Updated on 09.13.11

Frugality Won’t Make You Rich

Trent Hamm

Instead, it makes it possible for you to get rich.

Lately, I’ve read statements in personal finance books where people claim that “frugality won’t make you rich.” They make the valid point that if you cut out some small thing – say, a $5 daily expense – you wind up with less than $20,000 after ten years.

“What good is that if it brings you misery?” they ask. “It can’t possibly make you rich!”

They miss the point. Frugality itself doesn’t make you rich. Instead, it increases the possibility of getting rich through other means.

Let me explain what I mean.

Joe Average has $80,000 in student loan debt, $25,000 in credit card debt, and a $10,000 car loan. His total monthly debt payment is about $1,200 and he’s going to be making those payments for the next, say, ten years.

Joe has dreams of starting a small business. He realizes that his monthly debt payment is really hindering his monthly cash flow and making it impossible to make the entrepreneurial leap that he wants to make.

He also correctly realizes that simply being frugal won’t give him the steady savings he needs to make the leap either.

Instead, he recognizes that frugality can help him get rid of that debt a lot sooner, save himself some serious money on interest alone, and get him in the right place to make his business leap much earlier.

Joe starts cutting out some of his lattes. He cancels Netflix and his satellite radio service. He starts making meals at home. He doesn’t pull anything out of his life that would be too devastating and instead feels good about the changes.

He manages to add about $250 a month to his debt payments.

His entire debt load is gone more than two years ahead of schedule. Because of frugality, he’s launching his business two years earlier than he might have otherwise been able to. Those are two years where Joe is at his youngest, so he’s able to throw a ton of energy into that business and make it a real success.

Frugality doesn’t create riches. It creates opportunity. Frugality enables you to pay off debts more quickly (and thus pay less interest on those debts). It enables you to increase your monthly cash flow. It makes it possible to reach a savings goal much quicker than you otherwise might have. Frugality can help you avoid going into debt at a tight moment in your life.

What do these things result in? They result in the ability to successfully launch a business. They result in the ability to go back to school and completely switch career paths. They result in the ability to take a lower paying job you’re passionate about that might blow up into something big. They result in the ability to jump on board at a startup company because you don’t fear your financial situation. They result in the ability to buy a house or buy a car. They result in the ability to start investing for retirement or for those big plans you have in the future.

Frugality frees real people to do these things.

The people who write about how frugality doesn’t really help haven’t faced a situation where a lack of money or the state of their own finances have kept them from doing what they want. That’s a reality I’ve faced many times in the past, where my finances have kept me from something I dreamed of. Frugality was often the key that opened the door.

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  1. Money Beagle says:

    Good point. My wife often gets frustrated when I focus more on debt and less on buying stuff, saying pretty much what you pointed out, that we’re not getting rich from it. Which is true, but the point is that we’re getting slightly more ahead and definitely not further behind, which even though it’s small, is progress!

  2. Other Jonathan says:

    If you think of frugality more as a lifestyle than as a rule not to break, it can be easier to save. The best thing about frugality as a lifestyle is that it can help to do away with the desire to spend more money (as you realize you don’t miss the things you would be spending your cash on if you were a spendthrift). Then, as your income rises over time, your expenses don’t (or at least, don’t rise as much). When I was just out of college my expenses were basically met by my income. Since then, my income has doubled, but I haven’t changed my expenses very much, and I’m able to save a ton of money, opening up lots of opportunities for the future.

  3. Lord says:

    Trent. This is another great post. You have definitely addressed a lot of the challenges that face in my personal quest of gaining financial freedom. Frugality – allows someone to spend less than they earn – and this opens up opportunities like: 1) getting a job which pays less but is a lot more enriching or 2) keeping your current job but becoming more confident in taking risks and doing tasks outside of your responsibilities – so you can grow. or 3) quitting the job entirely and starting a new career or business.

