Selectively Frugal

Finance
Selectively Frugal

Frugal is a difficult thing to define on a personal level, as there is a lot personal input into the concept. It has definitely been a lifestyle buzzword for the past couple of years and more common in normal conversations. I do like the concept of frugality, but think you can definitely be too frugal. There are some good articles on this, I especially enjoyed this one which takes a bit more of a practical/satiric look at being too frugal. At my previous job one of the company values was to be frugal, this was basically interpreted as do not spend anything. With this sometimes-negative connotation and misinterpretation it can be difficult. There is also no step by step guide on how to achieve frugality.

I believe the solution is to be selectively frugal. Being selectively frugal on purchases is a more personal approach where you are accountable only to yourself. So how can you be selectively frugal?

Think in percentages

This is not a new concept and one I would recommend to use in all facets of your financial planning. Thinking in percentages is useful when tracking net worth, budgeting or doing retirement planning (the 4% rule anyone?). Therefore, frugality should be applied to purchases in based on the percentages.

A purchase can be looked at through the lens of a percentage of your income, your net worth, your budget etc. Naturally you then spend more thought on the larger purchases, especially if those purchases are not necessarily needs (more on that later). It’s like when booking an overseas holiday. You spend far more time and effort on getting good prices for flights (as it is normally a large portion of the cost) than to get a $2 coupon on food.

Thinking in percentages also allows you to understand the impact on your total financial picture. I am a big advocate for having visibility in your finances as it allows you to make better decisions. Spending 10% of your earnings on a night out sounds significant, while if you state it as spending $250 it somehow does not feel that bad.

Prioritise

This is a personal thing. What is important to you in life? If you have some sort of hierarchy of what is important to you, you can choose to spend money accordingly. This way you will satisfy your top priorities first. In the end it is about maximising happiness and joy above maximising spend. So, if you spend what effect will it have on your priorities, which hopefully aligns with maximises your happiness and joy.

Prioritising allows you to be more selective. I am a car guy, although this is probably one of the worst things you can spend your money on, I can prioritise it somewhere. This means I can consciously spend more on a car which I can enjoy. But it does not mean that I have to spend it stupidly as I have priorities and have a percentage of my net worth in mind for the value of the car. Sorry Mr Money Moustache know this is totally against the cult’s mantra.

Prioritising does not just help frugality, but helps better overall financial decision making leading to being more content with your finances.

Needs vs Wants

An old subject, but one that is difficult to apply. Again, this is where your own personal perspective comes in. As the old saying goes, you can justify anything you want. Should you order that crayfish platter on the bottom right of the menu? Well, why not it is food and food is a basic need right?

I am not saying you should only buy things you drastically need, life is not meant to only be survived. You should be conscious of your purchases and if necessary only buy needs later once you have saved for them. Rewards is what keeps people going, and buying something while knowing you can afford such a reward is even more gratifying.

The key is to be conscious of your decisions in order to avoid impulse purchases where your brain tells you that you need something, even though you only saw it 5 minutes ago for the first time.

Bottom up approach

I once fell into this trap with a car. I started looking at what other people are buying, at what price and what cars were generally selling for. I starting setting a price in my mind of what I can pay for a car. Using logic like: “It is less expensive than my friend’s car” or “This is a normal middle-class vehicle”.

Instead I should have been looking from the bottom up. Using the above steps to realise what I am willing to spend according to my budget, priorities and needs. Rather than looking externally, internalise purchases.

This sounds easy, but I for one still struggle. I am far from being a frugality status winner. But I believe that these steps can help you and me to be selectively frugal. Being selectively frugal will allow you to maximise your finances, while being content with your purchases. The best part is you can be as frugal as you are comfortable with, not matter if you are branded as frugal or not. In your mind you can be frugal enough, and don’t we all need a bit of “enough”?

Always grow your wealth for tomorrow while being content with your wealth today.

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