There are a variety of positives that we recognize from our frugal lifestyle. There are however, a few financial downsides to such living as well. While we wouldn't change our economical living since we actually enjoy an efficient lifestyle, there are things that we recognize as disadvantages of being frugal. Here are a few of the most noticeable obstacles to keeping costs down and the ways we attempt to make up for them.
Less Budget Fat to Cut
When we're hit with a big unplanned expense, we have an emergency fund to cover it; but when it comes to our budget, it makes it harder to make up for that cost by cutting other areas. Since we live a relatively frugal lifestyle, we have less fat to cut from our budget when such items arrive. For example, our health insurance premiums just went up about 15 percent compared to last year. We found it tough to locate items to cut to make up for this additional cost since we already keep things on a fairly tight budget. Rather than cutting things that many people buy but that we don't like gourmet coffees, the cell phone plan, or other discretionary spending, we had to focus instead upon things like our weekly pizza night, and cutting our dinners out, which are more entertainment-based cuts and that are few in number for our family.
Less Risk, Less Reward
While more risk certainly doesn't always result in more reward, there is often a noticeable correlation between the two aspects of money and investment. Having a more frugal lifestyle means that we're less willing to take on what might be considered "riskier" investments. Even just things like stocks, stock funds, and similar items are not investments we like to take on in large amounts, preferring instead investments that often have lower returns but are more sure things like bonds, certificates of deposit, savings, and other low-risk, yet income-earning investment vehicles.
A Fixation on Expenses but not Income
Because were able to get by on so little money, we in turn need less income. This might seem like a good thing at first, but it can create a situation in which cutting costs becomes the focal point of the family finances instead of earning income. This is certainly a positive of living a frugal lifestyle; however, it can have negative consequences down the road. Earning less in income means that less money is going toward things like retirement and Social Security funding. This means that while frugality may pay off now, it could have us working longer and being less secure in our retirement.
Fewer Tax Deductions
Less spending also means fewer deductions when it comes tax time. While I wouldn't trade more spending for more tax deductions, it remains a fact that were we to pay more on things like mortgage interest, property taxes, and as a self-employed individual, more on my business expenses, it would equate to more in tax deductions that we could take each year. Not only this, but when it comes to things like pre-tax income that could be put toward things like retirements funds, health spending accounts, and similar pre-tax spending (or savings) accounts, we could be cutting more off our tax bill as well.
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