I calculated it yesterday. Liz and I live on just 30% of our take-home pay. Before you go all crazy and start coming up with all the reasons why you can’t possibly do that, let me explain to you the simple steps that we took to get here:
- We saved up an emergency fund early
- We paid off all our consumer debt
- We drive cheap, but reliable cars
- We have fun, but do it purposefully on a budget
- We bought a modest home and paid off the mortgage ASAP
- We worked hard at our careers and earn a healthy income today
This didn’t happen overnight. It took years of hard work and frugality to become debt free and to increase our earning power. Anyone can do this. It just takes a plan and some rock-solid determination to stick with it. Now, we are finally reaping the benefits of extreme frugality.
8 Benefits of Extreme Frugality
When I tell people that I’m frugal, they typically think that I’m one of those extreme cheapskates that reuses paper towels and only eats severely discounted expired food. While I do enjoy saving money, it is not my life’s goal to deprive myself of life’s luxuries and quality food. Liz and I still spend money dining out, going to festivals, and traveling around our great state of Michigan (we love it here!). We’re not misers – we just understand the awesome benefits of extreme frugality.
#1. Emergencies Become Annoyances
One of the most frequent benefits of extreme frugality is that emergencies become annoyances. Back when I had no money, a routine brake change on my car was a major emergency. I didn’t have that $200, so I reached for my credit card. After all, that was for emergencies…. (dumb, dumb, dumb)…
Today, Liz and I have money in the bank. Just last week, her car broke down and left her stranded on the way to work. Instead of freaking out and trying to figure out where we were going to get the money to pay for it, she calmly called me, told me she broke down, and I went to pick her up and bring her to work. No stress, no panic attack, just a minor annoyance in the day. We later paid the $1,000 bill in cash from our emergency fund.
When you have no money and are always reaching for your credit card during “emergencies”, you end up paying interest all your life. But, when you’re frugal and start putting money in the bank, you end up earning interest instead of paying it out. It’s not a huge amount, but it’s money that you never had before! Oh, and for those of you that still don’t know, Credit Unions sometimes pay 2-3% on your checking account balance. I make an extra $400 a year just by having money in the bank! Talk about benefits of extreme frugality!
#3. Can Live More Carefree
I was shopping in TJ Maxx a few weeks ago and a man was standing there, ready to check out. Before entering the line, he pulled out his phone, called his wife, and asked, “I want to buy a $15 golf shirt. Do we have enough in our account for that?”
Talk about living on the edge! If I lived with just $10 in my account all my life, I’d probably die before I reached 32 years old. My stress level would be through the roof all the time! Instead, it’s best to pad your savings account and live a more carefree life, and then if you really want to buy something, then buy it (keep in mind, us frugal people would probably do this once every six months or so).
#4. Cost of Living Increases Become HUGE
Since most people spend everything they earn, they absolutely NEED their cost of living bonuses at work to keep up with their current lifestyle. One of the best benefits of extreme frugality is that your COLA bonus actually becomes extra money that you didn’t need before anyway! Let me explain with an example:
Let’s say you earn $40,000 per year, but only spend $20,000. You receive a 2% cost of living bonus from work. How did that impact your life?
- Your wages increase by $800
- A 2% inflation would have caused your spending to increase by $400
- That 2% cost of living bonus just gave you an extra $400 that you didn’t need!!
When you live on practically nothing, any increase in wages just becomes extra frosting on the cake! Ahh the benefits of extreme frugality… 🙂
Let’s stick with that earnings example of $40,000 (after taxes). If you have no credit card payment, no student loan, no car note, and no mortgage, I bet you could live on just $20,000 per year, don’t you? For sure! Heck, Liz and I come close to doing that and there’s two of us! So the million dollar question is,
“If you earn $40,000, but only need $20,000, what do you do with the extra $20,000?”
Without batting an eye, many people would immediately think of ways to spend it. It could be a kitchen renovation, a new car, or a pool for the backyard – whatever it is, it’s likely not necessary and will lead to a future value of $0.00.
If you are wise, you will exercise one of the true benefits of extreme frugality and create additional streams of income.
When I first started out, I had one stream of income – my job. After a year or two, I discovered that I could put my financial wisdom on the web and earn more money (which is how this site was born) – which became income stream #2. Income stream #3 was easy – I got married! Lol (by the way, this is NOT a reason to get married, but it does help the bank accounts). For income stream #4, we’ve been stashing away our excess cash to invest in real estate. Soon, we’ll plunk down about $70k so we can earn an additional $1,000 a month. This investment will then allow us to save faster for income stream #5…and #6….and #7. The benefits of frugality? An increase in your streams of income and an added amount of security with each one.
#6. Create Options For Your Future
By living on less and by building up multiple streams of income, one can really create some magnificent options for his/her future! These options could include:
- Staying at home to parent your children
- Working where you’re passionate instead of what pays the most
- Starting your own company where you’re your own boss
- Retiring extremely early and relaxing for life
If you choose not to experience the benefits of extreme frugality, then you might own a larger house, have a vacation home and a boat, but you’ll likely also:
- Be stuck in your job for life
- Perhaps never retire
- Provide little or no inheritance for your children
For me, I would much rather be a little frugal so that I can have many options in life.
When you’re constantly strapped for cash, the last thing on your mind is giving money away! The only problem is, giving is actually one of the best gifts there is. When you give, you:
- Get to see the impact of your help
- Feel good about yourself and your actions
- Become more content because you’ve actually witnessed and impacted the needs of others
No matter your gender, color, language, or beliefs, we all are not that different from each other. We all have wants, needs, struggles, and hopes. Some are greater than others, but no matter the situation, everyone deserves help. The more people that are willing to do just a small amount, the greater our world can be. Put yourself in a position to give – it’s one of the great benefits of extreme frugality.
#8. Learn True Happiness
With credit, many of us can buy just about anything. We can afford a house, a car, a bunch of toys, and maybe even a boat, but do any of these things really make us happy?
About two years ago, I found an amazing deal on a nearly-new Nissan Altima. It had keyless entry, remote start, heated seats, and a fabulous body. This car was sweet! When I walked up to that car, I felt like I was a VP of a corporation. It really boosted my confidence level….until about 2 weeks went by. After owning the car for about 14 days, it was just like any other car that got me from Point A to Point B. It was no longer all that exciting, and I wouldn’t have minded something a little nicer.
When you search for happiness in possessions, you’ll never really be happy. Sure, it might give you a charge for a couple weeks, but will it provide lasting happiness? Nope.
Jim Carrey says it best with his fairly well-known quote:
“I think everybody should get rich and famous and do everything they ever dreamed of so they can see that it’s not the answer.”
Are you discovering the benefits of extreme frugality?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.