This is Episode 6 of our Financially Boundless Podcast. You can listen to the full-length episode using the player, or read the transcript below the player.
Hello and welcome to another episode of Financially Boundless, the Podcast. My name is Dane Janas, I’m an IRS-licensed Enrolled Agent and a personal finance and tax professional.
Today we’re going to cover the top mistakes that people make when they’re attempting to live frugally. Everyone goes through this at different paces and everyone has a different idea of what I mean when I say “living frugally”. I’m simply talking about living well and attempting to save money or to cut spending in places where you don’t think it’s absolutely necessary.
I’m going to talk about the mistakes, but a how-to guide to living frugally in the first place will be coming in a later Podcast and YouTube video, where I’ll share some tips and tricks to living the best life while living within your means. That’s what I really mean by living frugally: I just mean living within your means and being cognizant of saving money. This episode really stems from mistakes I hear clients, family, and friends making when they could cut spending in that area, or maybe you shouldn’t be doing so much of this [item].
If you’re worried about living frugally and succeeding in your journey to financial freedom, we’re going to dive into it.
“You’re Young, do it now.”
The very first item I want to talk about as part of this frugal living mistakes Podcast episode is an adage that I’ve heard over and over again. And then I want to reiterate it to everyone listening to this Podcast: “You’re young, do it now”.
As someone who’s in their late twenties, I see friends and clients making this mistake all the time. Everyone’s so worried about saving money. They’re worried about stock market crashes, they’re worried about retirement. Some people, especially younger people, forget to live in the “now”.
I’m not saying take a $10,000 European vacation every year, but cross things off “I want to do this list” now. Don’t leave them for later. You must strike a delicate balance between living your life. However, you can still do these things and save for those down the road items like retirement, a new house, a new car, etc.
Especially for the millennial generation who’s grown up with recession after recession and seen the financial mistakes our parents and grandparents have made, this could be especially difficult. We put a huge emphasis on protection and protection-like products like life insurance, retirement plans, 401(k) plans, IRAs – the list goes on and on.
If you need to be reminded of this, I recommend the best way to be reminded of these points is talk to your grandparents or talk to a friend you might have in that older generation. You’ll hear something along the lines of, “If I knew then what I know now” at some point in your discussion. They’re telling you to do the things that make you happy, don’t wait until later. Don’t wait until it’s too late to take that trip to Europe or to climb a mountain or something like that, because those are things that you may not be able to do later in life.
Simply put, really, life happens. Maybe you get a bigger house and you can’t afford a big vacation every year because you enjoy this nice new, beautiful home every day of your life, 365 days a year.
Another example: maybe you have kids, and taking vacations becomes quite a bit more difficult when you have kids. Heaven forbid later in life you or maybe your spouse or your family’s health declines and you never get a chance.
Don’t become that person that says, “I wish I would have done this when I had the chance”. Do it now but strike that delicate balance between living your life now and going on vacations and buying things that you need or that make you happy at this point and saving for down the road doing those down the road.
“Don’t Spend Hours to Save a Dollar.”
The second item I want to talk about in this frugal living mistakes Podcast is that you can’t get time back. I heard a quote a while ago that’s always stuck with me. And that quote is: “Don’t spend hours to save a dollar”. I’m not talking about this whole “don’t spend money on experiences” mantra. I don’t agree with a lot of that. When you travel, you’re getting an experience that you’re never going to get again. When you go to a concert, you’re seeing a band that maybe you’ve loved since you were in middle school or high school and chances are probably you are never going to go see again.
I’m just saying, watch time management. Don’t spend hours to save one dollar.
For example, even with this podcast, there are literally hundreds of things about it that I can pay someone to do. But I don’t use all the services I can because of my perception of what they’re worth.
For example, I pay a company to host this podcast. This really allows me to just upload an episode that I’ve edited and produced, and it gets pushed out automatically to all the channels that you’re getting this podcast on – Google, Spotify, Apple, etc. Besides the initial equipment cost, that’s all I pay for to do this podcast. That might be a little bit of a secret to you, but truly, it’s not expensive to start your own podcast.
However, I could pay for a variety of things to do with this podcast. I could pay for professional editing, a soundproof studio, audiograms, videos, automated Social Media posting – the list really goes on and on and on. I don’t, simply because I feel like I could do those things myself for free in an efficient manner. And it’s a wise use of my time. If I felt like it was a gigantic waste of time, I wouldn’t do it myself.
For instance, let’s take another example. To be more successful with my YouTube videos on the Financially Boundless YouTube channel, I make sure that closed captioning is available for every video I post. This way, the Internet is kept as accessible as possible to as many people as possible. Just because you may be hard of hearing or deaf doesn’t mean that you shouldn’t enjoy YouTube to its fullest extent as anyone else does. Alas, I always make sure to put closed captioning on all of my videos.
However, a service like that – I don’t necessarily feel that that’s the biggest, best use of my time – that I should be sitting here writing and timing my own closed captioning. So I pay for a service that does this for me, and I go in and just make little edits is needed.
