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The ultimate guide to frugal living

A frugal lifestyle can bring fulfillment, joy, and security to your life. Here’s what you need to know.

Anna Baluch
December 28, 2023

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In a world that often encourages a culture of excess, living below your means can give you the financial empowerment you need to find a fresh start, accomplish goals, or achieve long-term financial freedom. Frugal living can allow you to take control of your cash flow and make the most of your hard-earned money.

It's about making intentional choices, cultivating mindful spending habits, and finding contentment in simplicity. Let’s take a closer look at what frugal living is and how to live a frugal lifestyle successfully.

What is frugal living?

Frugal living focuses on being mindful and taking control of your money. It’s a lifestyle that can allow you to live below your means and pocket the difference to meet goals or build a strong reserve. You may commit to living frugally for a certain amount of time to achieve a specific short-term goal, like paying off debt – or in service of a long-term goal, such as retiring financially free.

There’s no one-size-fits-all solution to a frugal lifestyle, as everyone has unique circumstances, values, and priorities. A frugal lifestyle should help you to hone in on being more intentional with your money.

Why frugal living might be a good idea

By committing to frugal living, you can:

  • Build sustainable habits: Frugality often aligns with a more sustainable lifestyle. You'll likely buy fewer disposable items, minimize waste, and make eco-friendly choices, contributing to a healthier planet. By consuming less, you reduce your environmental impact.
  • Enjoy more opportunities: Living below your means creates flexibility in your life. You're better prepared to handle unexpected expenses or changes in your financial situation. Flexibility can also open up opportunities, such as career changes, travel, or pursuing passions, without being tied down by financial constraints.
  • Reduce financial stress: A frugal lifestyle creates better money management and the ability to build a substantial emergency fund. Knowing you can cover your bills, debt, and unexpected expenses is a great way to achieve peace of mind.
  • Accomplish more goals: By lowering your cost of living, you have more cash to allocate towards short and long-term financial goals monthly. Be sure to build SMART financial goals, then prioritize them in your budget.
  • Improve your retirement: Not only can frugal living free up more funds for your investments and retirement portfolio, but it can also teach you how to live well on a fixed income.

How to live below your means

To live below your means, you must spend less than you earn — which is where a budget comes in. With a budget, you can better understand your cash flow and create a spending plan for your money.

Generally, the idea is to review your expenses, determine where to reduce spending, and embrace minimalism. By prioritizing needs over wants and limiting — or eliminating — indulgent expenditures, you can ensure more of your money is free at the end of the month.

After accounting for your fixed and necessary expenses, you can decide what to do with your leftover cash. Depending on your goals, you can dictate how much to spend across various flexible categories, such as saving, investing, and retirement. For example, if frugal living is meant to help you buy a home, it would make sense to allocate most of your extra cash towards saving for a house.

While there are many types of budgets, a zero-based budget is ideal for a frugal lifestyle. It requires you to assign a purpose to every dollar you earn so that your income minus your expenses equals zero by the end of the month.

If your income leaves little after paying your bills, consider increasing it. To do this, you can pick up a side hustle, which offers a flexible way to supplement your income. You can choose a side hustle that aligns with your passions, interests, and skills, such as babysitting, tutoring, meal delivery, or pet care.


Tips for living below your means

If you’d like to pursue frugal living, these tips can help you live below your means.

Reduce housing costs: Whether you're a renter or homeowner, housing is often one of the most significant expenses. To save on housing costs, consider:

Cut transportation expenses: Transportation costs can add up quickly, especially if you have a long commute to work or frequently visit loved ones who live out of town. To reduce these expenses, you can carpool, bike, walk when the weather is nice, or use public transportation. If a car is necessary where you live, try to find a cheaper car insurance policy. If you’re in a multi-car household, weigh the pros and cons of selling one.

Minimize food bills: Groceries are a common monthly expense that can quickly eat into a budget — especially if you have a large family or often entertain. To slash your grocery bill, shop on-sale products, buy generic instead of brand name when possible, and meal prep. If you have room to store extra food, invest in a wholesale membership at a place like Costco or Sam's Club so you can save money by buying in bulk. Also, prioritize cooking at home — limit how often you dine out or use food delivery services.

Explore more low-cost or free recreational activities: You don’t have to spend a lot of money to enjoy life. Fortunately, there are plenty of free or inexpensive activities that can keep you and your family entertained. You can:

  • Volunteer for an organization you care about
  • Hike at a local park
  • Host potluck picnics
  • Attend community events, like fairs and festivals
  • Paint, draw, knit, or learn an instrument at home

Avoid lifestyle inflation: Life is ever-evolving — which means your budget will be, too. As your income increases, resist the urge to immediately upgrade your lifestyle and spend more. Instead, channel those additional funds into savings, investments, or debt repayment. Alternatively, if you begin making less or things cost more, revisit your budget to reduce the impact of income volatility.

Frugal living and debt

Excessive amounts of debt can make it difficult to live frugally. For this reason, you should do your best to avoid accumulating it. Learn how to live on a budget, build and maintain an emergency fund, and refrain from large purchases until you’ve saved enough cash to pay for them.

It’s always worthwhile to build your credit score — which means borrowing responsibly. So, having a credit card is not taboo, it’s simply a matter of keeping track of your spending. To build your credit responsibly, pay your bills on time, keep old accounts open, and dispute any errors or inaccuracies you find on your credit report.

If you already have debt, it’s a good idea to be strategic about how you pay it off. There are a variety of debt repayment strategies you may want to explore, such as:

  • Debt snowball: Focus on the smallest debt first and move on to the next smallest debt until you’ve paid off all your debts. The snowball method can help you build momentum and stay motivated to pay off all your debts.
  • Debt avalanche: The debt avalanche prioritizes paying your highest-interest debts first. It can help you save as much money as possible on interest.
  • Debt consolidation: Debt consolidation is when you combine all of your debts into a single account. It makes the debt payoff process more manageable because you’ll only have one payment to account for each month. You may even save on interest if you can land a personal loan or line of credit with a low-interest rate or zero interest rate.

Frugal living and growing wealth

Frugal living opens the doors to growing your wealth. It allows you to save and invest your money while taking advantage of the power of compound interest. With compound interest, you can earn “interest on interest” and accelerate your earnings over time. As you invest, be sure to diversify your funds across a wide range of assets to reduce risk.

A high-yield savings account can give you a better return than a traditional savings account while still keeping your money liquid and easily accessible. In addition to traditional Wall Street assets, like stocks, bonds, and mutual funds, you may want to invest in alternative assets, such as real estate, startups, and certificates of deposit (CDs). You can explore retirement accounts, such as 401(k)s and Roth IRAs.

It’s worth creating a financial plan outlining your short- and long-term goals to find balance and success. A solid financial plan, a budget, and a commitment to no debt can help you create a path toward long-term freedom and set yourself up for the lifestyle and future you long for.


Final thoughts

Whether you hope to accomplish small goals in the foreseeable future or larger financial goals down the road, frugal living can help you on your financial journey. While it does require a conscious decision to spend less, save more, and be more mindful of your finances, it can be the secret to financial security, happiness, and fulfillment.

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