  4. Tracy says:

    When people talk about how frugality won’t make you rich, I feel like more weight should be placed on the fact that cutting out unnecessary things now helps prevent the ‘lifestyle creep’ that happens when you get a raise and end up spending just a little bit more on things you don’t need, to the point where you’re not saving significantly more. It’s more about a state of mind than anything else.

    The ‘it enables you to make sweeping changes in the future’ doesn’t really resonate with me, in part because I don’t really want to make any sweeping change. I prefer frugality provides stability over opportunity (because I don’t really buy into the argument that it does)

  5. EmilyP says:

    Frugality also changes one’s perspective on what “rich” means. $20,000 after 10 years is nothing? That’s enough to buy 2 good cars with and all I had to skip was a daily latte. And it means I’m in a mental state to absolutely love a $10,000 late-model-used car. Frugality means you can be a lot richer on a lot less.

  6. Tanya says:

    I love the point you make that frugality creates opportunity. We talk a lot in my office about how spending less on X means you can spend more on Y. As Emily points out, saving a little here or there means being able to pay for a car!

  7. Carole says:

    I agree with the post. If one has a frugal mindset and doesn’t spend every single penny on trumped up needs and constant “running the road” then money may be available when the need or opportunity arises. Of course some people may be very frugal and there is still no wiggle room, but often that is not the case.

  8. AndreaS says:

    Great point Trent. I believe in the saying “Luck is when preparation meets opportunity.” Even if you have no plans to create a business in the future, you just never know when that great idea might come along. In addition, the most important factor in what makes a business a success, is if it generates enough income to meet your needs. If you know how to live on less, the threshold for your business success is much lower.
    I have also known people who were unable to invest in money savers (such as a freezer) because they didn’t have money in the short term.
    My in-laws were children of immigrants who were unable to speak English, or read and write. My mother-in-law had a high school education. My father-in-law didn’t finish high school and his whole life worked modest-paying blue-collar jobs. They worked hard all their lives, and were very thrifty. My father-in-law, a widower, died about three years ago in his late 80s. He left an estate in excess of $300,000. I don’t know if that makes you rich, but they had a rich life, with vacations and other things they wanted.

  9. JC says:

    Great post. I’m in the OPPORTUNITY phase right now – with a healthy savings account, stable and fulfilling job, and no debt, I’m able to afford some plane tickets because I’m in a long distance relationship. I haven’t abandoned my frugal lifestyle (no cable, no cell, cooking a lot at home, library patron, etc) – I just have the financial means to have more opportunities to spend time with my Significant Other.

  10. Jenna says:

    Material things give no lasting pleasure, and the more one gets the less fulfilling they are. What I aspire for is to be able to retire without having to worry about having a decent roof over my head and being able to afford surgery or medical treatment I will need as I age. This is a very challenging time to save for these things, but I sure am trying.

  11. Telephus44 says:

    I agree that frugality creates opportunity, not riches. I think the confusion lies is that while frugality is not directly opposed to creating wealth, and you can certainly do both, most practitioners of frugality DON’T focus on wealth building. They tend to focus on debt reduction and financial securiry – which aren’t the same as wealth creation. Most frugal advocates don’t say “I saved $20.00 this week, so I’m going to put it in the stock market, or loan it out on a peer-to-peer lending site, or invest in some advertising for my business.” – it’s “I saved $20 this week, so I’m going to pay down my debt, or add it to my EF.”

    Again, it’s not that frugality can’t be a tool to help you with wealth creation, but it’s not often associated with it. And it does create opportunities as Trent wisely notes in his post.

  12. Marinda says:

    Frugality for my family gave us the opportunity to purchase hearing aides and glasses for our child when she needed them. We continued those frugal habits and created wealth. With our good habits, established to take care of medical costs, when those were reduced, we put our money into CD’s, the stock market, retirement and paid off our house. We are retired and not yet 60. It can give you peace of mind, a chance to grow and work for yourself and over the period of time (years and years) you can amass wealth. Oh, we treated ourselves to lattes, have traveled to all 50 states and to Europe. Our children have graduated from university, both are free of debt, one owns her home. We drive new and used cars, have magazine subscriptions and use cell phones. But we did NOT do all of this years ago, we added on the treats as we could afford them.

