6 Frugal Habits That Rarely Pay Off for People Trying To Build Wealth

For many people, being frugal is key to creating a life of financial security. And they’re not wrong. Living below your means is one of the best ways to ensure you keep more money in the bank.

Take it to the extreme, however, and you can create the opposite effect: severely hinder your capacity to build up your finances.

Read below to learn which frugal habits rarely pay off when you’re trying to build wealth.

“When you’re starting out or if you live in an expensive city, there’s nothing wrong with living with roommates,” said Janita Grift, frugal living expert and owner of Frugal Fun Finance. “I lived with roommates for many years, until I was able to get my own place.”

She noted, however, that if your living situation is hindering you from building wealth, it’s time to change it.

“After living with roommates in a basement apartment for a couple of years, I needed to change my living situation to a quieter place where I could work from home and upgrade my skills,” she said. “My frugal living situation was great for a while, but it was hindering me from upskilling to a higher-paying job and building wealth.”

Comparing the prices of an item at two to three stores is a good idea, said Grift. “I’ve saved hundreds of dollars doing so.”

But if you spend hours upon hours comparing the prices of every single grocery store and spend more than a couple of hours picking up the cheapest item at each store, she said you’re wasting your time.

“This time could be used to work or build a business, helping you build wealth,” she explained. “Comparing prices is important, but don’t take it too far.”

Setting a limit on coffee, takeout and dining out is important, Grift noted, but if you go extreme and refuse to spend any money at all on networking events that involve coffee or dinner, you’re impacting your potential to build wealth.

“Spending time chatting with colleagues and friends has helped me receive valuable advice and even job interview offers later down the line,” she explained. “That $20 or $50 invested on coffee and dinner here and there helped me increase my salary by 10% and build wealth, as I was able to invest the extra income.”

“If you’re serious about building wealth, it’s important to avoid being too frugal by refusing to pay for courses that can help you increase your income and subsequently build wealth,” said Grift. “I’ve personally increased my income by 20% by investing in paid courses that have helped me qualify for higher-skilled jobs.”

She noted that if you’re on a budget, there are many free or low-cost courses out there — on platforms such as Coursera and Udemy — you can still access.

“I just completed an online course from McGill University on personal finance essentials, and it’s helped me develop stronger wealth-building and money management skills,” she said.

Similarly, Ethan Keller, president of Dominion, agreed that being extremely frugal when it comes to investing in professional development can be detrimental to the progress of your career, as well as any potential for revenue.

For example, to save on money, he said you might choose to forego participating in educational opportunities, workshops or training programs. But that would be a mistake.

“This could potentially hinder your capacity to gain new skills or grow in your job, which would ultimately have an effect on your earning potential,” Keller noted.

Avoiding all risky investments may be a good habit if you want to live a frugal life, said Jake Hill, finance expert and CEO of DebtHammer Consolidation, but it’s unlikely to help you build significant wealth.

“The key to building wealth is strategically including higher-risk investments in a well-rounded portfolio,” he said.

For example, he recommends balancing out stocks with mutual funds, which aren’t as prone to large fluctuations.

“If you plan your portfolio carefully, you can take advantage of the larger potential gains risky investments can offer while still mitigating your potential losses,” he explained.

“When it comes to trying to build significant wealth, I would say severely limiting your spending and budget is one frugal habit that might not pay off,” said David Kemmerer, CEO of CoinLedger. “This is because building wealth takes time, and operating under a strict and inflexible budget that doesn’t allow for things like entertainment or travel can make this difficult to stick with.”

“Consistency is key, so building some flexibility into your budget for things you enjoy is important, too,” he said.