Preparing Your Information for Disaster

When COVID first hit, like a lot of people, I began to think about my own mortality in a new light. Here was this unknown illness that was striking people down. What if it were to happen to me?

What I felt wasn’t so much a fear of my own mortality, but worries about what would happen to my family if I were no longer here. I have a good term life insurance policy, but that was just one piece of the equation.

What about our accounts? Does my wife Sarah know where everything is? What if we were to both pass on? Would our children’s guardians know where everything is? Could they access all of those accounts?

Worries stick in your mind until you take action to fix them.

In this article

The basics of life documentation

Life documentation is simply the recording of all of your key financial and personal account information in one very secure place to make things easier for your loved ones in the event of your untimely passing. Often, putting together such documentation shows you lots of little maintenance things that should be done, such as adding a new family member to an account.

What about security?

The first question to ask about something like this is security. How can a document like this be secure?
The best approach is to divide the information you want to pass on into “secure” and “non-secure” piles. Which pieces of information do you want to keep secure? Passwords are definitely in the “secure” pile, especially for financial information. Other pieces of information likely need less security. For example, knowing that you have an account at say, Fidelity, is something that someone observing your mail could figure out.

For information that you want to keep safe, you’ll want to devise a very secure method for storing that information and protecting your accounts. One method is to use secure password management software such as 1Password, paired with a very long master passcode. Within that software, you can store and organize passwords for all of the relevant accounts, along with relevant notes on each account. Then, focus on storing the master password for your password manager securely by giving that code to a lawyer or storing it in a known secure place.

The less secure information can be stored in a more easily accessible document, such as a printed document or an easy-to-access digital document.

Physical or digital storage — or both?

Physical and digital storage each have advantages and disadvantages.

Physical documents are the easiest to access and use later. On the other hand, they’re much harder to keep updated, meaning that you often have to reprint or rewrite sections of the document. For security, the best strategy with physical documents is to keep the most sensitive information in a small document in a highly secure place, with the less-sensitive information in an easier-to-access place.

Digital documents are much easier to update as you go along, but may be difficult to access and use later. You might choose to digitally store a document on a memory stick, for example, and update it regularly by just plugging in the stick and copying over a fresh document. With security, a good strategy is to have the most secure elements under some form of passcode protection as described above with a password management tool.

Who should know about it?

For less secure information (like a reminder to close a Netflix account, for example), a document stored with other core belongings that several people in your life know about is fine.

For more secure information (like the passwords for your key accounts), you should consider storing that information in a secure place. A good approach is to discuss this with a family lawyer or to use a safe deposit box. If you’re using a password manager for much of your documentation, the key thing to be stored is simply the passcode for that password manager.

Who should know about this information? A family lawyer is a good choice, as is your partner. Your executor and other core family members should know to contact your lawyer in the event of your passing to access those documents. For physical items (like documents or a memory stick), you can store them in a home safe or a safe deposit box at a bank, as long as your partner and your lawyer know the location.

How to get started

The first step in creating a life document is to simply list all of your accounts from which financial transactions occur, as well as all significant assets you own. For some, this may be a long list. You can do it on a computer or with pen and paper, as you prefer.

If you need help figuring out what to include on this list, Charles Schwab offers a great template for making a list of your assets. For your financial accounts, start by listing your bank accounts, investment accounts, and credit card accounts, then use those statements to generate a list of other accounts as your statements will show you where money is coming from and going to.

It’s important to recognize that this is a living list. Over time, you’ll open new accounts and close old ones. Those changes should be reflected in this list, so you’ll want to establish a habit of updating this document regularly.

What should you store?

There’s a simple rule to follow when making a list like this: If you’re not sure whether to include it, include it. Put everything in this list, so that your survivors don’t have to look for anything when cleaning up the accounts and assets you left behind.

Here’s a checklist to help you get started. For each of these, be sure to include account numbers and online login information.

  • All of your bank accounts
  • All of your credit card accounts
  • All of your investment accounts
  • All of your other debts, such as mortgages and car loans
  • All of your insurance policies (life insurance in particular, but other insurance that’s in your name)
  • All monthly services that you pay for, such as your cable bill, your Netflix account, your utilities, and so on.
  • All assets you own that have more than nominal value (real estate, vehicles, collectibles, art, and so on) and where to find them
  • All debts owed to you and points of contact
  • All outstanding business interests and points of contact

As you are doing this, consider whether each of these accounts and assets are currently up to date with proper beneficiaries and other details. Do you still need this account? Is there a good password on the account? Are there any changes that need to be made? Ask this for each account and asset you add to the list. You may also decide during this process that having a better overall plan is a good idea, in which case contacting a certified financial planner might be a good move.

