Remaining frugal as your income grows

Remaining frugal as your income grows

by Trent Hamm
August 28, 2017

Remaining frugal as your income grows

Remaining frugal as your income grows

by Trent Hamm
August 28, 2017


Like many people, I spent my college years being extremely frugal.

I did all kinds of things in college to save money. I ate absurd amounts of ramen noodles, as it was an extremely cheap form of calories. I lived in a tiny apartment with as many as seven other people to get rent well below the $100 per month line. I went to all kinds of on-campus events mostly under the lure of free food. I avidly traded textbooks in order to save cash on my own books and try to get more valuable ones for resale purposes.

Those efforts helped me to keep my student loans significantly lower and managed to help me make it through some very thin months in terms of income later in my college career. I lived on very little income and I managed to keep myself fed, keep a roof over my head, and even occasionally have a few dollars for entertainment.

When I graduated and started earning a good salary, everything changed. My spending went off like a rocket. I replaced my whole wardrobe. I bought tons of new gadgets. I moved to a different apartment. I went from commuting on a bike and occasionally on mass transit to owning a shiny new vehicle. I started lots of different collections.

This eventually led me to a very sticky financial position, and it was that very financial mess that led to the birth of this website that you read, as it started as a chronicle of my financial turnaround.

As I look back on the whole mess, though, it's clear to me that I would have avoided many years of heartache if I would have simply maintained my frugality from college into my post-college years. That one simple move would put me in better financial shape today and saved me many years of stress and mistakes.

I believe this to be true of almost anyone who goes through a period of significant increase in their salary. It's extremely tempting to inflate your spending along with the inflation of your salary, but in doing so, you end up with the same kinds of financial problems where it's difficult to make ends meet. That's why there are so many stories of people out there making $300K or $400K and struggling to make ends meet. They allowed their spending to increase as their salary increased and often made heavy long-term financial commitments along the way (such as a large mortgage).

The reality is that I live my life today much as I should have lived my life after college. My wife and I collectively spend quite a bit less than we earn. We have no debts. We put aside the rest for the future. We have things in our lives that provide contentment and happiness without spending a lot of money.

My biggest regret as an adult is that we didn't migrate to this kind of life as quickly as possible when our incomes increased and we weren't forced to remain frugal.

So, let's say I had a time machine and could go back and talk to my earlier self, just on the cusp of earning a lot more money. What would I tell him?

Ask Yourself Constantly Whether You'll Care About This When You're Old

Every single time you spend money, step back for a moment and put yourself in the mindset of where you'll be in the future – ten or twenty or thirty years from now.

Will you care at all that you spent money on this thing? Will this purchase create any real positive contribution to your life at that point, especially as compared to not buying it or to a cheaper alternative?

Whenever you experience a temptation to spend more money on something than you would have previously spent, step back and ask yourself this question.

If you're eating out at a place like Applebee's instead of preparing a simple meal at home, does that purchase create a real positive contribution to your life? What if you're going to the same takeout place every single day and dropping $10 instead of bringing your own lunch to work? How is that purchase contributing to your life in a valuable way that you'll notice in twenty years?

If you're thinking of buying another hobby item instead of getting more enjoyment out of what you have or borrowing that hobby item from the library or someone else, what value are you getting out of that purchase, and is that value something you're going to relish in ten years?

This isn't to say that you shouldn't spend money on things that are enjoyable now, but the reality is that many things that will have a big positive impact on your life in twenty years are going to be worthwhile now, too.

Make an effort to fill your days with those things. Devote your money and time to things that will pay off in twenty years, or that you'll reflect on as having a positive impact on your life in twenty years, and toss aside and minimize things that won't.

This mindset, for example, pushes you to make most meals into simple and healthy fare while saving special meals for truly special events rather than making them ordinary. It pushes you to only upgrade items when they're producing real additional value for you beyond what you already have. It pushes you to be careful about buying more hobby items rather than using what you have or borrowing items. It pushes you to try to make meaningful choices with your time.

Filter everything through this thought process. Make it a key part of your decision about how to spend your time and your money. Think through your decisions again after you make them, and think through upcoming decisions in the same way.

Automatically Save Some of Your Income Starting from Day One

When you have money sitting idly around in your checking account, it can be very tempting to just spend it on something that seems enjoyable. It's an extension of that old maxim; the devil finds work for idle hands to do. That's idle money, and it'll probably wind up being spent on something unimportant.

The solution to this problem is to find a purpose for every dollar that comes in, then put procedures in place to put those dollars to work as effortlessly as possible.

So, how do you find a purpose for every dollar? The key to this is making a spending plan. Sit down and make a plan for where you want all of your money to go. This is a great theoretical exercise to take on on the cusp of seeing a rapid increase in salary, as you can make decisions about a lot of income without having to deal with patterns you've already established and commitments you made.

Let's say you get a job making twice as much as you make now. Great, huh? Before you jump in and start to see all of that money flowing in, sit down and make a monthly spending plan for yourself. How are you going to spend this income? Rent? Transportation? Utilities? Emergency fund? Saving for retirement? Rapid debt repayment? Food? Hobbies? Where is all of this money going to go?

Then, when you've figured out where that money is going, set up automatic payment of many of these things as soon as the extra money starts coming in. Set up an automatic transfer into your retirement accounts. Set up automatic bill payment. Set up an automatic transfer to build up an emergency fund. This way, every single dollar you have is marching off to its intended purpose on its own, without you having to even think about it.

This leaves you with a smaller pool of money for more flexible spending – things like food and entertainment and hobbies – that you can spend as you see fit.

Don't Abandon Stuff You Enjoy Now Just Because It's "Cheap"

When I was in college, I used to spend long hours going on walks. I'd walk all over town and discover new things each and every time. I'd wander down by the river. I'd wander into a new neighborhood. I discovered this wonderful quiet area on the trails in this large city park that I frequently went to. I'd often take a book from the library back there and read it for hours.

