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Can you be happy being frugal?

Being careful and disciplined with your money is very important to make sure you have something to invest and grow. There are a lot of expressions to describe this including "cheap" or being "frugal". But can being frugal make you happy?

I recently wrote a post about how to be a contented investor which suggested that it wasn't just how much total return you accumulated that was important, but also the manner in which it was done. If someone experiences sleepless nights with their investments , then arguably settling for a slightly lower return may be worthwhile considering.

Similarly, the manner in which you save and build up your savings is probably just as important as how much you save. In my case, we like to aggressively save our money, but we can't do without some of the basics such as the occasional nice dinner out, laptops, tablets etc.

In my view, there are a few different types of frugality

Frugal lifestyle

This is the person who is focused around eliminating any and all cost out of their budget. No expense escapes from review, whether it is transportation, food, clothing. With limited affiliation to brand name, frugal lifestyle is able to aggressively review and eliminate expenses at a far higher rate than the rest of the population. These are the types of people with the highest savings rate to disposable income, and who are likely best positioned for investing success by virtue of the sheer amount of available income they would have for success. Saving rates to disposable income can be as high as 80% for this group.

Frugal minded

These people actively look for opportunities to reduce costs around non core items. There may be certain types of expenses that they are just unwilling to compromise on, but these likely form a minority, rather than a majority of their core expenses. They may look to pay their credit card expenses in full, and exercise some diligence in what goes onto cards in the first instance.

Outside of their core expense categories, frugal minded look to save first, and ask questions later. I would say that we probably fall into this category. Saving rates for this group can be as high as 40-50% of disposable income. While reasonably well positioned for investment success, this group could do more to save, if they really wanted to

Frugal what??

This group have an intense desire to consume. Spend today and worry tomorrow probably typifies their attitude to life. Rather than having an aggressive savings plan, its quite possible that they may be looking at additional debt to fund purchases. It's fairly important that if you think you may be in this group that you take steps to work out where they may be areas to start cutting out excessive spending in your life. Savings rates in this group could be anywhere across the spectrum, even beyond negative. The good news for this group is that they have the largest upside potential to see significant increases in their savings rate and investments if they choose to make the effort.

Of course, the reality is that people may find themselves somewhere across a blend of all these stereotypes, and we can't always neatly stereotype spending and attitudes to spending into a nice package.

But back to my central question, is it possible to be happy being frugal?

In my view, this comes down to whether you have accurately matched your attitude to frugality to your lifestyle. If you have done so, I would argue that you can in fact be extremely happy being frugal. As you start to see exactly how much you are able to save up each month, there exists almost a hidden drive to outdo yourself in terms of how much you can save the next month. Provided you aren't being frugal to the degree that you are eliminating things that are core to your happiness (and who knows, that morning cup of coffee could be one of those things) you are likely to find a strong and stronger desire to save more and more money each week.

In our case, while we are prepared to punt on cable tv, we cant find it in us to forego that occasional bottle of wine, or dinner out, and even that nice set of new clothes ( probably more in my wife's case I think).

The notion of frugality likely gets more relaxed the more you achieve and the more your nest egg grows, yet I find the basic ideas still can remain core. Cable TV is no longer something we feel a need to skimp on (we have multiple entertainment subscriptions now). Yet somehow I can still never bring myself to splurge on a new car - who wants to lose 10% just driving it off the lot!

So yes, I think if you can match your frugality with your lifestyle and you can see the efforts of your frugality in your investment success, then yes, being frugal can indeed make you very happy.

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