I’m a Financial Advisor: Here’s Advice I Give to Clients Who Are Too Frugal
Written by
Angela Mae
Edited by
Gary Dudak
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Living frugally is generally seen as a good thing, but there’s such a thing as being too frugal. Some people who embrace the frugal lifestyle go to the extreme and either sacrifice their quality of life or miss out on opportunities in an effort to save money.
The thing is, though, living a happy, fulfilled life requires finding a balance. It’s entirely possible to save and invest in one’s future while still spending money along the way.
This is something financial advisors Christopher William, Josh Michaels and KJ Dykema know all too well and regularly advise their clients. If you think you might be living too frugally, some of this same advice might apply to you.
Finding a Balance Is Crucial
“Being frugal is commendable, but it’s crucial to find a balance,” said Josh Michaels, financial advisor and the CEO and founder of Money4Loans. “Allocating resources for personal growth, health, and happiness is just as important as saving for the future.”
Michaels went on to say that excessive frugality might seem like the way to go when you’re trying to save money, but it can lead to missed opportunities, an unbalanced lifestyle or future financial hardship. It could even hurt your relationships if you’re not careful.
“For instance, individuals who are too frugal may skimp on health insurance or avoid medical checkups to save money, which can lead to higher costs in the long run due to untreated health issues,” said Michaels. “Additionally, excessive frugality can strain relationships, as it may limit social interactions and activities with friends and family due to a reluctance to spend.”
Don’t Sacrifice Your Quality of Life in the Name of Frugality
Many people will skimp on basic things to save more money. Unfortunately, this often has far-reaching effects on their quality of life.
“When someone is too frugal, it can have a negative effect on their quality of life,” said Christopher William, CPA, founder of Balanced News Summary. “For example, if they are not spending enough money on basic necessities such as food and rent, they may not be able to afford a comfortable lifestyle.”
Michaels added that excessive frugality can hinder your professional and personal growth. When you only opt for the least expensive options, you run the risk of missing out on quality education, basic comforts and even training opportunities that could help you in your career.
So, what should you do instead? Don’t skip the basics or ignore every opportunity that costs money. Instead, weigh your options and try to think a little bit more long-term about the ones that will help you in the long run.
Look For Ways To Improve Your Overall Financial Health
“When talking to clients who are too frugal, I generally advise them to look for ways to improve their financial health in more meaningful ways,” said William.
One way to do this is to take on a second job or to look for a higher-paying position. Another way William often suggests to his clients is to negotiate with their insurance or utility companies to cut down on their monthly bills.
“I also advise them to consider investing in the stock market, which can be a great way to build wealth over the long-term,” added William.
Keep a Personal Budget and Truly Review Your Spending
It’s no secret that having a budget can help you understand your financial situation better. It can also help you identify your spending and savings habits and improve any areas that might need it.
If you’re frugal, you might not think you need a budget since you spend as little as possible anyway. Michaels, however, disagreed.
“To my clients who struggle with excessive frugality, I advise creating a balanced budget that allows for both savings and reasonable expenditures on health, education, and leisure,” said Michaels.
Put Your Money in a High-Yield Account
A lot of extreme frugalists have a survivor’s mentality that leads them to keep their money where it’s easily accessible — even if it doesn’t offer the best rates or returns.
KJ Dykema, MRFC, financial advisor and managing member of Family Retirement LLC, suggested trying to break this habit. One way to start? By keeping money in an account with a higher yield.
“The best place to keep your cash with this quick access is an online bank where interest rates are 5% vs the .05% at the local brick and mortar,” said Dykema. By using a high-yield savings account, you can make your money work for you while still having it readily available.
Cultivate a Long-Term Savings Approach
Dykema also noted that their clients frequently have a “one day, I might need this for something” belief that keeps them from ever truly seeing the big picture or building future financial stability.
“Having that short-sighted savings approach won’t allow them to build up their retirement savings,” said Dykema. “It’s common knowledge that compounding interest over time helps beat the biggest threat to retirement, inflation. Being cash heavy isn’t the issue, it’s making sure that you are getting the most out of it.”
Invest in Yourself More
Along with taking advantage of key opportunities that come your way, Michaels advises clients to invest in themselves.
“It’s important to remember that investing in oneself, be it through education, health, or experiences, can lead to a more fulfilling and potentially more prosperous life in the long term,” he said.
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