What is Frugality: 6 Signs You Are Too Frugal
Here is Part 6 in our Money in your mind blog series. As always, we are looking to expand financial education and make you the best at saving money. Let’s talk about frugality, its downside and why it could lead you to lose more money than you think.
Most people have a hard time saving, but some have a hard time effectively using their money!
Paracelsus famously said, “Poison is in everything, and nothing is without poison. The dosage makes it either a poison or a remedy.” You can think about frugality as a poison, as there is a right amount of saving money that makes a healthy saver.
Frugalism: Why it can be appealing
The fear of spending can intensify to the point where savers will try to abstain from spending money on necessities and items that improve quality of life. By avoiding investing in higher-priced items, savers may actually lose money by having to frequently replace items or using quick fixes for repairs that may worsen and end up costing more money in the long run. Remember that you can still be a healthy saver and buy expensive items that may be 3 times more expensive than what you would normally buy if the item lasts 5 times as long.
Generally speaking, people don’t like to lose money, which makes it difficult for some people to spend it. This follows a psychological concept called Loss Aversion, which means that people would rather avoid loss than gain an equivalent amount. Simply put, people would rather not lose $5 than find $5.
Additionally, a cognitive bias called Present Bias, where people choose diminished reward given in the present, rather than waiting for a larger reward in the future. This holds true for money, as many people would rather have their money now, rather than investing it properly to save money for the future.
These underspending habits can also be a product of one’s environment. Americans who grew up during the Great Depression and World Wars have been found to chronically underspend. In the modern-day, many children who have experienced their parents lose financial security can adopt extremely frugal habits.
The Downside of Frugality:
Frugality can hurt you more than help you. As people cut corners with their spending, they can actually be losing money in the long run. Here are a few habits that excessively frugal people tend to practice and why they are worth changing.
- Turning Away From Medical Care
An apple away might not be good enough to keep the doctor away forever. Avoiding the doctor and dentist can progress untreated health problems into worse (and costly) illnesses.
- Neglecting Household and Car Maintenance
Just like illnesses, house repairs and car maintenance can start small and spread quickly. For example, a small basement leak can lead to high humidity and mold, which is much more costly to fix. Similarly with cars, it is important to get them checked and fixed before you have to replace the entire vehicle.
- Buying Items Extremely on Sale Just Because They are on Sale
Buying items you will like or definitely use is important. Just because that shirt is on sale for a whopping $3.00, it doesn’t mean that you should buy it. If you don’t really like that shirt, it’s likely to be buried at the bottom of your drawer while you wear all your other clothes that you like more.
- Skipping Insurance
If you can’t easily replace what you are trying to insure, it is a good idea to insure it. Crashing your car and flooding your house never come expectedly, so it is a smart idea to err on the side of caution.
- Buying for Price Over Quality
It’s worth investing in a reliable, quality item that won’t waste your money or time to replace or repeatedly repair in the future. For instance, you can avoid the headaches of unexpected car repairs and invest in a quality car, to begin with.
- Not Splurging for Frequently Used Items
Shell out some extra money for items you will use frequently, like your mattress. You already spend around ⅓ of your life asleep, so why not do it in comfort? A quality mattress will help you rest easy at night and keep you awake during the day. Some other items that are worth splurging on are shoes, work clothing, and your home.
Excessive frugality is not necessarily the answer to save money and control your finances. Our mission at Cash Coach is to give people control over their finances by allowing you to connect all your bank accounts, track your bills and control your spending habits. While having fun with our gamified financial app, where the more money you save, the higher you level up!