Reduce

A simple change like using cloth grocery bags not only reduces the amount of trash you will generate, but it can also save you money in a number of ways. This is a habit I got into when I lived in Germany, where disposable bags were available but cost a few cents each. Many supermarkets in the US offer discounts ($0.05 per bag is typical) for each cloth bag you use. In the long run, having fewer people using the “free” bags from grocery stores could also lead to lower grocery prices for everyone.

Reuse

Before making any purchase, think long and hard about whether you can reuse something that you have already purchased. This idea goes far beyond hand-me-down clothes for kids, thanks to websites like Freecycle that let you give and get items that people in your area no longer need. Rather than throwing things away, you can give them to people who will put them to good use. Getting items through such a program – rather than paying for them – has clear financial benefits.

Recycle

While this may sound like a purely environmental activity, there are actually a few ways that recycling can save you money. First, some states collect deposits on recyclable containers. Recycling in such circumstances puts real cash in your pocket. In other locales, residents pay for their trash by the number of bags they use, or by weight. In either case, recycling will significantly reduce the amount that you will get charged to dispose of waste. In fact, a comprehensive recycling program, together with diligent composting, can eliminate nearly all of your trash.

The nice thing about the 3 Rs is that they have multiple benefits. Those looking to protect the environment do so but also get to save a little money in the process. Those looking to save a few dollars do so while getting the added benefit of a cleaner earth, which may lead to lower costs for the generations to come.

© 2008 Lending Club. All rights reserved.

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Conventional thinking may trend the short answer to that question closer to ‘yes’ than ‘no,’ but there are many factors that influence the true effect of frugal living. Here are a few in favor of frugality:

• The sad truth is that most people are not frugal. The one upside of this fact is that your frugal living, while beneficial to you, is too insignificant to harm the overall economy in any noticeable way. If everyone started living frugally, the global economy could suffer, but the un-frugal habits of the majority more than make up for the potential economic drain of the minority of us living frugally. A new balance of production and consumption, even if lower in relative terms, may actually be more efficient.
• Frugal living will give you more money to invest, which creates even more money to stimulate the economy later.
• Putting your money to more efficient use (i.e., being frugal) also allows you to maximize the stimulation effect of each dollar you spend. Money wasted is ultimately a drain on the economy.
• Being resourceful and getting maximum use out of what you have lowers demand. That means that more of the earth’s resources are available for future demand. Stated another way, money taken from the economy today may allow much more money to be added to the economy in the future.
• Many of the goods we consume are produced overseas. Frugal living would help to balance or reduce our trade deficit, which could stimulate the domestic economy and strengthen the value of the dollar.

It’s difficult to summarize the effect of frugal living into a single word like good or bad. What can be said with certainty is that your personal finances will see a direct benefit from frugality. The hyper-consumption common in our society would likely benefit as a whole from a reduction as well. Even if a massive trend towards frugal living did have some negative economic effects, it is an extremely unlikely event, so your personal benefit stands to remain high.

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One popular method is to try to squeeze an extra 20% out of what we have before replacing it. This can work on both the small scale and the large. You probably wouldn’t notice any difference by using 20% less shampoo each day and could probably keep your cramped living accommodations 20% longer before upgrading to a larger home. Following this philosophy across the board could reduce your expenses by 20%. Of course, the use of some items simply cannot be extended or may cause more damage than the potential savings. Using your judgment to exclude such items will maximize the effectiveness of the practice.

One of the things the 20% method helps us to do is reduce spending money to replace items that are still fulfilling our needs. I have often been tempted to replace my surround sound system that I bought over a decade ago. As technology has improved and prices have come down, superior systems have become affordable. But my current receiver still works just fine and I doubt I’d value any improvement in sound quality as much as a new system would cost. Until my current system stops working, I’m going to keep using it. Every extra day I get out of it saves me the cost of a new system and makes the price I paid in 1997 seem even cheaper. The hours of use per dollar spent continues to rise.

So often we focus on minimizing price to maximize value. While that is certainly important, maximizing use can have the same effect. Using both strategies together is ideal in maximizing the most important measure of how we spend our money: value.

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