That’s a prime example of spending hours to save a buck. That’s really what I’m talking about here. This service I paid to write closed captioning on YouTube is $20 a month. I usually post one video a week, so that equals four or five videos a month, which works out to be $5 or less per video. The time it would take me to do this on my own is hours and hours and hours. Instead, my closed captioning takes about a half hour.
In the end, don’t spend hours trying to save a dollar.
“It’s on Sale!”
Tip number three on Frugal Living Mistakes is the whole “It’s on sale” every time you turn on the television, every time you turn on the radio, every time you turn on anything, even on the Internet –“it’s on sale”.
What I’m talking about here is getting into the mindset of saving versus spending when it comes down to products that are on sale or clearance.
There’s two types of ways to look at this: what the store or what the retailer wants you to think, and what frugality wants you to think. The retailer on your left shoulder wants you to say something like, “Wow! That laptop was $700 and now it’s marked down to $400! I’m saving $300 buying this now!”
The question you should be asking yourself before you spend that, though, is, “Do I really need this and do I need it now?” Or for that matter, I should rephrase that question a little bit and say, “Will I use this before it goes on sale again, possibly going on sale in a better sale price?” If you can answer “yes” to that question, then by all means – do your homework and make sure you’re getting the best deal. (Just because something is on sale doesn’t mean it’s not cheaper or an even better sale elsewhere.)
At this point, you’ll be looking at it from more of a frugality standpoint, because frugality (on the right shoulder) wants you to say I’m still spending $400 on this. Even though I’m saving $300, that $400 is still coming out of my bank account or still coming out of my wallet. This is especially true if you can’t answer “yes” to that question of “Will I use this before it goes on sale again?”
Sales are great, but I truly recommend never buying a consumer product that’s not on sale with the digital buying age that we’re in today. It’s so easy to even scan the barcode inside a store and see what other brick and mortar stores and even online stores have that product priced at.
Do your research. Find out a couple of models of something you want to buy if it’s a consumer product and set a price alert. One of the best, most simple websites I can tell you to do this on is called NotifyPrice. It’s a very simple site. It’s at notifyprice.com. You copy and paste the Internet link or URL of the product that you’re looking at no matter generally what site it’s on. Copy and paste this link into NotifyPrice, and you give them your email address and they will send you an email as soon as the price on that item goes down or as soon as that item goes on sale.
Research your products, set price alerts, and let them run for a month or two before you actually pull the trigger on that purchase.
“My Health Doesn’t Matter!”
I’m going to totally switch gears now to another topic that ties in more with our first mistake: don’t disregard your health. Many, albeit many younger people, make this mistake to try to limit spending. They don’t go to the doctor or they go to the doctor, dentist or eye doctor as little as possible, because those appointments end up usually being expensive.
I get it. I’ve been there. I’m not here to preach. I get not wanting to go to the eye doctor because it’s $100 for an eye exam that tells you you’re just a as blind this year as you were last year, and then spending another $400 on a year’s worth of contacts to get you through the next year. That’s a $500 office visit that nobody likes paying for, just so you can see on a day-to-day basis. The cost of health care in this country is crazy.
But you know what I’m going to say in the end: don’t disregard your health. Some younger folks don’t even have health insurance and just play roulette with their health. And that’s scary. An ER visit can cost upwards of $100,000 if something is seriously wrong. And do you really want and be on the hook for that 100%? Or do you want to fork over $100 or $200 a month to make sure that that literally never happens? Young people tend to lose sight of this.
Plus, there’s obviously the reasoning of living longer and enjoying life more fully. If you’re healthy, you’re going to live longer, hopefully and enjoy a healthier and more prosperous life. So, don’t disregard your health. Just because you’re trying to be frugal, it’s not worth it. It is not one of those things that should be cut in the sense of frugality.
[Also], don’t cancel your gym membership. In a few minutes, we’re going to talk about canceling subscriptions to the things you don’t use. This is a time that you really need to look at yourself in the mirror and say, “do I really go to the gym?” If you do and you even go once a week, great. Keep that gym membership because it’s helping you to stay healthy. That shouldn’t be something that you cancel just to live frugally. But if you don’t go or maybe go once a month, then cancel it.
It’s $10 or $20 a month (and hopefully not more than that, because there’s plenty of gyms out there that only charge you $10 or $20 a month, and hopefully you have one of those near your home or work). But you don’t need to be spending for something that you’re not using. If you using it on a fairly regular basis, keep it – don’t cancel it. If you do, you’re missing the point of frugal living.
“I really like this house/car!”
Another topic I want to cover in frugal living mistakes is scaling up too quickly. What do I mean by scaling up too quickly? I mean what most of us unfortunately fall into when we’re in early- to mid-twenties. We make big purchases to scale up in life, and most of the time our financial situation takes a while to scale up along with that new life you’ve created. What I’m talking about here are those big purchases – a new (or at least new-to-you) car, a house or maybe your first apartment on your own, or maybe even like a motorcycle or a four wheeler – something that you know supports a hobby that you love to participate in.
When you have your first “adult” job in your early- to mid-twenties, you see nothing but dollar signs going into that bank account every couple weeks. I know I was there. And if you’re like me when I was in my early twenties, I was living home and didn’t have a whole lot of debt or financial responsibilities besides student loans in treating my girlfriend right. (I mean, I must have treated her right. She married me!)
