The Frugal Effect

Last month I posted about our evolving attitudes on spending money. My spouse and I have achieved financial independence, yet our spending still apparently needs a purpose. Even after a decade of military retirement we don’t just fritter away our money– we still apply our frugal tools to decide whether the spending has value. Occasionally we have to kick remind ourselves that spending $20 today is not the critical decision that it might have been 35 years ago in college.

Economists have argued for years that the wealth effect should make us spend more. Whether we just feel wealthy after finding a $20 bill in the street, or whether we really are wealthy by our society’s standards, when we have more then we should spend more. However, the wealth effect hasn’t kicked in for us. If anything, we still exercise our frugal muscles on the same types of decisions. These days it’s a personal challenge instead of the prospect of living off ramen for the rest of the month, but the same survival skills kick in even when there’s no major financial impact.

To my relieved surprise, I’ve learned that we’re not the only ones who feel this way. Several other posters shared their attitudes about spending money, and their frugal methods keep on working too. The wealth effect does not seem to kick in. The skills that get you to financial independence are the same skills that keep you there.

Instead of taking my word on it, you can learn from other readers!

Here’s a comment from reader Mel:

I see a lot of my wife and I, also a dual military couple, in the way you described you and your wife’s values when it comes to wealth and money. I also think that once you get used to living within your means and sometimes an existence bordering on deprivation, any extravagance seems like a wasteful use of good money that can be allocated towards something more sensible. We are quite deliberate when having to spend money for fairly large purchases and often times talked ourselves out of the purchase, reasoning that it wasn’t a need and we can still make do with what we have. I initially thought about purchasing a new Corvette upon my retirement from the Army (thinking I deserved it after lusting for one ever since I was a single man)… only to talk myself out of it as not being practical despite having the means to pay for it in cash.
This reminds me of the seven characteristics of the wealthy (especially the first three) according to the book “The Millionaire Next Door” (Stanley and Danko):
– Live well below their means
– Allocate time, energy, and money efficiently
– Believe financial independence is more important than displaying high social status (“big hat, no cattle”)
– Parents did not provide “economic outpatient care”
– Adult children are economically self-sufficient
– Proficient at targeting market opportunities
– Chose the right occupation
Now that we have achieved financial independence, we are slowly considering and accepting some splurges in our lives (mainly trips or new experiences, instead of possessions) and hope to feel more comfortable with it moving forward.
Thanks for making me realize that we are not alone in our “frugal” and sensible ways, despite our financial independence.


I’ve known longtime reader Ben for years, and he helped write the book’s essay on “the fog of work”. Here’s Ben on retirement spending:

I admire the time you have for reflection– stepping back and really analyzing things from different angles. After reading your post several times I began to think about how I view money. It is really kind of strange when I step back and think about it.
For me it tends to lose meaning when I have more than I need. However, not having it makes me nervous. I would like to think that I try to squeeze every ounce of benefit from every dollar spent but in reality I don’t even come close. I am financially independent and just going along for now doing what I want to do how I want to do it.
Take for example shelter. Some of the best times of my life were when CINC house and I were just starting out. We had little but made do in our one-bedroom apt. Rent was less than I will spend on a weekend in the summer out with the family. Quality of lodging today is far more than it was then and yet I remember those days fondly. However, sometimes to think about going back to those days I say to myself “I could if I had to” but am not interested at this time. Last weekend we were out looking at new homes. Reason? To be closer to the kids’ school. I can make that happen but to think about building a new house with all the BS that comes with it makes me sick. CINC house came to the same realization a couple of days ago when she was out looking at resale homes. We are just not interested and will continue to gripe about the drive back and forth for the next few years. The value is not there.
This past Christmas I took the family on cruise. Not a very good time to go as it was seven times more expensive Christmas week than the week before or after however I was working around school break and the kids are growing up fast. While I was conscious of what I was spending I really did not try and curtail it. First time I have done that. And while I averaged $1K per day I must admit I had several thoughts of whether I am getting greater marginal satisfaction than when I spend much less on vacation. My answer was inconclusive. I still would rather fly Southwest, check in online 24 hours earlier so I get a decent place in line vs shelling out the money for an Economy Plus seat on United. And to think about purchasing business class seating for leisure I am not there yet. Of course Space A would be my preference anytime I can get it as I know what I am getting end of story. In fact I buy gift cards with one of my credit cards so I can get the frequent flyer miles so I don’t have to pay full fare on tickets. I figure I fly one way with an average cost of $50 using this method. Irrational or rational? Depends I guess.
Cars? We can afford new ones but the ones we have with over 125K and 200K miles fit us fine. I dread the purchase of another one due to the hassle factor.
While I do like the occasional martini at the five-star hotel lounge I really enjoy the beer from the Red Solo cup. Meanwhile we keep piling up the savings. And I don’t even know why I am doing that.
We are still not at a place in life to where we can take lengthy trips however once kids are launched I foresee extended travel to different parts of the world.

