budget is also your planned FIRE expenses I don’t know if leaving the workforce is really going to solve the underlying problems making you miserable.

So in short, yes I agree with this argument on the face of it. If it’s stressing you out to save every last penny you can and cut every expense it is bad. Plus in that case, you’re not working towards the FI part of FIRE, just the retire early part. I’m on the fence about those who are pinching a large amount now to spend more later. If it works for you it’s okay. But you should at least weigh some of those items that will make you happy now compared to how they’ll affect your financial plans. Is it worth it to be miserable for almost a decade to retire a few weeks earlier?

If you’re not spending on meaningful things when the opportunity arises, you could regret it. While you have to weigh how much these opportunities cost to take them now against getting the same opportunity again in the future (assuming it’s something you’ll be able to do again at a later date).

However, I think that if you’re taking a healthier approach to FIRE, you can’t be overly frugal.

How Much Frugality Is Enough?

So if you can take frugality too far, what is enough? That depends on the person. I’ve found the amount that works for me and the amount that works for you might be different. Your priorities, such as if or when you want to achieve FIRE are part of this.

Frugality should be focused on cutting expenses that aren’t important to you. If you’re not a car person, it might be ditching the car, where feasible. Maybe it’s living in a smaller place since your current home has more than you need.

For me, I’m willing to spend a little extra for my morning tea, I’ll include that price in my budget, and sure it will make it take a bit longer to get to FIRE. but I’m not willing to pay a lot for internet and have other avenues for having a connection without having to connect my PC at home. So I buy the occasional nice tea and don’t have internet at home.

I think finding this sweet spot is the key to seeking FIRE. You’ve got to evaluate your expenses and decide which are important to you and which can be ruthlessly cut.

What about not being frugal enough?

If you can be too frugal you also can be too spendy. Just like with the other categories, this one is kind of in a weird gray zone that I can’t easily define.

But if I had to pick a point, it’s spending a large enough amount on things that don’t matter to you such that it derails your other, more important financial goals.

To use a personal example, I’m not a car person. For me, a car is a device to get me from A to B. If I bought a nice car, while having seat warmers would be nice, it wouldn’t mean much to me. So if I bought a very expensive car, say one that pushed FIRE by another decade, I’d have to weigh how that interacts with my other financial goals. Is another decade of work worth that car (or that house)? Well for me, no. I want to retire before 35 and that goal is more important than owning a nice car.

On the flip side, I know people who would definitely be on the opposite side of this. They would say yeah it’s worth it to own that car, I’ll take it cruising on the weekends (or whatever people who own fancy cars do with them). To that person it may be worth delaying their FIRE date by however many years it would.

I do think this is the only category I can put a hard number to though. If you’re saving 0% of your income on purchases that are both avoidable and not meaningful to you it is too spendy.

Wrapping it up

To summarize, I do think you can be too frugal if you’re making yourself miserable to pinch every penny but it can also be too far in the other direction where you’re compromising your financial goals to spend money. The goal should be to spend money on things that are meaningful to you and ruthlessly cut where they aren’t. Same if you’re spending too much and compromising goals that are more important to you.

Personal finance is all about compromising different goals and ideals. If you’re spending too much or too little these goals have to be reassessed, if you can spend enough and still meet your other goals then in my opinion it is fine, even if it isn’t how I would use the money.

Seeking early retirement shouldn’t be about pinching every penny and being overly frugal your whole life. It’s about finding the amount of money that works for you and your family and saving enough to be able to spend that amount without needing a job. If you have to cut some important expenses to meet that goal you should consider how to handle them. What that balance may look like for you may be different than what it is for me.

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