What happens if you’re like me, and what happened to me is you get sick of living at home, and you get sick of driving the same 10+ year old car that you’ve been driving since high school. You look at those new dollar signs in your bank account and you buy a new (or again preferably new-to-you and slightly used) car, and you start looking at apartments or houses.
The problem with this is when you’re in your early- to mid-twenties, you have no idea what to do with your money generally and don’t know what your spending looks like. At least you also don’t know what market trends and things like that look like because you haven’t usually been studying them long enough. Take the time to budget, monitor your spending, and see what you’re actually saving per month. Then start to monitor the market trends, especially if you’re looking at buying your first home or renting your first apartment. This is a crucial step to monitor these market trends.
If you’re looking to buy a car, first, listen to the last episode of this Podcast on how to get the best deal from your car dealership. Make sure you go to the car dealer on the last day of the month. The last day of the month is when they’re going to make you the best deal on a vehicle purchase. But if you want all the tips that go along with that, just click back in your Podcast player here to the last episode of the Podcast, and we’ll go through all those tips with you.
Back to the house or apartment: after monitoring market trends for about a year or so, decide when the best time to buy or rent is. If you’re like us here where I am in Pennsylvania, the market generally dies in the wintertime. That’s usually your best time to strike, although there may not be much inventory in the wintertime because there’s not a whole lot of people riding around looking at houses when there’s a foot of snow on the ground. If you’re in a seller’s market (like we are in Pennsylvania big time right now), maybe wait a few years to see where it heads. Monitor the market that entire time, make sure you only get what you can afford right now and make sure you put a dollar amount on that affordability. The only person who truly knows what you can afford is you. This is especially true if you’re looking to buy a home. The mortgage company will likely approve you for $50,000 to $100,000 over what you’d like to spend just tempt you. That’s especially true if you have good credit but realize that they really don’t care what you can afford all that much.
Also, don’t buy the nicest. This is advice that I give everyone I talk to. Don’t buy the nicest. Don’t buy a brand new car as your first “adult” car. There’s no reason to – you can buy a certified pre-owned or a slightly-used car and get a great car for a great price that doesn’t lose 10% of its value the minute you drive it off the dealership lot.
Don’t buy a house (along the same lines) that’s $100,000 or more out of your price range. Wait to accumulate some more wealth than treat yourself after you have a good grasp on your income and expenses. That takes time, and there’s really no way around that that really takes time.
“I Can’t Afford my Hobbies.”
Another tip on frugal living mistakes is sacrificing your hobbies. Don’t let go of your hobbies just because you’re trying to save money. If you let go your hobbies, what’s going to happen? You’re going to become miserable. It’s one thing to live frugally and save money wherever possible, but it’s a whole other concept to get rid of everything you enjoy. We all know that that’s going to happen. But some people take frugality to its absolute limit and say, “I’m going to get rid of my hobbies” and they become miserable. Don’t fall into this bucket.
“I love Avocado Toast!”
This last one is something we’re all guilty of. This mistake in frugal living is two-fold. First, don’t subscribe to things you don’t need. I’m talking about subscription-based services, so Netflix, Hulu, Spotify, etc. – that list goes on and on. If you use them, great – if you don’t, cancel them! Many people subscribe to these services and forget all about them, but let them keep charging their credit cards $15, $20, $25 a month. Even if you have a subscription that’s $15 a month, that’s $180 a year for just one cancelled subscription that you could have back in your bank account or not have charged to your credit card.
The second part of this is don’t buy what you don’t need and resist at least some temptations. I know this is going to sound like baby boomers giving advice to millennials but stop going to Starbucks. Stop eating dinner out four nights a week. I’m not going to sit here and lecture you about avocado toast, but I know you get the gist. Don’t overlook those expenses that air right there in your face, that are ingrained in your daily activities.
Make coffee at home. Take it to the office. Don’t stop at Starbucks or Dunkin’. Do not eat in the office cafeteria, instead go grocery shopping and prepare meals for the week for lunch. Don’t eat dinner out 3 to 4 nights a week, [instead] go grocery shopping and make dinners. They’ll be healthier and your you’ll feel better.
I hope you really enjoyed this Podcast. These are just simple tips of what can really hurt you if you’re trying to live frugally. Some of the tips I went over or more on the “you’re taking it too far” side and others are more like “maybe you could improve on this”.
You can also call us and leave a voicemail and tell us what you think of the podcast. The telephone number is (610) 628-9152. You can also go to boundlesstax.com/podcast and leave us suggestions for episode topics you’d like to hear about, or even if you’d like to be a guest on the future episode of the Podcast or even a YouTube video.
Or, if you want more advice on personal finance or living frugally, you can even have a call with me through Clarity. This is a third-party service that I use to have personal finance chats with anyone, so I’ll leave a link in the description of the podcast for you to use this as well [clarity.fm/danejanas] if you’d like to have a personal, one-on-one phone call with me about personal finance and frugality and topics like that.
Otherwise I will see you next week, and I hope you have a great week!