When I started earning more income, I decided I didn't really have time for that in my life. I started going to a gym instead for exercise replacement. I started buying books. I started going out all the time with my professional peers and spending lots of money.

That seemed like the right thing to do at the time, but the truth of the matter is that all of that was completely forgettable. I have far more memories of – and have received far more long term value from – those afternoons spent wandering around trails, reading books on a tree somewhere, and just exploring – than I ever did from the things I spent far more money on.

So, what do I do when I have a spare afternoon now? I go on a hike. I often have a book from the library in my backpack. And if I have a spare hour or two along that hike, I'll find a nice spot on a fallen log and read that book.

Here's the thing: just because your income goes up doesn't mean you have to change the things that actually bring you joy in life. Keep enjoying the things you were enjoying on a low budget. If you have a hobby you enjoy, keep enjoying it in the same way you always have.

Check Your Desire to Acquire

Speaking of hobbies, it can be really attempting to start acquiring lots of hobby things that you couldn't afford to acquire. You enjoy reading and finally you have enough money to buy a pile of books! You enjoy board gaming and you finally have money to buy an armload or three of board games! You enjoy home brewing and you finally have money to buy a propane burner and a mash tun!

While it's okay to splurge a little bit at first to buy things that you've long planned, don't let it become a regular thing. Instead, set a hobby budget for yourself – one a little higher than what you may have spent before but not astronomical – and stick to it. Allow yourself to only spend so much per month on your hobbies, and if you have a big purchase in mind, "save" for it by coming in under budget for several months until you have enough to acquire it.

The same thing is true for almost every type of spending out there. While you might be in the market for better replacements and upgrades than before, you shouldn't upgrade things for the sake of upgrading. Stick to core principles of frugal replacements: make sure that your replacement has a clear purpose that you're going to use that isn't met by what you already have, and when you do replace, choose items that are going to be reliable and last for a long time. When you're buying major items, focus on "bang for the buck" options – for example, Honda and Toyota are great car "bang for the buck" manufacturers.

Your number one enemy is a desire to acquire. Keep it in check through budgeting and through consistently asking yourself if this purchase is really something that's adding long term value to your life or if it's just fulfilling a short term desire. If it's just a short term desire, skip it or go for a lower-priced version of that item.

Don't Be a "Superhero"

One tendency that people often find in themselves as their income grows is the desire to be a "superhero." They want to be the person that covers the tab for everyone. They want to be the person that leaves a big tip. They want to be the person that has the jaw-dropping dinner party.

The truth? The people you're buying for really don't care. They really don't. Such purchases are almost entirely for you. They're done to make you feel big inside. Others might thank you, but it's not going to have any sort of lasting impact or impression on them, particularly not in the way you might desire.

Don't be a "superhero." Take care of yourself and your own obligations and let others deal with their own. Save your generosity for moments when someone genuinely needs help, and in those situations, it's often the gift of time that truly matters.

Don't give of yourself to those who don't need your help just to feel big, and especially don't do it because you happen to feel flush with money at the moment. Use that money to put yourself in a good position, and instead plan to offer needed help when things are genuinely problematic for your friends and family.

Don't Turn Your Nose Up at Store Brands

One thing I couldn't help but notice during the transition from low-income college student to much-higher-income professional is that I effortlessly migrated from buying store brands and value brands at the store to buying name brands and premium brands. I stopped putting the store brand hand soap in the cart and instead bought "high quality" brands with unusual aromas. I stopped buying store brand milk and started buying much more expensive milk from a "premium" dairy. It goes on and on and on like this.

Here's the thing: if a product is meeting your needs, there's literally no reason whatsoever to upgrade to the "premium" version. It doesn't offer you anything if your needs are being met.

In the same vein, if a product isn't meeting your needs, that won't necessarily be solved by a "premium" version, either. That's actually a time to look at comparative reviews like those posted by Consumer Reports. Which is the best paper towel for the buck? Move to that one rather than to the most expensive premium version if you're unhappy with your paper towel.

Many people see a "store brand" label and, if they have enough room on their credit card, simply turn up their nose at it. The reality is that most store brands meet the needs of most customers quite well. Store brand hand soap cleans your hands quite well – soap is not a complicated product. Store brand cereal is often identical to name brand cereal.

Don't reject "store brands" just because they're store brands. Don't switch to a more expensive product without a need to do so, and check "bang for the buck" options first.

Shoot for Contentment, Not Joy or Happiness

In the end, the number one thing to remember is that stuff doesn't bring happiness. Consistent happiness is just the outgrowth of a content life, and a constant cycle of acquiring new things or throwing money at new experiences does not buy contentment. It buys short bursts of happiness that fade quickly. You're far better off building a content life, one from which happiness consistently bubbles up naturally.

Doing things like being the "super hero" and paying the bill at dinner won't bring lasting happiness. Buying premium items at the grocery store won't bring lasting happiness. Buying more and more things to do when you already have things undone at home won't bring lasting happiness.

The only route to anything like lasting happiness is through contentment with life, as it provides a fertile ground for happiness to bubble up naturally. The way to build contentment is through spending less and securing your financial future. It's through eliminating stress, taking steps to make your body and mind feel good, and surrounding yourself with positive relationships.

You can't go into a store and buy those things. You can only achieve them by hanging onto the things in life that work for you, even as your income goes up. You can only achieve contentment by eliminating stressors, not by throwing money at short term bursts of joy.

Remain frugal as your income grows. You'll never regret it, as long as you do it thoughtfully.

The post Remaining Frugal as Your Income Grows appeared first on The Simple Dollar.

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