Scheduling an annual appointment on your calendar to update this list is a good idea.

My own life documentation

My life documentation is stored in a few ways. My less private documents are stored in a folder in a safe in our home. It does not include sensitive information, such as passwords. With that documentation, I also have estate documents as well as a letter to my executor.

For account information, I have logins, passwords and some other relevant information for each account stored in a password manager. The master code to get into that password manager is very complex and is written down in two secure locations. The instructions for how to use it are in with the less secure documentation, but the password itself is stored very securely.

I also keep a slip of paper in my wallet that identifies people to contact in the event of serious injury or death. The people on that paper know enough to get the ball rolling on these matters.

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The Hidden Benefits of Frugal Living

When my wife and I first committed to living more frugally, we did it for the reason that many people do: We were in financial trouble. The biggest initial benefit of frugality is that it reduces your expenses, making it easier to keep the bills paid, get rid of debts, and eventually start saving for our future. Over time, we achieved those things. We got out of our debt crisis, bought a home and paid it off, and began to save for retirement.

Of course, the challenge of frugality became apparent as well. Modern life offers lots of expensive temptations and treats, and there can be social pressure to enjoy them as well. There’s also a fear of being “cheap,” where our desire to be more frugal negatively impacts our friends and family.

At first, we persisted with frugal living solely because of our immediate financial goals, but over time we began to appreciate the many hidden benefits of frugal living. Here, I go into seven hidden benefits of frugal living.

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No. 1: Frugal living is good for the environment

One aspect of spending less money is that you’re accumulating less stuff and using fewer services. Frugality is not minimalism, though they have similar practices and they often result in the same outcome: fewer possessions. Less stuff means fewer fossil fuels are used in the manufacture of goods that you use and in bringing them to your local store or to your home.

The EPA estimates that in 2018, the most recent year for which they have statistics, the average American generated 4.9 pounds of solid waste per person per day, of which approximately a third is recycled or composted. The remaining waste goes into landfills and other waste storage areas. For a family of five like ours, that adds up to 8,900 pounds of waste per year, of which approximately 5,800 pounds went to landfills.

What about fossil fuels? In 2019, the EPA estimates the average American consumed 305 million BTUs of energy, and more than half of that was wasted.

There are countless simple frugality steps that save money, reduce energy use or waste production, and they have minimal negative or even a net positive impact on our lives.

For example, it’s actually quite simple to save money on home energy use using these year-round energy saving tips, most of which have zero impact on daily living once you make the initial steps. They just save money by reducing energy consumption, which helps your wallet and the environment.

It’s also easy to simply buy less physical goods, too. A simple choice like simply giving yourself a “waiting period” for every non-essential purchase — if you want something, you just wait a few days before buying it and then reconsider whether you still want it or can borrow it or buy it used elsewhere. That simple step alone, if applied consistently to your life, saves you a lot of money and cuts down on waste while still letting you have everything you genuinely want.

No. 2: Frugal living can reduce stress

Some 73% of Americans identify money as a major cause of stress in their life, according to a recent Capital One CreditWise survey. Money was indicated as a stressor for more people than any other life factor in the survey. Simply put, money causes stress.

Frugality is a great solution to this stressor. Finding simple ways to spend less money doesn’t require you to chase more income, and if you focus on frugal moves that don’t disrupt your way of life, it won’t have an impact on the things you enjoy doing, either.

A practical way of doing this is to make some specific frugal changes in your life, like switching to less expensive auto insurance or cutting your energy spending, and calculating how much you save with that move. Instead of just spending it, intentionally start putting that money aside automatically for a financial goal. So, if you save $40 a month on insurance and find you’re spending $35 less on your energy bill, you now have $75 a month you didn’t have before. Bump up your monthly retirement contributions by $75.

What happens if you do that? You feel less financial stress from retirement and you’re not adversely affecting your day-to-day life in any negative way.

No. 3: Frugal living can improve social relationships

One of the most powerful ways to save money is to share things. Share possessions, share activities, share ideas. Share babysitting duties with the parents of your children’s friends. Share garden tools with your neighbors — they borrow your shovel, and then you borrow their rake a few weeks later. Share meals with friends by having a potluck dinner.

