Coming to Terms with the Thought of Permanent Frugality

For some people, a frugal way of life is very easy to adopt. It could be because of a job loss, the birth of a child or a lifestyle change, but for whatever reason these people find switching over to a frugal lifestyle easy, fun, challenging and exciting.

Some people find frugality less fun. Whether it’s because they have a high paying job and don’t see the need for frugality, because they don’t have a family to support, or because they don’t think they have time for frugality, these folks avoid it like the plague and see no use for it in their lives.

Unfortunately, those who don’t embrace any form of frugality in any area of their spending are missing a very crucial aspect of the function of frugality and that is that it is a hedge against catastrophic events involving your finances.

Consider your brokerage accounts and retirement accounts. Chances are you have some portion of your money in either of these accounts invested in aggressive positions. High risk stocks, mutual funds, bonds and sub accounts all offering high possible returns. But then, you have a smaller portion (or larger depending on your age) invested in something that is lower risk and, presumably, safer like a low risk bond, blue chip stock, or low risk mutual fund offering lower returns. You do this because you want to hedge your account against the possibility that the higher risk positions could lose money. With this strategy you are hedging against loss—but how does this apply to being frugal?

Being frugal in some areas gives you more access to money (because you aren't spending it) which allows you to save more money in your emergency fund, savings account and retirement funds. That means you have more money in reserve if something bad happens like a job loss, car breakdown or loss of value in your retirement account.

So even as the economy starts to improve, think about how much protection your frugality provides and don’t be afraid to stay on the frugal bandwagon.