Why Being Frugal Can Only Take You So Far On Your Path To Wealth

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In order to build wealth effectively, we all have to be frugal to a certain extent. We have to watch our spending. We have to analyze our expenditures and cut back on the fat. We have to make sacrifices to make sure that we can save enough money for college and retirement.

Photo By Edward Kimuk

Fortunately, my wife and I both share the same principles when it comes to spending money (ie. we don’t spend frivolously). Otherwise, we would be seriously screwed.

But after analyzing last year’s expenses using Quicken, I feel all frugalled out. We have pretty much cut back as much as we possibly can without drastically affecting our lifestyle.

If we look closely at last years expenses, we cut spending by another 4% over the year before. We are going out to eat less thanks to my wife’s desire to cook and we don’t really spend that much on entertainment anymore because the kids have to be in bed early.

We haven’t bought a new car in ages and I can’t remember the last gadget that I’ve purchased. All of this for a measly 4% savings. While one could argue that 4% is a lot of money overall, I wouldn’t have minded cutting loose a little bit more.

On the other hand, if you look at our business, our profits grew 41% last year.

And this profit increase should have been around 75% had my wife and I not shut down the store to take care of a family emergency. We had a 41% increase and it didn’t really require that much more incremental work to earn a much larger payout.

The numbers don’t lie. Why should we bust our butts to pinch every penny when we could just transfer that energy into additional income with our business?

Being Frugal Can Only Take You So Far

I love being frugal, I really do. And I love following all of the frugal blogs out there. In fact, one can really learn a lot about saving money by just taking a few extra measures.

But after a while, there’s nothing left. You are just tapped out. Unless you started out spending money egregiously, there is a fundamental number that you simply can’t go below without greatly sacrificing your lifestyle.

For example, I love eating out. Sure, we could cut going out to eat entirely out of our budget but where would that get us? While I truly love my wife’s cooking (hope she sees this), I don’t think I could eat at home every night. I wouldn’t be happy and I’d probably get cranky as a result.

Maybe I could cut out an additional few tenths of a percent by driving less and carpooling or riding my bike, but that would be a major pain as well. And quite frankly, I love buying new gadgets. Why shouldn’t I cut loose a little bit and get that Android phone I’ve been eying for several months now?

How To Have An Unlimited Upside

The problem with using frugality to increase your bank account is that there are diminishing returns. Sure, being frugal is easy to do and that’s why most people try to build their bank accounts by cutting spending first.

But will being frugal lead you down the path to riches and a better lifestyle sooner rather than later? Is it worth the sacrifice? One might argue that frugality coupled with a sound investment strategy is the way to go, but for me it’s a no brainer.

The best way to accumulate wealth is to simply make more money.

Instead of focusing all of your energies on clipping coupons or searching for the absolute best deal, why not channel that energy into starting a business or freelancing on the side? Why not spend time on something that has limitless earning potential?

Even though my wife and I run a successful online business, I still fall into this trap all of the time. Hell just the other day, I spent 2.5 hours looking for the best deal on a new crib for my son.

Sure, I ultimately saved about 50 bucks but with that 2.5 hours I could have been working on my brand new course on how to create an online store (my current project). I could have been writing new blog entries. I could have been optimizing our online wedding linens store.

All three of these activities would have easily made me much more than the 50 dollars I saved.

Food For Thought

The truth is that many of us waste time on projects that return very little and we need to step back and to focus our energies on what will give us the most gain.

By sticking with what is “easy”, we are limiting our potential. So the next time you are driving around town looking for the best deal or looking for ways to eek out another few extra bucks in savings, think about better ways you could be spending your time.

Don’t get me wrong, frugality is not a bad thing but you can always make more by expanding your top line rather than focusing on your bottom line.

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30 thoughts on “Why Being Frugal Can Only Take You So Far On Your Path To Wealth”

  1. I’ve finally commented. :)

    My own frugal story is mainly due to the circumstance that I’m in now—it’s either I go frugal or become a foolish broke.

    You’re right when sometimes being frugal might turn out to work against us, like the story that you’ve mentioned on spending 2.5hrs seeking out a product and saving you $50, while that time spent could be done investing in creating your course or a couple of blog posts.

    Mine would be that I’m cutting back on traveling (as in going out with friends for an outing at town) as I know that it’s both energy draining and the temptation to spend over my means when I’m at shopping places is very high.

    All that time, energy, and money saved from not being outside often was worth it—just created my #6th project since Jan 2010 (a web hosting in Singapore), and managed to generate enough income to start working on #7 (will reveal in my blog shortly in a week’s time).

    Yeah coincidentally with your food for thought section, I was just talking to a friend of mine who’s looking to create a project (some games stuff) which prolly would take up a lot of time without any assurance of income. Eventually we talked till our focus went back to doing stuff that will give us most gain in a shorter period of time, eg: #7 (which is going to be a “sister” site to our satay / otah supplier in Singapore site).