What do these things have in common? They’re all social. They involve interacting with people — your neighbors, your friends, people in community groups, and so on.

One of the most powerful things I discovered during our early frugal days was how much I enjoyed participating in community groups. I started going to lunch presentations at a local library. I started participating in a local chess club and a community board gaming group. I started doing some volunteer work. I just tried things out, simply to see what was interesting. Some of them didn’t click, but quite a few of them did. Not only were they free, they also helped me build some friendships and a lot of acquaintances in the community.

You can also make frugal projects social. Let’s say you’re making “make ahead” meals, so that you have meals stocked away in the freezer to cut on food costs. Instead of a boring afternoon at home alone, do it with a friend. You might invite them over to help, or you could agree to do it with a remote friend where you start a voice chat and talk while you’re both meal-prepping.

No. 4: Frugal living can give you a sense of larger purpose

For many, the initial draw of frugality is that it provides a practical strategy for achieving immediate financial goals. If you’re in a financial pinch, it’s time to look for clever ways to cut back on spending so you can pay the bills.

As you see those steps succeeding and you start developing frugality into a normal habit, it’s easy to think about how those steps could apply to bigger goals. What about paying off all of your debt? What about actually having an emergency fund? What about saving for retirement, or kicking that savings into high gear? What about a house down payment?

Frugality is a tool that you can use to start chipping away at those big life-changing things. When you begin to see the tie between a simple act of frugality, like getting a book from the library instead of from Amazon, and the big goals you have in life, it gives your everyday choices a much deeper purpose. You feel like the choices you make on things like grocery store selections really matter in terms of a broader life purpose, and that’s a powerful feeling.

No. 5: Frugal living can give you more time for the important things

Many people perceive frugality as time consuming, but projects like clipping coupons don’t have to be a part of your frugality. You can simply skip over the time-consuming ones and enjoy the aspects of frugality that save time as well.

For example, if you’re committed to buying less stuff, you’ll simply spend less time shopping. A great example comes from my own work commute. When I was a big overspender, I often stopped at the bookstore on my way home or popped into the electronics store. This meant that I’d often burn an hour or more of extra time during my commute spending money, but spending time as well.

What did that time become? Some days, I spent it reading a good book. Other days, I’d take my kids to the park. The point’s simple: It turned into time that provided more value to me than time spent in a shop looking at things to want and to spend my money on.

No. 6: Frugal living makes it easier to help the causes you care about

Frugality cuts through this like a hot knife through butter. Simply finding ways to spend less gives you the resources you need to donate to whatever causes are important to you.

Simply knowing that you’re furthering a cause you care about is nice, but it turns out that contributing to charity has a whole host of additional life benefits, including health benefits and a lasting sense of joy. That feeling can be evoked simply by being a little frugal and giving some of the fruits of that frugality to a cause you care about.

No. 7: Frugal living can help you retire earlier

Let’s say, for example, that you’re 25 years old, and you find a way to easily cut $100 from your monthly spending without really affecting your life. You decide to contribute that to retirement in an aggressive investment that averages a 9% annual return over the long run. At age 65, you have $468,000 extra in your retirement fund.

What about inflation? Using the CPI calculator, over the last 40 years, $150,000 inflates to $450,000, which means that, even after inflation, you still have multiple years of the living expenses of the average American household socked away in that account. A hundred dollars a month in frugality gives you the power to literally retire years earlier than before if you start young.

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When You Have To Retire due to COVID-19

Here’s a stunning fact: The Bureau of Labor Statistics reports that unemployment during the pandemic for workers 55 and older jumped from 3.3% in March 2020 to 13.6% in April 2020. The numbers settled down in the later months, but the question remains: What happened to those older workers laid off from April to July, when the rate remained a high 8.7%?

This type of extended unemployment or forced retirement can cause people to fall completely off the career ladder in their field, leaving them in a difficult spot where they rely on their limited remaining unemployment benefits as they figure out what’s next.

The exact path forward from forced early retirement isn’t the same for everyone. Some people may choose to completely retire and live off their retirement savings and Social Security. Others may chart some way to re-enter the workforce. Let’s take a look at some of the options available to folks who found themselves in forced early retirement due to COVID-19.

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Six steps to take after getting laid off

This situation presents a spectrum of options, ranging from trying to get back into your previous field, looking for a parallel field into which you can transfer skills, starting over professionally, or simply retiring for good.

