Being extremely frugal can actually hurt you more than help you. If you focus too much on saving every penny, and don't invest early, you could be missing out on a lot of money.
Anyone who grew up with grandparents that lived through the Great Depression probably has a story or two about extreme frugality. When you never had to ration bread or stand in a soup line, it seems pretty silly to see your Grandma hoarding canned goods or haggling with the manager at a grocery store.
But lots of us did grow up during the recession of 2008, never realizing how similarly that experience has shaped our approach to money. We may not refuse to throw away leftovers and wear the same pair of shoes for 20 years, but frugality has once again become a national obsession. DIY culture is all the rage, and the blog space is filled with articles on how to cut your spending down to the bone.
It’s not that being frugal is bad—plenty of people could learn a thing or two about making their money last—but pinching pennies should never be more important than earning them. The truly wealthy tend to have a growth mindset, spending responsibly but focusing the bulk of their energy on earning.
If this hits close to home, it’s time to ask yourself—are you buying into the cult of frugality?
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If you’re avoiding exercise because a $40 gym membership is expensive, you’re actually costing yourself hundreds of thousands of dollars in the long run. Skipping spinach because it doesn’t last as long as a bag of rice is actually the less frugal decision.
“There is a floor to frugality, because you can only cut your spending by so much and you’re always going to have expenses like rent and food,” said financial planner Kevin Matthews of
Building Bread. “At some point you must focus on increasing your income and investing. There is no limit to how much you can make on this end of the spectrum.”
For instance, if you pinch pennies and stash $500 a month in a one percent savings account every month, you’ll have $341,595 in 45 years. If you live a little and only put away $250 a month in an index fund that tracks the S&P 500, you could have $953,929 in 45 years. Balancing frugality with smart investing would lead to $600,000 more in the long run and $250 extra each month.
By cutting out most (or all) of your wants and sticking to a very tight budget, you could live off of less than $1,000 a month. Here's three examples of how (and where) you have to live to do it.
www.moneyunder30.com