There are many benefits to living well below your means. But it’s not my goal to live extremely cheaply in every area of my life. What I prefer, and what I encourage you to consider, is being cheap when it comes to the things that don’t matter.
This approach gives you the ability to spend more on the things you actually care about. It’s what I call living “cheap but good” — which is also known as frugality.
Of course, the hard part is identifying what does and doesn’t matter to you.
For example, my family and I prioritize the quality of the food we eat. This means signing up for crop-sharing agreements, buying the highest quality meat we can find, and going on weekly farmers market trips.
As a result, our food budget often totals more than twice what the average family of five spends at the grocery store.
But on the other hand, we live in a house well below what we could qualify for, we have no car payments, and my definition of keeping up with fashion trends is buying a couple of three-packs of Kirkland Signature t-shirts every year.
In other words, frugal living doesn’t have to mean signing up for a life of self-sacrifice; it means using your money intentionally, and making trade-offs that help you get more of what makes you feel happy and fulfilled.
Financial planning is all about trade-offs. A dollar is a dollar, but the value of that dollar varies based on what you spend your money on. For me, spending $100 on high-quality food carries more value than spending $100 on clothing.
But that’s just me. Your goal is to figure out what matters for you, and then to determine how to extract the maximum amount of value for each dollar you spend.
Here are 10 tips and strategies that can help.
10 Ways to Live the Rich Life on a Small Budget
#1. Follow the Science on “Happy Money”
Living cheap but good starts with spending the money you have available on the right things.
When professors Elizabeth Dunn and Michael Norton were researching for their book Happy Money, they found five spending patterns that contribute positively to lasting happiness.
Those five patterns are:
- Buy experiences, not stuff. The memories of experiences are more satisfying than the benefits of the stuff.
- Buy now, enjoy later. When you buy something now and consume it later, such as by pre-paying for a vacation, you experience two separate events of happiness. First, there’s the anticipation of the thing you bought. Second, there’s the enjoyment of the thing itself. This tends to be very true of experiential purchases, where the anticipation is high.
- Buy time. Using your money to free up time, such as by purchasing lawn care services or grocery delivery, tends to be money well spent.
- Make it a treat. When we turn more luxurious purchases into daily habits — for example, by buying a high-end cup of coffee every morning — we don’t value the luxury as much. Dunn and Norton suggest that you’ll actually get more benefit from turning those luxuries into rare treats; that if you only buy that high-end coffee once per week, you’ll look forward to it more than if you buy it daily.
- Spend on others. When it comes to happiness, one of the best uses of money is spending it on others. This could be either through meaningful gifts to friends and family or to charities.
Related: Five Ways Money Can Make You Happier (As Proven By Science)
#2. Create a List Of 100 Dreams
Creating a list of 100 dreams is an exercise created by career coach Caroline Ceniza-Levine, which I first learned about by reading Laura Vanderkam’s book 168 Hours (which I highly recommend).
As Caroline writes about the process:
“Make a list of everything you have ever wanted to accomplish (e.g., get a Master’s degree), experience (e.g., travel to Fiji), have (e.g., own a home), learn (e.g., play guitar), or do (e.g., go snorkeling under the moonlight). Don’t censor yourself by worrying if you can actually do it or afford it or schedule it. Just write it down.”
When creating your own list, don’t edit. You’re aiming for 100 ideas here, so nothing is too big or too small. In other words, it’s not a list of things you must do before you die (i.e., a bucket list), but rather a list of things that sound fun, fulfilling and meaningful to you right now.
While there are dreams on my list that would take a lot of time and money to achieve — like building a basement office, buying a sauna, and traveling to New Zealand for the summer with my family — there are just as many dreams that are free, or which cost very little money; things like making sourdough bread, fasting for 24 hours, doing 20 pull-ups, and teaching my kids a card trick.
With a list in hand, it’s then just a matter of putting the ideas on your calendar.