Lean in on personal and professional relationships

If you’re hoping to stay in your current field, job searching is an obvious next step, but don’t just spend your time looking at Indeed and other job listing sites. Instead, reach out to people that you have worked with and had a positive relationship with in the past and see what opportunities they may know about.

Do your contacts know of any jobs in your previous field that you might be a good fit for? Are they willing to provide a reference to you if you seek a new job in this field or a related field? Can they recommend you internally for any open positions?

Often, the path out of an unwanted early retirement back into your old career path is through an old contact. That personal connection matters, both between you and that person and between that person and the job you may be able to get.

Consult or freelance

If you want to stay in your current field but there aren’t any employment opportunities available to you, consider using your skills for freelancing or consulting work. While this may not be the outcome you desire, as freelancing and consulting work comes with fewer professional benefits, it does allow you to keep your feet in the field and keep income coming in.

If you’re looking for quick and very simple freelancing opportunities, consider looking at Fiverr, which will provide small but simple freelancing jobs. For more challenging and more lucrative opportunities, take a look at Upwork. You may also want to look at any consulting opportunities with previous employers as a starting point.

Evaluate your skills

If you don’t have any such opportunities available to you, this may be an opportunity to step back and evaluate your skills from the perspective of considering what fields might actually be a good fit for you. What fields are open to you with the skills you’ve acquired in your previous career?

For example, although I was once in the data mining profession, I spent a lot of my professional time on documentation, report writing, and communication with collaborators. Those skills set me up for a new career path as a freelance writer.

Step back and look at the skills you’ve accumulated and ask yourself what career paths those skills might be a great fit for. You might find that the things you’ve learned lead you to a completely different destination.

Start a new career

If it appears as though your old career path is a dead end, it may be time to consider a new career entirely.

A good first step here is to take some skills assessments. Minnesota State University provides a great list of skills assessments for people considering a career path. These will often clearly illustrate what natural talents and skills you have and can point you toward some careers you might be suited for.

From there, you can assess some entirely new career options. Do you need further education? Do you need to go to a trade school? Maybe you just need to do some independent learning.

Downsize your lifestyle

From a practical perspective, unexpected forced early retirement likely means that you need to downsize your lifestyle. In the short term, you likely made a bunch of easy decisions about your spending choices, but if this is a more permanent change or one that will last years, you should start considering bigger changes.

Start with housing. Can you move to a smaller home or into an apartment? Can you share your living space with someone else in order to offset some of the costs? For transportation, do you need a car or can you get by with mass transit options, bicycling, and/or carpooling? Do you need a data plan for your cellphone? What about cable?

When you chop away a bunch of bigger expenses, suddenly the challenge of figuring out how to financially make it on a lower income becomes much easier.

Recalibrate your investments (if you have them)

If you’re fortunate enough to have investments put aside for retirement, the moment at which you’re forced into early retirement is a moment to consider recalibrating your investments into “retirement mode.” The reason is that, in effect, you’ve become a retiree who wants to be able to live off of those investments for as long as possible, and thus retirement requires a different investment strategy than trying to grow wealth over the long term.

How does a retiree approach investing, then? Someone who is more than 10 years from retirement doesn’t plan to withdraw anything over that period, so they’re likely invested in a very aggressive way. A fresh retiree will likely need to make withdrawals in the next 10 years, so that money should be invested in a more stable fashion with less volatility.

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Spending More To Live Wisely

The most fundamental principle of personal finance is to spend less than you earn and do something worthwhile with the difference. This often nudges people toward spending less in every situation, but is that really the right move?

There are many situations where spending a little more in the short term results in much less spending and a higher quality of life in the long term. The key is to spend money wisely and consider the long term benefits. It’s all about being frugal and not being cheap.

Here are five examples of this phenomenon.

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Shop fresh and healthy

It’s pretty clear at this point that the more fruits, vegetables, nuts, and whole grains you have in your diet, the better. At the same time, heavily processed foods are generally less healthy than minimally processed or unprocessed foods. In short, if you stick to the produce area at the grocery store, you’re doing the best you can for your long-term health.

The problem, of course, is that many produce options are expensive. You can find a few bargains in the produce area, but if you get away from a handful of inexpensive plants, the costs can ratchet up significantly. However, this is a cost that’s well worth it.

