My frugal habits

Living a frugal life is one of the most important means to achieve financial independence. In this post, I will discuss tips for frugality.

Understand your opportunity costs

Many articles on frugal life will contain items such as “don’t go to Starbucks”, “pack your lunch”, or “use public transportation”. They are right. However, it all depends on your opportunity cost. The opportunity cost is what you can make by working. When I was a PhD student at Yale, and I took a walk with my kids in a stroller, I would always carry a plastic bag to pick up bottles and cans from the street. When I participated in parties, I would volunteer to clean up bottles and cans. Why? In Connecticut, you get 5 cents by recycling a bottle or a can. Of course, I was doing it mostly for fun, but for a poor PhD student, it was nice to earn some extra cash. I no longer pick up bottles and cans from the street. One reason is that my neighborhood in San Diego is cleaner, but the other and main reason is that my opportunity cost is too high. Let’s consider a numerical example. During my last years at UCSD, I was making about $180,000 per year. By teaching a summer course, I could earn 8.5% of my annual salary, which is $15,300. One course was 30 hours (and I didn’t need any prep because I was teaching the same class I would teach in different quarters), so my pre-tax hourly wage was $510. Therefore, spending 30 minutes of my time sorting bottles and cans, visiting the recycling center, and getting $10 or so does not make economic sense. I was still recycling bottles and cans from my household, but that’s because my wife told me to do so, even though I explained to her that it’s more rational to simply dump all bottles and cans in the blue recycling bin. Now that our son can drive, he is in charge of recycling, which is a significant Pareto improvement.

Long story short, when trying to save costs, you need to account for your opportunity cost. When I was an undergrad, instead of going to the campus dining hall, I would bring a slice of bread, a carrot, and a can of tomato juice. I still sometimes pack my lunch, but not to save on food costs, but to save time by not having to visit a restaurant. I still use public transportation, but that is because it is fun. In contrast, these days I sometimes hire people to do landscaping or fix appliances.

The obvious things

Articles on frugal life often say you should carry a water bottle and snacks when you leave home for more than a few hours, not drink coffee at Starbucks, not order drinks at restaurants, use public transportation, borrow books from the library, and so on. They are right, but it all depends on your opportunity cost, as discussed above. When I go to Atlanta, I use Uber or Lyft (check both and use the cheaper one) to get from home to the San Diego airport, because I haven’t found a viable alternative yet. But once in Atlanta, I just use the MARTA train and bus.

Track every penny until you become frugal

Articles on frugal living often say you should keep track of your spending to see whether you are wasting money. They are right. Since I graduated from college, I have tracked every yen from 2004 to 2008 (while living in Japan) and every penny from 2008 to 2022 (while living in the U.S.) using personal finance apps. There is no point in making too fine categories, so for food, I just had “groceries” and “dining out”; for investment, I combined capital gains and dividends together. Similarly, for miscellaneous expenses during international trips, I would just put them under “travel”. However, there were also very specific categories, such as “picking up coins on the street” or “bottle recycling”. By tracking every penny, I was able to understand and improve my spending patterns and discover duplicate or fraudulent charges. But eventually, I realized there was little room left to improve my behavior, and the opportunity cost of keeping track of everything was too high, so I stopped. Now I only track my assets and liabilities once a month. I haven’t done so yet, but I should also keep track of my approximate aggregate spending by perhaps aggregating credit card bills.

Shop for insurance

Auto insurance is very expensive. Instead of renewing the policy without thinking, sometimes it saves money by asking for quotes from other insurance companies. This year, I reduced my insurance premium by $1,000 with the same coverage by shopping around.

Ask for cash discounts at restaurants

In my experience, some restaurants, especially Chinese and Indian ones, may offer a 10% discount if you pay in cash. Noting that you get at most 3% off with credit card points, this is a very good deal. I have never been explicitly told why some restaurants offer discounts for cash payments, but I suspect some restaurants are evading taxes because cash transactions are anonymous. That is their problem, not mine, so if they offer a cash discount, I don’t see any reason not to take it.

Use stuff for a long time

If you can use something for an extended period, it saves a lot of money. Personally, I feel bad when I throw away something, and I feel pleasure when I use something for a long time. I bought my backpack in 2002 and still use it. I bought my down jacket in 2004 and still wear it. I bought my Philips Norelco trimmer (something like this) 15 years ago for $19.99, and I still use it, even though some parts are missing or broken. (I am surprised to see that a similar product is still sold for $19.99.) I have bought only two suits in my life. I wear socks and underwear until they have holes. When I buy a cellphone, I buy a model that is a few years old. I once asked my university to give me an old desktop they no longer need instead of buying one myself.

Dispute medical bills

I have no idea how healthcare providers decide how much to charge customers. In ordinary businesses, such as restaurants, you see the menu and price before entering a contract. Even dentists provide quotes before treating patients. But with hospitals, I have never seen a quote before the service was provided, and when I asked, they would say “it depends on the insurance” or something. It seems that hospitals in the U.S. charge whatever they want after treating patients. I didn’t know about this until 2023 because I didn’t need to go to hospitals much, but I had a bad experience when I visited the emergency room after a piece of roast lamb got stuck in my esophagus. A few months after being treated, I got multiple bills from different healthcare providers totalling around $15,000, and my insurance covered around $8,000. I paid the smaller bills but felt the big one (the one from the main hospital) unfair, so I procrastinated on payments. Eventually, the bill was sent to collections, and I received threatening phone calls from a debt collector. I knew hospitals sell debt to debt collectors at a fraction of face value, so I first offered to pay 20% of face value, but they refused. It was very stressful, but I studied the Explanation of Benefits (EOB) and found several duplicate items, such as “emergency room visit” or “surgery”. So, I wrote them a letter stating that some charges are not legitimate, that I had already paid the legitimate ones, and that I am reporting them to a consumer advocacy agency. I have not heard back from the debt collector, so I assume they (or the hospital) gave up.

Here is another example. I recently got a $360 bill from a healthcare provider. I knew I had already paid them (perhaps part of the bill) before, and they didn’t provide an itemized bill, so I emailed them saying I am happy to pay the bill if they can provide one, and attached screenshots of evidence of my past payments. Again, they didn’t respond. I won’t pay a dime until they take further action.

Of course, you should pay legitimate bills. But medical bills tend to be very expensive, and some of them look dubious, so it is worth fighting. And even if you default on medical debt, they are no longer reported to credit agencies, so you don’t have much to lose.

Make gifts in-kind

Some organizations accept gifts in-kind, which is a great way to save on taxes. Recently, I considered donating money to my kids’ high school to support the tennis teams they play on. Although the high school foundation website only offered credit card donations, I inquired whether they accepted stock donations, and they said yes. So I donated about $1,150 worth of stocks, which I acquired for $210 or so 15 years ago. Although the donated amount is too small to take advantage of itemized deductions, I saved hundreds of dollars by avoiding capital gains taxes.