As we discussed earlier, the goal is not to just live below your means, but to live well. And this exercise is a great way to accomplish the living well aspect — often, without even having to open your wallet.
I now keep a running “Dream 100” list inside of Evernote. So, anytime something comes to mind that sounds exciting, I’ll just throw it on there.
#3. Learn the Art of Buying Things Used
When we buy something that’s brand new, it most likely depreciates in value immediately after we purchase it. The most common example of this is a car, which loses about 10% of its value in the first month.
There are now many online marketplaces where people sell their barely-used stuff. Starting your search at these sites (like Craigslist and Facebook Marketplace) can save you a significant amount of money over your lifetime, while still allowing you to have whatever it is you’re looking for.
Similarly, sites like The Real Real and GOAT work like online consignment shops for authenticated luxury items, often allowing you to save substantial money on high-end goods that are still in perfect condition.
Of course, finding great deals on these marketplaces is a skill in and of itself. The more you do it, the better you’ll be at spotting good products from honest sellers. So, as with most things, start small, find out what works, and work your way up.
Pro Tip: Most marketplaces allow you to set up alerts, so that instead of checking the sites daily you can get an email when your search terms pop up.
#4. Focus on the Outcomes
“Focus on the outcomes that you want and find the easiest way to them with least effort, least sacrifice, and most pleasure.”
— Richard Koch, Living The 80/20 Way
We often have a habit of gravitating towards the most common solution to a given problem. For example, when we need transportation, our first thought is usually buying a car.
But when you focus on your desired outcomes — such as “a way to get from Point A to Point B” — there’s often a faster, cheaper, and sometimes even more enjoyable way to get what you want.
Take the example above: instead of buying a car, using a combination of ride-sharing, public transportation and an e-bike might be able to get you 90% of the outcome a car would provide at 20% of the cost.
If you only care about getting from Point A to Point B — and not about actually owning an automobile — then this might be a much better option, as it will free up a significant amount of funds to spend on something you care about more.
Of course, the specifics of that equation will be different for everyone. The big takeaway here is to get into the habit of identifying desired outcomes, and then doing your best to find the easiest, lowest cost, and maybe even most pleasurable way to get that outcome.
#5. Focus on Quantity Over Quality
When we buy something we value, it can plain and simple feel good. In the world of behavior science, this type of behavior is known as a hedonic behavior or hedonic motivation.
However, this pleasant feeling is temporary. Soon after a purchase, you’ll go back to your baseline level of happiness.
What’s interesting is that we tend to get the same (albeit temporary) burst of positive feelings regardless of the value of what we’re buying. Therefore, we get far more benefit from spreading out the purchases that actually provide happiness.
For example, instead of saving year-round to take one big vacation, we’d benefit more by taking four vacations throughout the year at the same overall cost. Likewise, instead of going out to eat once a month with friends to a high-end restaurant and spending $100, we’d benefit more from going out four times a month and spending $25 each time.
A study by researchers at Harvard, Princeton and the University of Chicago, titled “Mispredicting the Hedonic Benefits of Segregated Gains,” found:
“The hedonic benefit of a gain (e.g., receiving $100) may be increased by segregating it into smaller units that are distributed over time (e.g., receiving $50 on each of 2 days). However, if these units are too small (e.g., receiving 1¢ on each of 10,000 days), they may fall beneath the person’s hedonic limen and have no hedonic benefit at all.”
Now, this doesn’t mean you should jump onto what’s often referred to as a “hedonic treadmill,” where you need these purchases to feel good about life. Your first priority is understanding what purchases actually make you happy (see #1, above).
Second, you need to actually be able to pay for these expenses. For example, if you were using a 50/30/20 budget, this would come out of the 20% designated for “wants.”
The important thing is to keep in mind is which purchases actually make you happy, and then to focus on increasing the quantity of those while limiting others.
#6. Buy a Few Things of Very High Quality
One subreddit I enjoy following is r/BuyItForLife, where people post pictures of quality products that have often lasted decades.