For starters, while it might feel like you’re spending a lot on produce, it’s usually just replacing other items that you’d also be spending a lot on. Processed foods aren’t cheap either, nor are most meats. In fact, depending on what you buy, the prices can end up being quite comparable. In fact, vegans and vegetarians — those most committed to a plant-based diet — spent an average of $23 less on food per week than those with a diet that included meat.

And while your final grocery bill for a week’s worth of healthier meals might be higher than if you bought mostly processed stuff, it wouldn’t be substantially higher.

In the long run, your health will improve if you’re consistent about a diet with more plants and more minimally processed or unprocessed foods than before. It might cost a bit more today, but it’ll save you tons over the long haul. Spending money on healthy foods is a wise choice.

Maintain your stuff, especially your home and car

Maintaining things can be a hassle. It usually involves little expenses and a little time, with tasks such as buying some small tool for the home or making an appointment somewhere.

However, maintaining your stuff significantly expands the number of useful years you’ll get out of the item. If maintenance adds several years to the time you get out of an expensive appliance or your car or some part of your home, it ends up being a huge cost-saver.

A good approach is to start a home and auto maintenance checklist. Stick those things on your calendar at the appropriate times and just take care of them when they pop up. Sure, you’ll have some little expenses and little chores along the way, but if it means many more years of reliable cars and appliances, it’s well worth it.

Buy reliable things

Paying more for a reliable version of an item you use frequently will pay off in the long run. This is especially true if you intend to use it through its normal lifespan and you’re willing to invest a little time and money along the way to maintain it.

A good way to check for reliability is to check reviews in an unbiased publication like Consumer Reports. Put a high priority on reliability and a little less emphasis on bells and whistles that you probably won’t use.

This is true for things like large appliances, but it’s particularly true for your car. Buying a reliable car and driving it until it’s truly worn out (and following the maintenance schedule closely as you go) is the best way to get the most value out of it.

Of course, this is expensive in the short term. The reliable item usually has a higher sticker price. However, if it lasts for a lot longer, the cost per year of ownership will likely end up being lower. Furthermore, it’ll be much less of a headache because you simply don’t have to worry about it. It’ll just work.

Save (genuine) time

One big reason people spend money is convenience. We all need more time, but the question is what you’re doing with that saved time.

Rather than just buying convenience items because they’re convenient, think about what you’re actually going to do with that time that you save. If you spend a little more to buy pre-chopped onions for a recipe, what will you do with the 10 minutes you save? Will you do something genuinely worthwhile, or will you flip through social media posts?

If you’re paying more for convenience items to save time, then doing nothing deeply valuable with that time, you’re not getting ahead.

On the other hand, if you buy a convenience item and then use that time in a deeply valuable way, such as doing something meaningful with your child that you would not have done otherwise or working extra on a project that’s personally important to you, then it’s worth it to spend a little more for convenience.

Buy in bulk

The sticker price of bulk items is always higher than small packages. The bulk package of toilet paper is huge, for example, as is the sticker price. If you buy in bulk, you’ll absolutely walk out of the store with a bigger grocery bill than if you bought smaller packages. However, bulk buying has two enormous advantages.

First, the price per unit is often quite a bit lower. You might buy six rolls of toilet paper for $3 or buy 36 rolls of toilet paper for $12. The cost per roll in the $3 package is $0.50, but in the larger package, the cost per roll is only $0.33. That adds up, though you need to check the prices to make sure.

Second, it saves time, because you don’t have to even think about buying toilet paper for a long while. It’s an errand that becomes far less frequent. You’re less likely to have to make a run to the store to get toilet paper, which also saves money.

Buying in bulk is a great trick for keeping spending down over the long run because it’s not only cost-efficient over the long run, but it keeps you out of stores where temptation can strike.

Spending more to live less

Of course, life affords people many opportunities to spend money foolishly. Here are five instances where spending more results in less value and joy.

