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When Can You Stop Being Frugal?


Hey everyone! How are you doing on your journey to Financial Independence? If you’re just starting, the best way to surge ahead is to be frugal and invest more. My advice is to save 15% of your income and increase it to 50% over time. We did that when we were young and it paid off. Now, our investment gains outpace our earnings almost every year. Frugality is a superpower and it helped me achieve FIRE.

But here’s the thing: life isn’t static. Our needs and priorities evolve. What was essential yesterday might be a needless sacrifice today. At this age, I want to loosen up a bit and enjoy life more. However, frugality is a hard habit to kick. What if I stop being frugal and run out of money when I’m 80? When is the right time to stop being frugal?

Being frugal

Being frugal can be difficult for many people. But it is easy for me. My parents didn’t make a lot of money when I was young so we had to be frugal. They made enough to pay for all the essentials, but not many luxuries. For instance, we rarely went out to eat or took a vacation. I was fine with being frugal, though. Kids didn’t need luxuries to be happy in the 80s. We had fun with friends and families. That was enough.

After I graduated from college, I made a good income and could spend more. However, saving was always a higher priority than spending. I wanted to save and build wealth for the future. I started by contributing 15% of my income to my 401k plan. Gradually, I maxed out the 401k and Roth IRA contributions. After that, I invested in my taxable portfolio. Eventually, I was able to save 50% of my income.

For me, that’s the peak of frugality. If you can save 50% of your income, you’re living way below your means. You could spend a lot more, but choose to save for the future instead. Good job!

Frugal habits

Being frugal for so many years made it automatic. We are much better off financially now, but I still have many frugal habits. Here are some of them.

Housing – We own a duplex a live in one unit. It’s a 2-story house that was divided into upstairs and downstairs units. This enables us to generate rental income and write off a bunch of home maintenance expenses. Our housing expenses are very low compared to other households. However, our living space is smaller than usual and we have to share the common space. I don’t mind it, but Mrs. RB40 wants more space. We plan to take over both units when RB40Jr enters high school. He’ll need more space then as well. I can be frugal on housing for a couple more years, but not much longer than that.

Transportation – We have one car, a 2010 Mazda5. I got it right before our son was born. It still runs great, but it is all banged up externally. I don’t want to get a newer car because we park on a busy street. A new car will get messed up in no time. We don’t drive much so a nicer car isn’t a priority for me.

Food – We cook most of our meals at home. I like going out to try new restaurants or visiting our favorites. But I don’t like to eat out just for convenience’s sake. I make good food at home and I dislike paying for mediocre meals.

Coffee – I rarely spend money on coffee, boba, or other drinks. When I’m on a road trip, I would buy coffee when I need it. However, I never go to a coffee shop when I’m home. I brew a big pot of coffee in the morning and sip it all day. Why get dressed and go out to buy coffee?

Travel – I don’t mind splurging on travel, but I try to find the cheapest tickets and midrange accommodation. This backfired several times recently. Cheaper tickets usually have an extra stop, long layover time, and or inconvenient timing. When I was younger, I wouldn’t mind these inconveniences as long as I could save some money. However, I’m older now and I don’t want to sit around too long. I’m willing to pay more to get there quicker. I’m still sticking with economy tickets, though.

Too frugal?

Frugality will give you a boost when you’re young, but it can drag you down when you’re older. Let’s face it, being frugal can be inconvenient. At some point, we won’t want to deal with those inconveniences anymore. Why not live more comfortably if you can afford it? When can you stop being frugal and stay on track for FIRE?

One way to see if you’re being too frugal is to use the good old 4% rule. This rule of thumb tells us, you can withdraw 4% from your retirement fund annually and your money should last for 30+ years. We can use the 4% rule as a baseline and make a table.

If you spend more than 4% of your net worth every year, you should continue working toward financial independence. You aren’t there yet.  

On the other hand, you are too frugal if you’re spending less than 2% of your net worth. Your investment will grow beyond your need. Your heirs will benefit from your frugality. As for me, I’m not too worried about leaving an inheritance for our son. We’ll help out with college and get started in life. Maybe we’ll help out with a down payment if he needs it. After that, he can build his own fortune.

Loosening up

Last year, we spent more than usual, but it was still below 2% of our net worth. We should loosen up and enjoy our money a bit more. This year, we plan to travel more luxuriously and update our kitchen. That should do it. I don’t plan to buy a $12,000 couch like Lazy Man, though. I can’t loosen up that much!

Alright! What do you think? When is the right time to stop being frugal? I don’t think I can stop being frugal completely. It’s ingrained now. But I’ll try to loosen up more as I get older. Keep saving!

Image credit: Kevin McCutcheon

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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