    Being frugal can only take us so far. It’ll make more sense to increase income by expanding your top line, than to be penny wise but pound foolish.

    1. Hey Daniel,
      I feel like I’ve known you for quite some time now. I’ve seen many of your projects either via the group or through social media and I think you’re doing a great job. One of these days your sites are going to hit it big if they haven’t already. Take care my friend

  2. Hi Steve,

    Thank you very much for writing this excellent piece! I’ve been so sick of all the frugality tips and advocacy out there. I thought it’s about time someone should stand up to say something about this.

    There are some people who seem to swear by frugality and I find that puzzling. Although these tips could come in handy, we should seek to create a better life for ourselves and our families, and not swear by clipping coupons and wasting time on finding bargains that save us a few bucks here and there. Reading too much of these tips make me feel disempowered. I find there’s just too much negativity in it.

    I’m not saying we should spend frivolously, but I think, rather than spending time to read and learn about how to save a few bucks here and there, it’d certainly benefit more in the long term to spend that time learning how to create a second income stream or start a side business. I absolutely agree with you that the best way to accumulate wealth is to simply make more money. As long as you’re not living in poverty, just spend moderately using some common sense (i.e. you don’t need that many frugal tips and stop wasting time reading all of them) and focus your energy on making more money instead.



    1. Hey Mark,
      Long time no see! Despite the general tone of this article, I’m still a big fan of frugality. I love the feeling of saving money on things that I buy but I’ve just come to realize that it’s not really doing me much good. Thanks for the comment and I’m glad that you agree.

  3. I honestly find a lot of personal finance and frugal lifestyle blogs to have a lot of finger pointing and just be utterly depressing. In my case, being frugal works for me since all the money I save have to go to medical expenses. Its not as fun as savings, but in the good ole US of A, that’s what I (and many other people) have to do.

    1. Hey Carla,
      I think I understand what you mean. Your situation is clearly different and frugality is a necessity. Your store looks great by the way. I hadn’t been there for some time and I was pleasantly surprised. My wife actually has a liking to your vegan purses. You might see a purchase from us in the near future!

  4. Hi Steve,

    I agree 100%. Many people love to work hard to save a few dollars. But, as you point out, there is no future. All you get is a few dollars. Is that really going to make a difference in anyone’s life?

    People love to penny pinch because it is so easy. It is easy to shop around, drive an extra 15 minutes to save on gas, or read frugality blogs and use some tips to save money. But there is no leverage in it.

    Instead of (or, if people are so inclined, in addition to) saving money, I think people should put an equal amount of effort into building their own business. It could be a blog, site, store, information products, investing, or anything else. Because all of those businesses have leverage. They can grow exponentially without exponential increase in effort and time.

    Your store is a perfect example. You can increase your profits by 50% or 100% or more per year and only need to do things more effectively. It doesn’t necessarily take any more time or effort.

    Thanks for sharing your great experience and ideas!

    1. Hey George,
      Thanks man! Speaking of which, I’m going to try and find time to read your book this weekend. You shouldn’t be so modest. as your automated investing tool is a great example of unfrugality as well.

  5. Great post! My husband and I went over out budget today looking for ways to cut more from our spending. The exercise of going over all of our expenditures to see how much we’d really save by cutting things really just emphasized our conclusion that our time would be better spent on efforts to make more money with our business. The same thing went for our eBay sales of stuff we no longer need or use – sometimes the effort put into selling the item is not worth the time that could have been spent making more money.The few bucks here and there would be much more quickly made up by making more money.

    The idea is not only to be frugal, but to also be smart about savings, as well as how you make money.

    1. Hey Anda,
      I used to be pretty good about Ebay-ing old stuff too, but you’re right. Now I just put the stuff on Craigslist for free, leave it outside and have people pick it up. Either that or I go to Goodwill. Here’s to spending more time on more lucrative activities!

  6. Is it a sign of economic recovery that business and money blogs are pushing back against the frugality blogs? About time! What you can save by scrimping and being frugal is finite, but the ability to earn is virtually infinite. Saving is essential, but by earning more you can build up your assets faster and live better. Plus making money is much more rewarding.

    1. Hey Tyler
      I’m not quite a believer yet that the economic recovery has arrived yet. But what I do know is that more and more people are going out on their own because they are out of a job. After all, you can’t save money by being frugal unless you make money in the first place! Making money with a businesstrumps all other wealth building strategies.

  7. Chad says:

    “All of this for a measly 4% savings. ”

    Just goes to show you how much inflation there has been over the past year or two…. you cut back on just about everything you could, yet you only saved 4%. Obviously the dollar isn’t getting you as far as it used to.