  1. Trading cars frequently. Most of the expense of a car is bottled up in the transaction itself, particularly new ones since they depreciate so rapidly. The best way to get value out of a car is to buy a reliable low mileage one, drive it as long as possible, and maintain it well along the way.
  2. Buying “cheap” versions of things you rely on. While you might feel like you’re saving money up front, when you buy the low-end version of something you rely on, it’s likely to fail much sooner than other options and also not function well while you’re using it.
  3. Buying things you don’t use or frequently appreciate. If you’ve already got a bunch of some item and most of them are stowed away on shelves or in closets, buying another one isn’t a good call.
  4. Spending money on forgettable things. Go through your credit card and bank statements from the past few months. How many of the nonessential expenses do you actually remember? How many of them still feel worthwhile? Don’t lie to yourself! If an expense isn’t remembered or doesn’t leave you feeling happy, it’s OK. It’s useful feedback. The expenses that you don’t remember and aren’t still happy with are ones you can strongly trim going forward. This is an exercise in separating wants from needs.
  5. Keeping up appearances. It’s a natural human fallacy to think that people notice us a lot more than they actually do. In fact, it’s got a name — the “spotlight effect.” Don’t spend money to impress other people, because you simply won’t get value in return for that spending. If you want to impress, impress with character, as that kind of impression is free and positive.

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5 Advantages to Renting a Furnished Apartment

Legs of woman sitting on the floor with cup of coffeeIf you’re a professional or student always on the move for work, the advantages of furnished apartments are a no brainer. However, renting a furnished apartment can actually be a smart choice for almost anyone! Check out these five huge advantages to see how a furnished apartment could be beneficial for you, from both a cost and convenience perspective.

  1. Furnished apartments are perfect for procrastinators. No judgment here – not everyone carefully plans for a move months in advance. If you need an apartment on short notice, furnished apartments are the perfect solution. Not only will you have a roof over your head, you’ll have one furnished with all the things you want and need, but might not have time to buy.
  2. You’ll save time on decorating and buying furniture. Some people love spending hours on Pinterest planning the perfect décor for their new space, or arranging and rearranging furniture for feng shui. If that’s not you, or you simply don’t have the time or resources to do that, renting a furnished apartment is an ideal compromise. You can still have a cozy, decorated space, but without the anxiety of creating it from scratch.
  3. You’ll benefit from a serious reduction in stress associated with moving. Don’t worry about packing up your old furniture and paying for movers. Don’t stress over measuring every corner and wall of your apartment, hunting for the perfect pieces, then struggling to assemble each one. By renting a furnished apartment, you can skip all of these headache-inducing tasks!
  4. When renting a furnished apartment, you rarely have to commit to a long lease. Not all of us can say for sure that we’ll be in the same city in 12 weeks, let alone 12 months. Leases for furnished apartments are typically much shorter than traditional leases, so you don’t have to worry about breaking a lease when you’re ready to move on to the next adventure.
  5. You can pick and choose your furniture through CORT. Scrap the myth that furnished apartments lack personality. When you rent through CORT, you can handpick each and every piece of furniture and décor that goes into your space. You can customize your space exactly how you like it, creating the apartment you’ve dreamed of. Even better, you aren’t stuck with those pieces for life – so your apartment can easily change when your tastes do!

No matter where you are or where you’re headed, there’s a furnished apartment with your name on it. And no matter where your life takes you, from Boston to San Diego, you can relax knowing your move can be both convenient and cost-effective. Simply visit, choose the apartment complex that interests you, and click on “Show Me Furnished Apartment Pricing” to learn more!


When Going Cheap is a Bad Idea

I still remember the moment when I realized I was starting to cross the line from frugal to cheap.

I was pumping gas into my vehicle after buying groceries for my family, which is normal, right? The problem is that I had driven about five miles out of my way to get slightly cheaper gas. While I was getting out to pump gas, a friend of mine called and asked me if I wanted to go to a pub trivia night at a bar that charged quite a bit for drinks and snacks. I thought about the cost and turned him down.

As I stood there, I realized that I had just driven halfway across town to save maybe $2 on gas, while at the same time I had declined to spend an evening with a friend that would have cost me $20 at most. Did I value $2 more than the time I spent driving over here? Did I value $20 more than an evening with a friend, particularly one who was often willing to have potluck dinners with us?

I wasn’t being frugal. I was being cheap.

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Frugal versus cheap

While the difference between being frugal and cheap might be intuitive, it’s useful to nail down what each of those things are and what the difference is.

Frugality is simply being economical or efficient with your money. When you’re being frugal, you’re attempting to continue to have high-quality outcomes, but you’re trying to do so with less expense. Installing energy-efficient appliances is frugal. Making meals for yourself at home when you’re eating with just your immediate family is frugal. Adopting daily habits that bring the joy with less expense is frugal.

Cheapness happens when that drive to be economical or efficient with your money starts to result in negative outcomes for other things you care about in your life. Cheapness happens when your drive to save starts impacting friendships or causing you time management stress. Cheapness happens when cost-cutting makes normal things harder to do and you’re not happy about that difficulty change.