  13. elyn says:

    I think this quote is a misconception about frugality:

    “What good is that if it brings you misery?” they ask. “It can’t possibly make you rich!”

    At our house, we make our own coffee- and done right (and there is a right way to do it), it tastes MUCH better than any coffee shop coffee I’ve ever had. We cook at home most of the time, and this also tastes better. We walk most places, we have a smaller house than most. We don’t have or miss cable. We don’t have air conditioning. We used cloth diapers, and did very early potty training. The list goes on and on.

    None of these things make us miserable, they instead make life pretty good while saving us tons of cash, which we use for investing. Miserable would be handwashing our laundry, forgoing indoor plumbing, etc. I think this misconception that giving up small or even big things causes misery comes from a fear of having to examine your life and make changes.

  14. Steven says:

    How is $80,000 is student loan debt “average?” Do you just pluck these numbers out of thin air?

    “Two-thirds (65.6%) of 4-year undergraduate students graduated with a Bachelor’s degree and some debt in 2007-08, and the average student loan debt among graduating seniors was $23,186 (excluding PLUS Loans but including Stafford, Perkins, state, college and private loans).”


  15. Adam P says:

    I don’t really know why he used such high amounts of credit card and student loan debt for his Joe Average example either, Steven.

    The point would have been just as valid with more normal numbers, say $25,000 in student loan debts and $8,000 in credit card debt.

  16. Other Jonathan says:

    Steven, he didn’t say those are averages, he just made up a fictitious character and called him “Joe Average” for a sense of relatability.

  17. Steven says:

    I think using a fictitious character named Joe Average and NOT using average numbers is misleading…and Adam P is right, his point could have been made just as easily using average numbers. He’d have better off calling his character Joe I’m-way-over-my-head-in-debt rather than Joe Average. Maybe even Joe Blow…just not Joe Average.

    Hey, we’re all entitled to our opinions, and this is mine.

  18. mike crosby says:

    I like it.

    And the fact is, most of us will not become rich. But by being frugal, life is sure a hell of a lot more enjoyable.

  19. Steve says:

    Frugality is necessary but not sufficient for wealth. You need both Frugality and Income (by which I mean, some way to get income, sooner or later). Frugality without Income will avoid debt, but not create wealth. Income without Frugality won’t get you wealth because you’ll just be spending all the Income. You can’t get rich without some frugality; but you can’t get rich from frugality alone.

  20. Brittany says:

    This was a great article–first one in a while. Right on.

  21. Ryan says:

    Bottom line is that it all boils down to cutting back spending on things you don’t care about while spending your $ on what makes you happy. Being 100% frugal in 100% of your life isn’t needed, all you guarantee with that is leaving a huge inheritance for your heirs (not saying there’s anything wrong with that)

  22. Liz says:

    I agree with Ryan, although it is not “spending on what makes you happy.” Even with health insurance, I have fairly high out-of-pocket medical expenses. Cutting back on things I don’t care about helps me purchase these items. Living on one income, two adults, can be challenging. But finding ways to be frugal without big sacrifices makes it bearable.

  23. Ginger says:

    By being frugal during undergrad, I don’t have much student loan debt and I was able to buy a duplex with my husband when he started grad school. That duplex increases our income by 20%. I agree that being frugal creates opportunities to build wealth. By continuing to be frugal we will be able to afford another duplex in another year or so.

  24. Annie says:

    I agree with Elyn, i have no idea what kind of training some of the starbucks people have where i work. They make it like water and it’s such a waste of my money. Other starbucks locations, i can’t complain do a great job. Reason i bring this up is my family is the same way, we buy coffee and make it the right way. My parents do that with food also, we make everything from scratch and it tastes much better and you have the option to make it more healthy. Frugal ideas like this are more rewarding than a burdening. It really helps to save money when you do this. 5 dollars a day in 10 years returns 20K, hmmm maybe i will try this. thanks for the post.

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