Toxic Frugality and Financial Independence

There has been an alarming focus recently in the financial independence community around toxic frugality.  It has inspired me to reluctantly pick up my virtual pen.  The argument goes something like this, saving and investing to amass wealth that enables your lifestyle aspirations is not the biggest financial barrier to living a better life. That is straight forward common knowledge. Rather the biggest barrier is toxic frugality and not knowing how to spend money well. 

Is Frugality Toxic?

The straw man reads as follows, the world is good at teaching us all to save money but the real problem is that most people suck at spending it well.  Hence, they amass huge piles of cash and sit there hoarding it like a miser.  Those advocating a path toward early financial independence love the word restriction like someone who likes to pick at scabs.  They wrap themselves in spreadsheets to keep themselves warm at night.  I don’t hate them but… so goes the straw man narrative.

There are horror stories of multi-millionaires who drive all over town to save a few cents on gas and others who can’t even vacation where they want to because they must use their miles on an airline that does not fly to that destination. Moreover, these wealthy scrooges say that they want to change but they actually really don’t. 

What if we flipped the question and asked, “Why pay less money when you could pay more money?”  Also what if you 10X your spending on things that you really love?  How great could your life be? What joys are you missing out on?

Anyone who challenges this narrative is either a foolish restrictive scrooge or financially illiterate and therefore poor and hence unable to appreciate the problem of actually being in a position to spend more money better.

Frugality & The Financial Independence Community

Surprisingly, many in the financial independence and retire early communities seem to be making large purchases and embracing this narrative recently.

One podcaster that I have much respect for recently ran an episode where he talked about spending more money.  

After years of being admittedly overly frugal, he came to a realization that he was not using his money to maximize his life.  He met with a coach who urged him to spend way more. This spending thing is incredible, he claimed while describing how he bought a really nice coffee maker and was kitting his house out with stuff on Amazon.  He questioned what he had been missing out on for the last 40 years of his life and remarked that his money coach would be proud because he has doubled his spending over the last two years.  He acknowledged that he had made a lot of progress but still had a ways to go.  It would after all be a great tragedy to die with millions in the bank, he asserted.

Much of this talk seems to fly in the face of frugality as a strength, stoicism which so many once championed on the road to financial independence, fifty years of research into hedonic adaptation, as well as much research around the link between happiness and money.  So what is going on here?

Recency Bias Post Financial Independence?

I jokingly want to call this trend of rejecting frugality, “everyone in the FIRE community turned 50 at the same time,”  because this sort of toxic frugality rhetoric seems a product of recency bias among those who have not adjusted their spend into later middle age as their portfolios have swollen over a historically phenomenal stock market run. Now these folks are newly opening their wallets and experiencing so much of the convenience as well as dopamine spikes that most average consumers do on the daily.  One well known coach is seizing this moment to inherit their audience and denigrate their original message while getting thanked for it.  So let’s unpack this.

Frugality & Money Coaching

First off frugality is of course not toxic. It is simply a mindset, a practice to look at spend versus value rather than consuming as a reflex. After all, we are hardwired to consume. It is in our DNA and your drive to consume is what makes capitalism work which kinda makes the world go round today. In fact being a money coach that helps wealthy but overly frugal people spend money sounds like a great job. Convince people to do something that they are hardwired to do but have been habitually avoiding sounds a heck of a lot easier than say getting them to worry about, save, and invest money for 10 years so that they can be in a place of financial independence and then not have to worry about it at some point in the future. I am in the wrong line of work. Also as a money coach, you know that your clients can pay you well because they have boatloads of money that they need help spending. Maybe I could even accompany my clients on some spend coaching sessions where we live it up Lifestyles of the Rich and Famous style with caviar and wine that I can’t pronounce. Please sign me up for this job. Ok jokes aside, there is an opportunity for empathy and learning here.

When Frugality No Longer Serves You

Any strength over used or mis-applied can be a weakness. It is easy to fall into habits that once served you but no longer do. I certainly have my own overly frugal vestiges and need to nudge myself here and there to update my thinking. I am also a firm believer that spending habits should change based on your stage of financial independence and covered this topic in depth some months back. Certainly a 50 year old with millions in the bank should be spending differently and making different money decisions than a 20 year old who still has student loans and does not yet have compound interest working in her favor. I can see how it might feel like a revelation to someone who has been frugal for years to realize that this frugality has now put them in a position to be able to do exactly the opposite. Yes you now can buy that fancy bakery bread, that fresh $6 salsa, that chunk of fresh Alaskan halibut for dinner. Moreover, money can buy convenience and can be spent to save time in some instances (I have been working on that one in particular). If you have the finances to support it by all means go for it. That is the very reason you put in the work, so that you could live your financially independent life. However, realize that it is no more virtuous to spend than it is “toxic” to practice frugality. Spending twice as much money is not “progress,” it is just spending more. The notion that an optimized life means spending in accordance to your wealth is kind of silly.

