Is Being Frugal Enough for Retirement?

by | Feb 5, 2021 | Financial Planning

We’ve all heard the generalized money-saving tidbits from the “gurus”.  But is just being frugal in your day-to-day life enough?

“Make coffee at home and skip the Starbucks!”

“Bring your lunch to work instead of ordering out!”

For a lot of people, these lifestyle hacks are a good way to promote better financial behavior, but can these small changes alone get you ready for retirement? Saving money is important, and people at every income level vary in their ability to be frugal.

Let’s say you cut out your morning trip to Rook Coffee (shout out Monmouth County, NJ!) Monday through Friday, saving $5 a day or $25 a week. In a year, you would have accumulated $1,200. Considering that the average savings account has an interest rate of 0.05 percent, according to the Federal Deposit Insurance Corporation, $1,200 a year even with interest would most likely not even come close to your retirement needs.

But if retirement is the goal, then acquiring multiple methods for building wealth is necessary. On top of being slightly frugal in your day-to-day life, we outline some bigger financial obligations to get in line that can help move the needle towards your retirement goals. 

The Problem with Being Excessively Frugal

Quality of Life

Saving money is extremely important.  We want to say that first, but you also need to enjoy your life in the moment.  Foregoing life-enriching opportunities now could leave you with regret later in life.

Cutting back on spending could mean missing out on important experiences with friends and family, such as nights out or weekend trips. Neglecting to let loose and relax not only impacts your quality of life, but it could further affect your opportunities. Alternatively, new experiences may help broaden perspectives and improve mindsets. 

Life is all about balance.  Finding that balance between frugal and reckless spending that works for you is so important.

Holding onto Money

There certainly are benefits to saving. But for some, this means holding onto their money under the mattress. This is counterproductive. The value of that money will only diminish with inflation. Instead, start by placing the money in a savings account or other investment vehicle. 

While it can be smart to watch your discretionary spending, and cut back on the lattes, if you aren’t smart with what you DO with those savings, it won’t mean too much in the long run.

What Can You Do Instead?

Contribute to Your 401(k)

Retirement savings accounts, such as a 401(k) or IRA, are a great way to save for retirement without greatly reducing your quality of life today. If you choose to have money withdrawn automatically, you’re saving money every paycheck without even thinking about it, and your employer may match a portion of your contributions. By the time retirement arrives, you will have made money from your savings and the extra contributions accumulated from your employer. 

Invest

Investing can be an effective way to accrue wealth over time. But investing should be done in accordance with your personal tolerance for risk, as reaching your retirement goals shouldn’t risk your lifestyle and financial standings today.

Both investing and contributing to a 401(k) go hand in hand with your financial plan.  Outside the context of a full, comprehensive financial plan – these financial moves could be the wrong move.

Stay Focused

This seems like a no-brainer, but for many people it’s absolutely crucial.  Remaining focused on the task at hand will not only help you reach your goals, but it will help you reach them in an efficient manner.  Without actively thinking about what you’re doing with your money, you run the risk of making careless mistakes and overspending or under-saving.

Maintain a Healthy Mindset

In addition to being ineffective, being too frugal can increase stress. Instead, planning your way to building wealth will help you prepare for retirement and help limit the anxiety created by money.

Saving money is extremely important.  But like anything else in life, too much of a good thing can be a bad thing.  The same goes for being frugal.  There are ways to take advantage of frugality to promote better financial behaviors, save a little at a time for the future, and still be able to enjoy your life today. 

If you need help finding that balance in your financial life or need to think of better ways to save money – give us a call!  We’d be happy to speak with you.  Click here to schedule an initial call with one of our team members.