I used to think that frugality was only spending money on the very basics in life. Don’t eat out. Don’t drink expensive coffee. Pinch pennies where you can. As I’ve gotten older my position has evolved. Rather than living like Scrooge, I spend extravagantly on things that are important to me and miserly on things that aren’t.
That kind of budgeting meant that my wife and I spent more on travel last year than we did on house payments. I spent more on coffee than I did on car payments (not difficult since we drive older cars and don’t have car payments). We still saved for retirement, ate out once in awhile and added to the wardrobe now and then, but for the most part we chose to allocate our limited resources in very intentional ways. Call it our extravagantly modest lifestyle.
When deciding where to allocate money, it helps to think like an investor. Investors allocate capital and expect a Return on Investment (ROI). For me, travel has a high ROI. I get time with my family and friends. We make memories that will last a lifetime. I get to practice my photography hobby, see new places and experience new things.
Alternatively, the type of car I drive has a low ROI. I drive a Honda Accord that’s a few years old. Trading up to a BMW would give me a small bump in my ROI, but it wouldn’t be worth it to me if it meant giving up the travel. If I could afford both, I’d probably do it, but for now I’m happy to drive a modest car if it means I can get the family on the road four or five times a year.
How about you? Are there line items in your budget that are eating up your paycheck without providing much ROI? Are there things you’d love to do (now or in retirement) that are stuck on the drawing board for wont of capital? Think through your budget and align your spending with your priorities. Be frugal, but don’t be afraid to spend like a drunken sailor on shore leave on those things that really matter to you.
Have a great week!