Optimized Spending?

The straw man argument is that you are living a deprived worse life if not spending commensurate with your means. By this logic, someone like Bill Gates is living a deprived or under utilized life if he does not spend at least $12.6 million dollars a day. Clearly this seems ludicrous and it is. Research suggests that beyond a point, more spending does not mean more happiness. Moreover, hedonic adaptation research pretty consistently indicates that while someone who buys an expensive coffee maker and just loves pushing the knob and grinding the beans may have some short term euphoria around the new freedom of buying lots of stuff, this same guy will very quickly adjust to that new level of consumption and will experience it as just another cup of coffee after 6 months or so. Again this is not a problem when one has the extra cash to afford it but it is also not a virtue either.

Is It Actually a Tragedy to Die With Millions?

As someone who faced the prospect of dying with millions in the bank, I can tell you that it was not a tragedy in my mind at all.  While the money gave me security through cancer, it did not solve my problem nor did I fear the tragedy of having not spent enough.  The tragedy was the possibility of not being there for my kids and the missed experiences as opposed to whether I wore a $30 sweater or a $300 sweater.

What do people on their deathbeds actually regret? These five common regrets of the dying do not have anything in them about making sure you spend all of your money or about optimizing some money, time, consumption equation, however, they may yield insight into how one might spend money well to help meet more meaningful goals:

1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
2. I wish I hadn’t worked so hard.
3. I wish I’d had the courage to express my feelings.
4. I wish I had stayed in touch with my friends.
5. I wish that I had let myself be happier.

Is Money The Barrier to Your Rich Life?

Let me reiterate that from a pure financial planning stand point there is nothing wrong with lavish expenditures that you can afford but there is also nothing right about it.  In this past year, I have eaten at perhaps the most acclaimed restaurant in the USA (the French Laundry), rented a private villa, and dropped crazy cash on the beaches of Hawaii:

 These things cost a lot of money and were great. I have also taken my kids to a show at perhaps the most famous opera house in the world for 15€ each, and stayed in an extraordinary palace for the price of a hotel room. One of my best days of this last year was a magical afternoon just skipping rocks and biking by a river with my family.

These things cost very little money and were also great. My point here is three fold:

1. Spending more money does not necessarily mean a richer life.
2. Great experiences need not cost lots of money.
3. Living your rich life can be done with currencies other than money such as time, relationships, and timing.

I have found that time and intention have been the bigger barriers to realizing my Life Outside the Maze than money has. Sort of like where there is a will there is a way to do some version of what you desire and it is possible within your means. These are profound truths to me that I have experienced post financial independence and this is why I felt compelled to write this article.  In fact I talk about some of this at great length on episode 109 of the Ordinary Sherpa podcast if interested in hearing more.  Another problem with spending more for happiness is that it is a truly a bad message for the average American.  

What Is the Barrier To a Rich Life For the Average American?

Is the real problem For the average American that we are all taught how to save but not how to spend well?  Nope, not even remotely.  The real problem is that we suck at saving and investing.  Look at the data, household debt is high and rising, only about 1/3 of Americans own stock outside of their retirement account, and most Americans are not saving enough for retirement.  

Is it harder to teach people to spend well than it is to teach them to save and invest well?  Clearly, the data above and common sense experience indicates that it is a bigger concern to get people to financial independence than it is to get them to use their money better once there.  Moreover, with higher inflation and headlines these days of households taking on debt simply to buy groceries or even taking on debt to buy school lunches, it feels irresponsible to be putting out a message to spend more and spend better in order to be happy or have an optimized lifestyle .  

Financial Independence & A Rich Life

I love the idea of harnessing people’s emotional aspirations toward a great life to get them to take action with their finances. Perhaps this more inspiring sell has not been focused on enough in the financial independence community. However, I have been active in this space long enough to see multiple opinionated gurus take shots at it for the sake of growing their own platforms and differentiating their message. I hate it, hate it, hate it. It plays well to be provocative and when everyone else is an idiot you set yourself up as the one true voice. This concerns me. Let’s stop furthering the myth that more spending will make you more happy ad infinitum. This is simply not true. While the idea of spending 10X on something you love is exciting, it is not a solution to the things that actually create a good life any more than wrapping oneself in the warmth of a giant bank account balance is. The truth is that careful application of money, time, and intention to doing something meaningful to you in the company of people you care about along the way is a better way to think about things. Having financial independence gives you freedom to focus on that. Spending 10X may sound alluring but research suggests that it does not create sustained greater contentment or wellbeing in one’s life. Increasing spend may be marginally easier, more convenient, and/or save some time, however it is not necessary to live a rich life.

What do you think? Feel free to chime in below in the comments.