Being extremely frugal can actually hurt you more than help you. If you focus too much on saving every penny, and don't invest early, you could be missing out on a lot of money.

Anyone who grew up with grandparents that lived through the Great Depression probably has a story or two about extreme frugality. When you never had to ration bread or stand in a soup line, it seems pretty silly to see your Grandma hoarding canned goods or haggling with the manager at a grocery store.

But lots of us did grow up during the recession of 2008, never realizing how similarly that experience has shaped our approach to money. We may not refuse to throw away leftovers and wear the same pair of shoes for 20 years, but frugality has once again become a national obsession. DIY culture is all the rage, and the blogspace is filled with articles on how to cut your spending down to the bone.

It’s not that being frugal is bad—plenty of people could learn a thing or two about making their money last—but pinching pennies should never be more important than earning them. The truly wealthy tend to have a growth mindset, spending responsibly but focusing the bulk of their energy on earning.

If this hits close to home, it’s time to ask yourself—are you buying into the cult of frugality?

Being frugal is overrated

A few months after I graduated college, I started my first real job as a newspaper reporter. I was making $28,000 a year and trying to pay off my sizable student loans. I wasn’t making much progress.

I started reading about how to live frugally and quickly adopted that mindset. Every dollar became important. One time, I spent 10 minutes in front of a Redbox deciding if it was worth spending a dollar on a movie rental.

I was mostly frugal because I wanted to pay off my student loans as quickly as possible, so every extra dollar went toward my debt. Luckily, I was able to pay everything off within three years, but the experience ended up being more frustrating than fulfilling.

I quickly discovered there was only so much I could cut from my budget. I was living like a college student, but without the bustling social life. When Saturday night rolled around, you could usually find me on the sofa with a pint of ice cream and three dollar Trader Joe’s wine.

During that time, my finances remained stagnant. I barely thought about investing in my IRA or 401k. Turns out, I missed putting in money during one of the greatest bull markets in US history.

Instead of worrying about the one dollar purchases I was making, I should have been focused on investing and learning about index funds. Instead of applying for free samples of shampoo and laundry detergent or looking up 50-cent coupons for milk, I should have learned about asset allocation.

When being frugal costs you money

During this time, I started a blog chronicling my attempt to pay off my student loans early. I got really into blogging and loved writing about my journey. A few months after starting the blog I learned about FinCon, a personal finance media conference dedicated to people like me.

I really wanted to go to the conference, but didn’t want to divert my extra student loan money for a nerdy vacation—so I skipped it and vowed to go the next year. Thankfully, I did.

The conference was life-changing. I met several people who gave me my first personal finance writing gigs. Those jobs ended up becoming the basis of my freelance writing career, and a year after that first FinCon I quit my day job to write about money full-time.

Sometimes I wonder if I’d be in this career if I had skipped FinCon. More often, I wonder if I could have quit my job earlier if I had gone that first year.

I’m not alone in this. Every day, people choose not to spend money on something that could change their lives—like a Master’s degree, investment opportunities, or a new business idea. They get so wrapped up in daily financial decisions like whether to buy brand-name or generic salsa that they forget about the big picture.

My husband used to fall into this extreme frugality trap. For years he avoided buying fresh vegetables, preferring to buy cheaper ingredients to make pasta and sandwiches. After developing a daily exercise habit, he slowly loosened the reins. Now, we eat fresh veggies with every meal and have a salad at least once a day. Our grocery bill is slightly more than it used to be, but we consider it an investment in our health.

Turns out this thinking makes good financial sense as well. A report published by the National Bureau of Economic Research found that, “People in bad health work less, earn less, face higher medical expenses, die earlier, and accumulate much less wealth compared to those in good health.”

If you’re avoiding exercise because a $40 gym membership is expensive, you’re actually costing yourself hundreds of thousands of dollars in the long run. Skipping spinach because it doesn’t last as long as a bag of rice is actually the less frugal decision.

What to focus on instead

Instead of being obsessed with frugality, consumers should focus on building their wealth by earning more money. You can earn more money in a few different ways, like negotiating your salary every year, switching to a more profitable industry or starting a side hustle.

“There is a floor to frugality, because you can only cut your spending by so much and you’re always going to have expenses like rent and food,” said financial planner Kevin Matthews of Building Bread. “At some point you must focus on increasing your income and investing. There is no limit to how much you can make on this end of the spectrum.”

Investing is one of the only ways to build real wealth that can last generations. Taking the time to learn how to invest will always pay off, often with far less effort than clipping coupons and making your own soap.

For instance, if you pinch pennies and stash $500 a month in a one percent savings account every month, you’ll have $341,595 in 45 years. If you live a little and only put away $250 a month in an index fund that tracks the S&P 500, you could have $953,929 in 45 years. Balancing frugality with smart investing would lead to $600,000 more in the long run and $250 extra each month.


Being extremely frugal can actually hurt you more than help you. If you focus too much on saving every penny, and don’t invest early, you could be missing out on a lot of money.

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Zina Kumok
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