What we get wrong about frugality

In our 20's, David and I were seen as frugal relative to our peers. While it wasn't a label we intended to place on ourselves, it allowed me to observe two main reactions to the term.

The first was one of endorsement.

The second was one of resistance.

Two seemingly opposing camps. Initially, I even found myself leaning towards the first camp, perhaps quietly enjoying the satisfaction of being seen as disciplined. But over time, I realised this was a false dichotomy that missed the point entirely.

Money is just a tool to solve a specific set of problems. It's one of several life resources at our disposal. Yet somewhere along the way, an idea about how best to use this tool turned into a measure of who has better character.

To understand how this happened, we need to trace frugality back to its roots and follow its evolution over time.

The memetic evolution of frugality

In The Beginning of Infinity, David Deutsch explains that ideas, which he calls memes, don't transfer from mind to mind intact. You can't copy a mental model out of someone's head into your own the way you'd copy a file, keeping every detail the same. Instead, ideas must be observed, then re-created in the observer's mind.

When you observe someone performing a behaviour or expressing an idea, you receive raw, ambiguous data, in the form of audio and visual cues. To acquire the meme, your brain must re-create the underlying mental model using creative conjecture and criticism, through this sequence:

1. Observation: You see a behaviour or hear an idea.
2. Conjecture: Your brain guesses what internal rule or knowledge produced that behaviour.
3. Criticism & Testing: You test your guess against your own knowledge and experience.
4. Adoption: If it passes your internal criteria, you adopt the newly synthesised knowledge.

Because every idea has to pass through this process, and because human creativity naturally alters ideas along the way, a meme can mutate significantly as it spreads from mind to mind.

Frugality is one case study of this memetic mutation.

The agrarian root

The word "frugality" comes from the Latin word frux, which means "fruit" or "produce," and the related adjective frugalis, meaning "useful" or "proper."

In early agrarian societies, being frugal meant harvesting your crops efficiently, using every part of the animal, and preserving food for the winter so nothing went to waste. The goal wasn't to deprive yourself but to get the most value out of the resources you had. Frugality solved the problem of getting the highest return from finite resources.

The roman virtue

Over time, as Rome grew wealthier, a new problem emerged in society. Excess.

Stoic philosophers like Seneca noticed that the more luxury people acquired, the more fragile they became when those luxuries were threatened. In essence, the Stoics recognised an early version of what we now call the hedonic treadmill. People didn't become happier when they acquired more luxury. On the contrary, they became more anxious and increasingly dependent on those luxuries.

Under Stoic philosophy, the concept of frugality evolved from agricultural efficiency to a virtue known as frugalitas. To the Stoics, frugalitas was a deliberate practice of moderation to ensure your possessions didn't own you. It was a means to resist the corruption of excess and thus maintain emotional and psychological autonomy.

The moral mutation

As the frugality meme continued to spread across different cultures and societies, it mutated yet again when it was adopted into various spiritual and religious movements. Spiritual traditions introduced the idea that the material world was a distraction from the divine. Denying the flesh became a way to elevate the soul.

Frugality was already a virtue by this point, but it was a means to an end. To maintain autonomy and not be owned by your possessions. Once it merged with spirituality, the practice itself became the end. And when the practice is the end, there's no natural stopping point. No test for whether you've done enough. And so it can be taken to extremes for no reason beyond the practice itself, sometimes to the point of impacting your own well-being.

It's this version of frugality, virtue as identity, that set the stage for the two camps I've observed today.

Two camps

Camp One is the pro-frugality camp. They treat frugality as the goal itself rather than a means to one. They meticulously track pennies and pride themselves on spending as little as possible. Some may even revel in this, deriving a quiet sense of superiority from their self-restraint. But in keeping their wallets tight, they forget that money is just a tool to solve problems in your life. They win the savings game but lose the broader game of living well.

Camp Two is the anti-frugality camp. In rebellion against the moral judgement of Camp One, they view frugality as being cheap. A self-imposed misery that missed the point of enjoying one's life. They rally around slogans like “you only live once,” treating spending as proof that they aren’t wasting their lives. But in that reaction, they may unwittingly swing too far in the other direction, strapping themselves to the hedonic treadmill and so they end up continually trading their finite resources to fund an escalating baseline of consumption.

Now to be fair, this is a spectrum. You may not sit fully in one camp or the other but you may find yourself identifying more with one side.