Clothes, cookware, appliances and tools are some of the most popular items on the forum.
Making the investment in these high-quality products might mean paying more upfront, but over the long-term, doing so can save money.
You’ll also enjoy these high-end products more each and every time you get to use them, as their cost-per-use declines over time.
#7. Rent Instead of Buy
From vacation houses on Airbnb to designer clothes to dream cars, you can now rent just about anything.
This saves you a significant amount of time, money and hassle. But it can allow you to enjoy more high-end products and experiences than you otherwise would have.
#8. Travel to Where the Cost of Living Is Low
Anyone who has traveled to Western Europe on a budget can tell you that one thing that’s constantly on your mind is money. Food, transportation, lodging and entertainment run high in these counties.
On the other hand, when you visit a lower cost of living country, it’s more a question of how much you can fit into your schedule.
For example, when I visited Buenos Aires, the goal was to eat at each of the top 10 restaurants on TripAdvisor, because a high-end meal for two would run $30 to $50. In order to knock off the top 10 list in a place like Paris, you’re likely looking at 10 times that cost.
Recommended Resource: Numbeo: An Open-Sources Cost of Living Calculator.
#9. Sometimes It’s Possible to Buy the Best
Wine is always an interesting marketplace to look at, as the cost for a bottle of wine ranges anywhere from a couple of bucks to a half a million dollars. In fact, the most expensive bottle of wine in the world recently sold for $558,000.
On the other side of the price spectrum, the most expensive chocolate in the world runs about $18.99 a bar.
It’s fun to experience the best the world has to offer. And chocolate is a good example of it not always having to break the bank.
#10. Find Your Money Dials
Ramit Sethi, author of one of my favorite finance books (I Will Teach You To Be Rich), has a fun exercise he calls Money Dials.
The idea is to first ask, “What do I LOVE to spend money on?”
According to Sethi, there are 10 different money dials:
- Convenience
- Travel
- Health/fitness
- Experiences
- Freedom
- Relationships
- Generosity
- Luxury
- Social status
- Self-improvement
The first objective of this exercise is to help you find out what’s important to you. Just as key, however, is to identify what’s not important.
The next part of the exercise has you brainstorm what your life would look like if you had more money to spend in that category. For example, if you doubled your budget, how would that change things? What would happen if you had 10 times your current budget?
Let’s say your most important Money Dial is health and fitness, which you currently spend $100 a month on. What would $1,000 per month look like?
Often, we don’t give ourselves permission to spend money on the things we love. For years, I loved working out but viewed a gym membership as an extravagant expense. After all, can’t I just work out at home?
Today, joining a local gym has been a great source of fulfillment. From deepening relationships to making it easier to work out, it’s an expense I’m glad to pay for every month.
Final Thoughts: How To Live Cheap But Good
The goal doesn’t always have to be minimizing costs by any means necessary. It’s OK to spend money, especially when you’ve done the hard work of identifying what matters most to you.
Most articles about frugality cover a few common tips: use coupons and buy store brands when you go grocery shopping, cook your own food instead of eating out, look for ways to enjoy free entertainment, and so on.
While these tips can certainly help you trim your budget, they don’t necessarily provide the most bang for your proverbial buck. Often, they take up a ton of time and energy and produce relatively little gain.
And on top of that, if they mean denying yourself the things that bring you joy — like healthy food or nights out with your friends — they can do more damage than good overall.
If you’d like to read more about my thoughts on frugality, check out my guide to frugal living. It goes over a concept I call “The Three I’s,” which are intention, initiative, and impulse control.
The article also provides 75 valuable frugal living tips that will help you spend less money on things that don’t matter, leaving as much as possible left over for the stuff that you actually care about.
Also, in the intro to this article I mentioned how much of a priority healthy eating is for me and my family. If that’s true for you as well, you can check out my complete guide to eating healthy on a budget, which includes a sample shopping list and meal plan.
And I also wrote a detailed guide to saving money at the grocery store.