Frugality is wonderful. It’s a financial tool every one of us has within our grasp to help us achieve financial goals, both short term and long term.

Cheapness is not wonderful. When we pay the cost of spending less money by sacrificing our time, our relationships and our mental well-being, we simply pay too much in terms of a healthy all-around life.

Be frugal. Don’t be cheap.

How going “cheap” can cost you

Saying a hard “no” to friends can damage friendships

A good friendship incorporates balance. Sometimes, you’ll do things that you choose, and those can be frugal. Sometimes, you’ll do things your friend chooses, and that might be expensive. Don’t just say “no” when they suggest expensive things if they’re saying “yes” when you suggest frugal things.

For example, one of my oldest friends loves going on hikes and playing board games – both very frugal activities, but also has a taste for going out for fancy meals. There’s a balance there. On the whole, hanging out with him is rather inexpensive, even if there are expensive moments.

If you’re finding that a friendship is “expensive” because it always centers around expensive things, suggest some less expensive things as a counterbalance. Your friend might surprisingly enjoy it. Furthermore, you’ll discover whether this person is a friend who enjoys your company or an acquaintance who just enjoys the activity. It may be a true friendship, or just a friendship of utility or pleasure.

Scrimping can harm relationships

This doesn’t mean you should always spend, spend, spend with other people. Rather, it means that there needs to be a healthy balance between minimizing costs and maximizing fun, and if you’re going to err, err occasionally on the side of fun.

For example, having a potluck dinner party is great, but don’t serve the cheapest main dish you can think of. Instead, come up with something people will genuinely enjoy. You don’t have to go high-end, but prepare something delicious and crowd-pleasing with good ingredients.

Your guests will feel loved and welcome and you’re still being frugal.

Spending lots of time for a little money can cause stress

One temptation that crosses the line from frugality into cheapness is the desire to invest lots of time and energy into something that doesn’t save a lot of time and money. In general, if you’re investing time into a frugal project that’s not bringing you other kinds of joy and you’re not saving significant money per hour of time invested, it’s probably not worth doing. This is particularly true when you’re starting to feel stressed about not having enough time for important things in your life.

An example of a frugal activity that can have rapidly diminishing returns is couponing. In general, the time investment in couponing versus simply planning meals around what’s on sale and buying store brands isn’t a great bargain. Having said that, there is definitely a “game” to be played with couponing, and that game is enjoyable to some. If that’s you, then by all means treat it as a recreational activity that happens to save you a little money.

It’s great to find inexpensive hobbies or even hobbies that can save you money, but those things are hobbies first and foremost. It’s OK to drop time-consuming frugality that isn’t a hobby for you.

Go for the big wins

When you’re trying to cut spending, it can be easy to get fixated on small gains, particularly if they’re frequently repeated. If you can cut back a quarter a day in spending with little effort and no lasting drawbacks, that’s going to add up.

Where this can cross the line into cheapness is when you find yourself worrying about smaller and smaller gains, particularly one-time gains. Don’t worry about the decision to toss a $1 item and replace it with something better. The stress over that decision is more costly than the dollar.

If you find yourself worrying about little expenses, think about the actual size of the savings and how much time you’d have to invest to get that savings, and ask yourself honestly if it’s worth it. If you’re stressing over a small savings, or even a moderately sized one with a time investment, just let it go. Think about the big wins, and don’t sweat the small ones.

Use frugality to achieve your goals 

Most people use frugality as a tool to achieve their life goals, things like paying off debt or saving for retirement. Those things are empowering.

However, don’t lose sight of why you want those goals. Things like a nice home or debt freedom or a secure retirement are intended to bring you joy and contentment. Being cheap often brings stress, damaged relationships and negative health impacts — the opposite of joy and contentment.

If a frugal choice does not feel like a clear “win,” don’t do it. If it’s introducing enough drawbacks that you feel stressed, that you’re negatively impacting a relationship, or that you feel worried and preoccupied, it’s not worth it, particularly when it’s only producing a tiny step toward your goal.

Another tip: Frugality isn’t helpful in and of itself. While saving money is always great, if you’re simply spending it on something else that’s nonessential, you’re not getting ahead. Frugality should help you achieve your goals. Keep track of what you’re actually saving by being frugal, then automate your savings. Set up an automatic transfer into an emergency fund in an online savings account or bump up your automatic retirement contributions.

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