Undermining Your Frugality

This is a guest post from Trent Hamm who writes about personal finance at The Simple Dollar.

A reader named Mindy wrote in recently and asked the following:

I use all sorts of money saving tips all the time to save, but we never seem to get ahead. There’s always some expense or another that comes up, or something that my family needs. Then after a while I get tired of living cheap and not giving my kids the things they deserve, so on payday or when we make some extra money we go out and have a blast, but then the next day I feel guilty. I know I shouldn’t do this but the way we live feels so unfair to the kids. What can I do to fix this?

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When I was growing up, we did countless little things to save money. We grew an enormous garden. We hunted. We fished in a fairly high-throughput fashion, putting out lines overnight to catch hundreds of pounds at a time. We raised hogs and chickens and rabbits for our own consumption. We didn’t have any television besides the big three networks until I was in high school. We read a lot, swapped books, and visited the library in the nearest large town all the time.

The thing was that we often did this out of necessity. There was rarely a lot of extra money to spend. I was the youngest in a family of five that often had additional family members living with us – nieces and nephews of my father, my mother’s brothers, and so on. With only one wage earner, money was constantly tight, and thus frugality was a natural part of our lives.

The only problem with this was what happened when a windfall would come our way. My parents often felt guilty about raising kids in this fashion, so when a windfall would happen, I’d get a new video game and some new school clothes, we’d go out to eat a few times, and before we knew it, we’d be right back where we were before.

I don’t begrudge my parents making that decision. As a parent, I know very well the temptation that I already have to make sure they have everything they need and many of the things that they want. A genuine smile on the face of one of my children is worth quite a lot to me, and I don’t know how I would act if we were in a situation like the one I grew up in. I’d be sorely tempted to do the exact same thing – when a windfall came in, I’d probably buy my kids something, too.

The painful drawback here is that doing this undermines much of the effort of that frugality. Instead of striving to spend less than you earn, spending windfalls on fun stuff is merely a continuation of living paycheck to paycheck – spending exactly what you earn. Then, when something goes wrong, you have to usually dip into debt and start stretching those paychecks even thinner instead of relying on a bit of emergency fund, and then instead of using frugality to build a future for yourself, you’re using frugality to pay down the interest on your debt.

Inconsistent frugality is wasted frugality. If you scrimp and save carefully, only to toss caution to the wind and spend like mad when you get a bit ahead, all of that effort for scrimping and saving was swapped for one rush of spending.

Think of it this way. Family A and Family B scrimp and save on a regular basis to stay ahead of the game. Family A is $60 ahead one week, $20 ahead the next week, and $100 ahead the third week. Each week, though, they spend that full amount on stuff to enjoy living in the moment: $60 one week, $20 the next week, and $100 the following week.

Family B is seeing the same financial cycle, but they spend a budgeted $35 each week on fun stuff. After the first week, they’re $25 ahead, and after the second, they’re $10 ahead. After the third, though, they’re $75 ahead. Not only that, they didn’t have a “depressing” down week in the middle where they couldn’t spend as much – they planned around it.

At the start of the fourth week, one kid in each family suddenly needs cash to rent an instrument for band. Which family is in better shape to handle the sudden expense? Family A has undermined all of that frugality in order to fulfill some short term wants, and now they’re right back where they started – having to put an important expense on the credit card. Family B, on the other hand, still had fun (and had more fun during that second week), and gets to skate right through this crisis.

Frugality is a powerful thing. It’s the “spend less” part of the one sure recipe for financial success, spending less than you earn. But it’s also incredibly easy to undermine it if you’re doing it inconsistently. Spending less doesn’t mean just cutting back when you have to – it means consistently spending an amount that’s less than what you bring in.

One great way to make frugality work for you is to budget your entertainment and other unnecessary expenses. Each week, agree to cap your unnecessary spending to an amount that allows you to spend a little less than you earn, and don’t exceed that amount. If you have something big coming up that’s unnecessary, like a trip, start saving some of that personal spending money for it. Then, whenever you’ve saved a lot one week or had a nice windfall, just let it ride. Put it into savings, and as it builds up, realize that it’s frugality that’s building this safety net for you.

Another vital tactic is to realize that the most valuable thing you can ever give your kids is your time. Sure, it’s fun to go to an amusement park with them, but the kids usually aren’t craving Chuck E. Cheese. They’re craving time with you. Instead of going out and blowing a bunch of money, go to the park and actually climb on the monkey bars with them. Play frisbee or kickball with them in the grass. Cuddle up with them and watch The Lion King for the umpteenth time, or read them a book. Dig through your closet and bust out an old board game. Quality time doesn’t have to come from spending money – it just comes from spending time doing something where your focus is on your kids and you don’t have demands pulling you away (like making supper, etc.).

Over the long run, you’ll be happier, too. Life is a lot easier when you can go to bed at night knowing that if the car blows up tomorrow, you can handle it without breaking a sweat. If someone loses a job tomorrow, everything doesn’t immediately collapse. If Johnny needs an instrument for band, you don’t have to shuffle stuff around on the credit card. While it’s really tempting to spend when you’re ahead (especially at first), when you let the money just sit there in the emergency fund, you’re actually buying something else – peace of mind. That’s one of the biggest bargains of living cheap.

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