    I wish people thought more like you. Stop wasting hours of your time searching out the best deals, and use that time to increase your income – which will keep paying year after year.

    1. Hey Chad,
      I wasn’t even thinking about inflation at the time but you are right. If we assume 3% inflation( and this number will only get worse over time the way we are printing money), I’ve only saved a single percent. Definitely not worth the sacrifice

  8. Hi Steve,

    Thank you, that is so nice of you. Can’t wait to hear what you think of the book.

  9. I definately agree, saving money is one way to improve your cashflow but to become wealthy you need to increase the net amount of money coming in. I have worked hard to decrease our expenses although my wife has recently stopped working and this has had an impact on our ability to bring in income with only 1 income source.

    I find that focusing on increasing your top line also limits the amount of time you have to spend money as you are more occupied with working and being productive.

    Lastly, I think if you focus on reducing costs as opposed to increasing income it tends to have that sort of “The Secret” effect where you attract less.

  10. When my husband’s business hit a low a few years ago, we decided to focus more on how to attract new clients rather than on how to save a few pennies. While we have cut back on a number of luxuries, we also realize that we do not mind paying top dollars for quality products that can last us a long time. I think it is a great idea to be prudent in our spending and not go overboard either way.

  11. I look at it like trying to stay in shape. The best combination is a one-two punch of being frugal with your calories and getting out and exercising. Male models with 8-pack abs don’t get ripped by eating only rice cakes, they eat well AND hit the gym hard.

    Same with finances, it’s smart to be frugal with your money but simply scrimping and saving won’t make you rich (at least not over the next 10 years). If you really want to build your financial physique you should be money smart AND tap into your unique skills to start ramping up the income you earn.

    Or you could come out with a “2 Minute Abs” DVD and get rich overnight :)

  12. Steve,

    I absolutely agree with you. Frugality can only get you so far when it comes to building wealth, especially if the money you save is not put to work in aggressively building passive income for you such as by investing it in dividend paying stocks or automating some of your business processes to make things more efficient with less time and effort.

    I’ve come to the same conclusion that you need to make more money to build wealth rather than rely on saving exclusively, more so if you are not already making considerably more than you need to maintain your lifestyle.

    It’s definitely a mindset shift where you look for expansion (increasing revenue profitably) rather than working with a limited set of resources (saving from existing revenue) to increase wealth.

    Once again some thought provoking material – nice work!

  13. Steve,
    Excellent. Too many people (and books to entrepreneurs) promote that you should cut, cut and then cut some more. A lot of the time though, you ending so spending so much time that you end up with less money. I know people that spend hours trying to save 5 dollars. Really, what’s the point?

  14. Sandra says:

    Wow! Sounds like many people are sick of hearing about frugality. Personally, I think there should be a BALANCE. Of course one should concentrate on increasing income but at the same time, one needs to be frugal to increase their net worth. Frugality isn’t the same as being cheap. In my household, we clip coupons and buy what’s on sale; we live below our means. We also have a healthy income that enable us to have what we need and want.

    “Standard of living” is relative. While some of our friends think living in a $1m+ house is having a good standard of living, we think a $400k house is nice and cozy and more to our liking. Sure we can buy a $1m house but why would we want to do that? We can use the difference to invest for our future (not to mention our kids’ future).

  15. You’ll have to be wise in what you’re doing. Sometimes spending some money in outsourcing can bring about great savings of time and effort. In turn you can take this time to do greater stuffs in your business.

    Well being frugal at times might not be the best option after all :)

    Muren @
    Feng ShuiSingapore

  16. …Last but not least, it’s also about setting your foresights far by looking into the bigger picture! Try to save only when it is necessary :)

    Muren @
    Feng Shui Singapore

  17. Hi Steve,

    This was a fantastic piece and for the most part, I agree. Being more productive and finding ways to make more money is the way to go. However, we’ve all heard stories of people who increase their income and increase their spending at the same time, which is pointless.

    This was my story. The more money I made, the more I was spending and ultimately ended up spending more than I was making. I am by no means frugal, but I’ve put myself on a very tight budget. Having started a business, this was the only way I could get my spending in check.

    I think it’s a combination of starting out being as frugal as possible and making more money. The fact that you’ve increased your income by 41% AND cut your spending by 4% is testament to that.

    Thanks again for the piece!

  18. Marina Smith says:

    Earlier I was living a life with too many financial problems and was having a life you can say hand to mouth but a little ago I started to read the blogs from those I can have tips that how to handle this situations and read so many blogs regarding frugal living this blog is one of mine favourite that helped me alot.. Cutting shopping Expense with coupons helped me a lot to save with on-line coupons website such as retailmenot, ClothingRiccom, LavishCouponcom and so many .. also other tips are there Thanks mywifequitherjob.com :-)

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