Living Cheaply for the Long Term
Frugality sites are full of advice for cutting your expenses right away. Everybody's got a list of unnecessary expenses, an exhortation not to buy stuff you don't need, and some ideas for how you can get the things you do need more cheaply. Living cheaply for the long term is different. Call it "strategic frugality."
Most people don't really have a goal to live cheaply. Rather, within the constraints of their income and their important long-term goals (like college for the kids and retirement), they want to live as well as they can. The problem is, boosting your living standard at each opportunity makes it impossible to take the strategic actions that let you live better for less. (And once you've got that down, funding your long-term goals gets a lot easier.)
Many of these strategies cost money, which means that they're not an option for someone who's in the midst of a financial emergency like a loss of income or a major unexpected expense. For that, see my emergency belt-tightening post with a bunch of ideas on how you can cut your expenses right now. Living cheaply on a non-emergency basis is different. Living cheaply for the long term sometimes involves spending more money now with an eye toward long-term savings. Many of the basic ideas are pretty obvious, but it's worth putting them all together and looking at the pattern they form.
Buy stuff that lasts. This saves money, because you don't need to replace the item as often. It also raises your standard of living, because stuff that lasts is often higher quality.
Buy stuff that reduces future expenses. Things like weatherstripping, insulation, energy-star appliances, a fuel-efficient car, a small motorcycle, or a bicycle can all save on future fuel costs. Doing proper maintenance can save on future repair costs, and proper preventative care can save on future health costs. Tools, books, and classes that enable you to make (or repair) your own stuff can save on future expenses.
Stock up when things are cheap. This saves money, because you're getting the stuff at a better price. It also raises your standard of living, because you don't have to rush off to the store to get something (or else decide to make do without it). As a bonus, it produces huge tax-free investment returns.
Buy things that earn money. That is, invest in things like bonds and dividend-paying stocks. If you can handle the extra work of being a landlord, you can also invest in rental property.
Take care of your stuff. This goes along with buying things that last, but it's a concept that isn't well supported by society these days. It's tough to get things that are made to last — most things are made to break. Still, despite planned obsolescence, most things will last longer with gentle use and many things can be repaired (or kept in service, at least temporarily, despite not working as well as they did when new).
When you want something, it's easy to fool yourself into imagining that whatever it is will somehow save money in the long run. (Such as thinking that a home theater will pay for itself in fewer movie tickets or that a fitness center membership will pay for itself in fewer heart bypass operations.) Avoiding that pitfall simply requires being honest with yourself. To that end, here are a few best practices.
Evaluate your budget against your needs. Even among people who have a budget, most simply assume that last year's spending is the benchmark against which they need to compare. Instead, start each budget category at zero. Then, evaluate what you actually need and investigate the cheapest way to fill that need.
Analyze fixed costs. The average household has a bunch of costs that are fixed for the medium term — a lease that runs for a year, a cell-phone contract that runs for two, a car loan that runs for several years, a mortgage that runs for a decade or three. You can often get a better deal if you commit to an expense for a longer term, and a collection of such deals is what adds up to living cheaply. Still, always think twice before buying things that come with monthly fees or that need to be insured, fed, or maintained (unless you can maintain them yourself). The more fixed costs you have, the less flexible your household cost structure becomes — and an inflexible cost structure makes it tough to handle a financial emergency.
Learn how to do things yourself. If your goal is the highest possible standard of living, you probably come out ahead by putting all your time into whatever is your main way to earn money. In the time it would take to change your oil you can earn more than enough to pay someone to change it for you. In the time it would take just to plant a garden you can earn enough to buy a whole summer's worth of vegetables. But if your goal is to live cheaply for the long term, learning how to do things yourself adds a whole category of cost saving options, while at the same time recovering some of the flexibility you'd otherwise lose to fixed costs.
Having said all that, a lot of keeping costs down is just spending less. If you don't do that, none of this other stuff is going to add up to much. Still, there are certain opportunities where spending a little more up-front, or committing to spending for a little longer, can save money. The key to living cheaply for the long term is cranking the numbers to figure out which option is cheapest — and then, of course, taking action in accordance with what you figure out.