Nonetheless, both camps have missed the point entirely. Both are letting their relationship with money dictate their lifestyle, instead of letting their actual life goals dictate how they allocate their resources.

So let's take a moment to step away from this term altogether and introduce the concept of value-based consumption.

Value-based consumption

The core idea of value-based consumption is simple: consume in a way that lets you get the highest return on every dollar, from a lifetime perspective.

Since our life resources are finite, every dollar carries an opportunity cost. Value-based consumption is simply the practice of making the best opportunity cost decisions you can, given your life goals and unique circumstances.

There are two components to unpack here: what we mean by returns, and why we're measuring from a lifetime perspective.

• Returns. For any dollar of consumption, there's a short, medium, and long-term effect on your life resources, time, mental, physical, etc. The question is simply whether that effect is positive or negative. Take a packet of chips. It might slightly increase your mental resource while simultaneously decreasing your physical and financial resource.
• Lifetime perspective. This temporal scope matters because if you only ask whether something feels worth it today, you'll almost always say yes. Our brains are wired to weigh immediate rewards far more heavily than future ones, so a lifetime lens corrects for that.

The metric that ties these together is lifetime value per dollar spent, where lifetime value is the net result of that short, medium, and long-term effect on your life resources. Taking the chips example again, if you eat a packet every few months, the net effect may still be positive. But if you eat one every day, the net effect turns negative as the physical and financial costs start outweighing the mental benefit across your lifetime.

The value gap

Value-based consumption sounds simple in theory but implementing it is far from straightforward.

It assumes you have an accurate sense of what you actually derive value from. But even a little psychology knowledge shows how shaky that assumption is. We're easily influenced by our environment and predictably irrational.

Consider the difference between perceived value and actual value. What you pay for is perceived value. What you receive is actual value. In many situations, our perceived value gets inflated by social media, marketing, and cultural conditioning, leading us to pay a premium for the signal a purchase sends about us rather than the value it actually delivers to our life.

If your goal is a good workout, a boutique gym and a basic one can both offer most of the equipment you need. The premium price tag is buying the brand, and maybe a sauna if you’re lucky.

The objective is to close the gap between perceived value and actual value as much as possible. When the two align, you're paying for the value you actually receive. When they diverge, you're paying a premium for a story someone else wrote about what your life should look like.

An iterative process

At this point, you might reasonably wonder how you know you're making the best value assessment.

Well, you don't know for sure.

We just make the best hypothesis (or conjecture) we can given our current knowledge and experiences. We're forever changing, and what we value today may not be what we value tomorrow. The goals we optimise for now may shift as we ourselves grow and evolve.

This makes value-based consumption a never-ending, iterative process of finding the level of consumption that gets you optimal utility. It will often look suboptimal in hindsight, since your information and circumstances are always shifting. But applying the principle consistently still gets you closer to optimising your finite life resources than you would otherwise.

To make this practical, ask yourself these questions for each expenditure:

• What value does this dollar actually create here?
• What value could it create if allocated elsewhere?
• Given my life goals, which allocation maximises lifetime value?

Some spending answers these questions easily. Goods and services that meet basic needs have an enormous lifetime value because the return per dollar is survival and health itself. Beyond basic needs, the assessment becomes more personal and more interesting, and this is where clarity on your own goals and values becomes critical.

By applying these questions to each expenditure, you're testing a hypothesis about what actually returns value to your life. Do it repeatedly, and you get closer towards getting the highest return from your finite life resources.

Not a third camp

The funny thing is, when you start practicing value-based consumption, it can still look very much like frugality on the outside.

But on the inside, it feels completely different.

Whilst typical frugality is about getting by on as little as possible, value-based consumption is about optimising the returns from every dollar, which doesn't always mean buying the cheapest thing.

It often looks like frugality because when you challenge what you think you're supposed to want, and start assessing the actual value you derive from a purchase, you naturally get a more accurate sense of the marginal utility of consumption. The fact that every dollar buys you less and less once you meet a threshold of basic needs.

As a result, you often end up rejecting 80% of what society tells you to buy. You drive older cars, ignore the latest trends, and skip status symbols all without a feeling of deprivation. By having clarity on what you want out of life, you allocate your resources only toward the things that offer a genuine return on investment, while ignoring the rest.

Value-based consumption isn't a third camp in opposition to Camp One and Camp Two, it's indifferent to the whole axis. Whether a purchase looks frugal or extravagant was never the point. It's whether you're getting the highest return on the one life you've got.