I feel the same way about air travel. I’ll pay for five more inches of leg room but I choke over the prices of business class and use frequent-flyer miles. Our daughter was upgraded to first class when she went back to college after the holiday break, and although she appreciated the extra room she felt that there was too much fussing over the whole experience.

I’ve also known reader Deserat for years, and she helped write the book’s chapter on the Reserves. Here she is on retirement spending:

Excellent post, Doug. Interestingly, my husband and I are there, too. We just did a week-long ski trip to Whistler, Canada, the first week of January. We did it after New Years and Christmas to save money and avoid the crowds. After we tallied the expenses, we realized it was one of our more expensive trips we’ve taken and decided it didn’t have the value of some of the more cheaper yet interesting experience trips we’ve taken in the past. We like hiking, skiing and exploring different countries and cultures, but we prefer it with backpacks and Motel-6 or one step above hotels. We think we shouldn’t be in the room much anyhow – a good bed and shower is all we really need.
Our few cruises have been with inside cabins and our own ground excursions… have saved up to 75-90% on those offered by the cruise company. BUT, we really live for the port days… weird. And, we don’t buy the drink packages, no gambling, and try to win the little games they have for prizes (sweatshirts and other swag).
With regard to home lifestyle expenses…well, we have solar electricity as well – doesn’t cover all of our costs, but definitely puts a big dent in it. We’ve got a small raised garden for tomatoes, pepper and squash, three mini-citrus trees and low maintenance yard… love it. We don’t eat out much, cook at home and really are looking for value when eating out – i.e. great tasting food for a good price. Clothes – we love Sierra Trading Post… and their 75% off sales – plus those clothes are our style – outdoor or workout or casual. Even my ski clothes were uber cheap. My price level for most things is *very* low… and most times I am able to get what I want for the price I was willing to pay – just need patience and a willingness to defer the gratification. Even with our hobbies, I don’t buy anything without a coupon or sale.
And yet, if one were to look at our net worth they would wonder why we do it. It’s habit by now and yes, the thrill of the hunt of a bargain or the personal satisfaction of fixing something myself make it all worthwhile. It’s the mental disposition that got us here – it’s ingrained and hard to let go. And I believe that in order to stay where we are we need to keep the same habits and activities. Why change what has worked for us and has historically worked for most in this position?

Deserat again:

I believe the key is to determine what you want for your lifestyle and then figure out what stream or steams of income will be required to maintain that lifestyle. Part of the process of becoming financially independent is to determine that balance point, i.e., what are those things that you would prefer or do not want to give up versus what things do you not really care about or value enough to buy the best or even buy at all. For many the military pension can cover their lifestyle cost, especially if they already have the mortgage paid off, cars paid off, etc. From there it’s a matter of do you want to eat out a lot or not, what types of hobbies do you have, how much does it cost to develop those, etc. Many times, you can find ways to more economically enjoy your hobbies.
So, is the pension there? Yes, if you make it to 20 – after that, it’s timing as well as performance based. What you control is your lifestyle costs and desires along with any other streams of income you have set up (tax-deferred, after tax, extra jobs or ‘businesses,’ etc). Nowadays, it is prudent to have a few back-up options for those streams of income, even if you have the ‘gold-plated’ defined benefit pension of the US military.


“Economical hobbies”: I recently bought several longboards for our daughter’s spring break with her college friends. We had mass surfing lessons at our own convenience instead of renting, and nobody felt pressured about spending money for a rental. Yet instead of strolling into Kimo’s Surf Hut and plunking down hundreds or even thousands of dollars on longboards, I found great bargains on Craigslist. Most of them were scooped up by other frugal dudes, but over several months I found what I needed while enjoying Deserat’s “thrill of the hunt”. One of the boards may be worth two or even three times what I paid for it, and I find myself feeling the pressure to sell it so that I don’t have to “worry” about taking care of it.

