Frugality: A Key Pillar of Personal Finance Success

Why Many Ultrarich People Aren’t Satisfied With Their Wealth

In a recent piece for The Atlantic, Joe Pinsker explores why such vast numbers of ultrarich remain unhappy with their wealth. There are two principal reasons for this general dissatisfaction.

1. Hedonic Treadmill Effect

Pinsker points to the hedonic treadmill where people, even while possessing much wealth, still want more for satisfaction. “Whichever level people reached in terms of affluence,” one researcher told me, “most Americans felt that they needed two or three times as much to live comfortably and really be happy.” Here, in this case, all human beings are found running in the hedonic treadmill to be more than what they have in life, making it hard to attain satisfaction.

2. Comparison with Others

One of the other key precursors of discontentment among the ultrarich involves a tendency of benchmarking good fortune against that of others. People generally measure success against these: Do I have more than my family, friends, or colleagues? It is this competitive mindset, otherwise described as “keeping up with the Joneses,” that helps to perpetuate dissatisfaction.

Comparison and the Hedonic Treadmill in the Light of Everyday Experience

The breadth of the subject in Pinsker’s article is on the ultrarich, yet these tendencies apply basically to everyone, from middle and low classes alike. People across all income classes compare themselves with others and get caught up in the same hedonic treadmill. Even poor people are trapped in comparing their lifestyle and possessions with the rest of the people, most of the time influenced by media portraits of things that represent wealth.

The Influence of Media

But the lower the income, the greater the challenge. Statistics would indicate that lower-income people would tend to watch more TV, thus being exposed to an idealized version of life, perhaps not real. This increases the pressure to keep up with societal expectations of wealth and success, further fueling the desire for more.

Non-Consumer Advocates and the FIRE Movement

Over the past couple of years, the early retirement movement has gained significant traction; popularly known as the FIRE movement—whereby with increased savings coupled with reduced spending, one can retire much earlier than the typical retirement age.

The Role of Spending in Financial Independence

Abstaining from spending stands as one of the core concepts of the FIRE movement. A simplified equation for personal finance could be described as: Wealth = What you earn – What you spend. In most definitions, having a high savings rate viewed would mean letting you have efficiency in gaining financial freedom sooner and building more wealth faster.

The Non-Consumer Mindset

The followers of the FIRE movement are inspired by personalities like Joe Dominguez and Vicki Robin, authors of Your Money or Your Life, and thus possess a non-consumerist mentality. The philosophy urges people to opt-out of the comparison game and become frugal. As Dominguez and Robin so aptly put it, “If you live for having it all, then what you have is never enough.” They preach thoughtfulness in consumption and warn against America’s addiction to consumerism.

The Virtue of Frugality

Of all the values comprising the FIRE movement, frugality is one of the most basic. Embracing frugality is where finances start really paying off well beyond simply spending less.

Frugality: Financial Benefits

The less someone consumes, the less it takes to sustain the lifestyle via income; hence, enabling one to have more financial liquidity and, when relevant, be able to retire earlier. The less one consumes, the less they have to work in the future, hence faster the path to being financially independent.

The Power of Frugality in Everyday Life

Frugality provides security and choices. For example, if one earns $50,000 a year and spends $50,000, any disruption in one’s income can be disastrous. On the other hand, if one shrinks his or her spending down by $25,000, then there is a buffer. This financial margin allows for a great increment in security and freedom in life.

Competitive Frugality in the FIRE Community

While frugality is a virtue in the FIRE community, it sometimes fosters unhealthy competition. Some are into what has been called ‘frugal shaming’ or financial one-upmanship, where individual persons compete with one another over who can spend the least. This, too, can be injurious because it shifts the mindset away from personal financial goals toward impressing others.

Personal Journey Toward Frugality

Despite the challenges, so many people, including the author, try to be more frugal. The time spent with friends who have a frugal mindset in the FIRE community creates positive peer pressure for one to make wiser choices over money.

Examples of Frugal Living

He and his partner, for instance, make inexpensive meals at home instead of eating out. They also bought secondhand cars and tried to do house repairs themselves as a way of enjoyably experiencing their success while trying to save money.

You Need a Budget (YNAB): Feel the Power of Financial Control

You Need a Budget, more popularly known as YNAB, is one popular tool in frugal living. The budgeting application is one system developed by Jesse and Julie Mecham in 2004 to help trace where money goes, save more money, and beat the anxiety on finances.

The Four Rules of YNAB

The methodology of YNAB hinges on a core of four simple rules:

  1. Give every dollar a job: Give each dollar in the budget for a specific purpose.
  2. Own your actual expenses: Regularize large, infrequent expenses to avoid surprises.
  3. Roll with the punches – adjust your budget when life changes.
  4. Age your money – try to only spend money that is at least 30 days old in a quest to break the paycheck-to-paycheck cycle.

Conclusion: The importance of frugality towards financial independence

Frugality is not about deprivation; it is about obtaining financial freedom and control of your life. The frugal mindset will let people altogether avoid hedonic traps and social comparison configurations that lead to dissatisfaction in life. Financial independence isn’t just about having more money; it’s about having the freedom to come to life on your terms.

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