Free to Pursue says:

I fully understand where you are coming from in this post. Two years ago, I agreed to go on a safari with a girlfriend (our respective husbands are not interested). My lifestyle and views about money have changed significantly since then and now I think of everything I can do with $10K as opposed to living in the lap of five-star luxury for a few weeks. I am still going on the trip this coming summer, and will enjoy it fully – it should be amazing, but I know that this will be the last trip I take that requires such a budget for a mere two-week stint.
For my husband and I, $10K now represents at least five vacations for the two of us! Airfare is always the biggest chunk of our travel expenses. When on site, we live like the folks of the region and are most certainly not the “touristy” types. We find we learn more about culture and associated customs and have more genuine experiences (pleasant surprises are the best).


“Five vacations for the price of one” reminds me of Laura Vanderkam’s “small jolts of hedonism” in her book “All The Money In The World”. She points out that the huge prices people pay for engagement rings and weddings could be better spent on years of date nights, baby sitting, and flower bouquets. When you’re financially independent and in control of your own calendar, you have plenty of time to find the travel bargains– including living local and staying longer.

If you’re still pursuing financial independence, then take heart: I doubt you’ll have to worry about the wealth effect. If anything, you’ll have more time in your life to dig into your finances and find the bargains that you really care about. Your retirement spending may initially rise on areas like travel and hobbies, but it’ll be less than you expect. By the time you reach financial independence, the possessions you lusted after at the start may no longer have any value. The experiences that you truly value can be enjoyed for a lot less than you’d expect!

Those of you who have reached financial independence: what type of frugal effect do you experience?


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Related articles:
How Do You Justify Your Spending?
Frugal living is not deprivation
Frugality after financial independence (gamifying frugality)
Old-school frugal (part 2 of 2)


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  1. Excellent article, Doug (and excellent comments from your readers). Many of these points are in line with my way of thinking. I don’t consider myself wealthy, but my family and I are financially stable and comfortable. We are in a position where we could easily increase our standard of living, but we choose to remain frugal. I have found that increased spending doesn’t always equate to increased happiness. I’m not afraid to buy premium items, or buy new. But I would rather look for less-expensive alternatives or buy used when possible. The bottom line is that I always look for value when I shop.

    Mel’s comment about buying a new Corvette rings home with me. I’ve wanted a Corvette for the longest time. I bought one a couple years ago (found a great deal on a 1973 Vette), put enough work into it to make it road worthy, drove it for almost two years, and sold it for what I had in it. I’ve looked at buying a newer one. I can afford it, but I don’t want to drop that kind of money on a car I wouldn’t drive frequently enough to warrant ownership. My funds are better used elsewhere. At least for the time being. ;)

  2. Hahaha – well, Doug, appreciate the quoting. You had reviewed a book about the power of habit on this blog, and it really applies here – habits make us in all areas of our lives. Gather good habits and you will have a good life. :-) Thanks for the pat on the back. Best to you and your family.

    • Thanks again for inspiring the post! Maybe that effect should be called the “frugal thrill”.

      By the way, I sold my least-favorite longboard last week. The remaining three all have their own very specific qualities, and I know that they’ll all get plenty of use!

  3. My biggest hangup is spending on myself, even if it’s something I need. I postponed knee surgery by a good 3 months so I could get a free MRI at the VA rather than paying a couple hundred bucks in co-pays to get it from a civilian provider. My “going out” shoes must be at least a decade old, and I have clothes that I’m pretty sure I bought at the C-store at West Point.

    I loved Kate’s comment about not having to fret. That improves your quality of life SO much!

    • Jason, I think most guys hate shopping for clothes. Maybe we’d all prefer to shrug off “minor” injuries, too, or at least feel that we scored a bargain.

      You guys raise a great point about not fretting. Maybe it feels so good that we instinctively keep up our frugal habits long past the point of ever being at risk for that ever again?

  4. Shazaam, Doug. Thee posts keep getting longer and longer :) I think about this a lot, even thought I’m not sure we fall on the frugal or wealth scales. We certainly aren’t quite ready for full retirement, or at least I don’t think we are.

    For me, the huge benefit of being financial stable is the ability to spend money without having to fret. Whether it is a bouquet of flowers, taking the family skiing, or not even really listening when the orthodontist explains the price of braces, I am so appreciative that we can do these things without having to stress over whether we can afford it Since we’ve already reached that point, I’m not sure how much better life could get.

    Of course, we would rapidly run out of money if we lived large all the time. We do keep a very conscious eye on our recurring spending and biggest budget categories. I am hoping our food budget coming back to earth when these ravenous teens leave the roost.

    Wow, my comment was all over but great post.

    • Thanks, Kate, but I only had to write about 500 of the words in this post. These are all great comments that more readers should see.

      By the way, life gets a lot better when the teens leave the nest– both for the parents and the teens. Tell yours that my daughter and I both agree on that!

    Comment? Question? What's on your mind?