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 on 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? Because 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. For one reason, it’s because my neighborhood in San Diego is cleaner, but primarily because 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 as I would teach in different quarters), so my pre-tax hourly wage was $510 per hour. Therefore, spending 30 minutes of my time to sort out bottles and cans, visit the recycling center, and get $10 or so does not make any economic sense. I was still recycling bottles and cans that came from my household, but that’s because my wife told me to do so even though I explained her 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 cost, you need to take into account 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 it is not to save the cost of food but to save my time to visit a restaurant. I still use public transportation but that is because it is fun. In contrast, these days I hire people for landscaping or fixing 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 San Diego airport, because I haven’t figured out a viable alternative option yet. But once in Atlanta, I just use the MARTA train and bus.

Track every penny until you become frugal

Articles on frugal life often say you should keep track of your spendings to see whether you are wasting money or not. They are right. Since I graduated college, I tracked every yen from 2004 to 2008 (while I lived in Japan) and every penny from 2008 to 2022 (while in U.S.) using some personal finance apps. There is no point in making too fine categories, so for food I just had “groceries” and “dining out”, and 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 precise categories like “picking up coins on the street” or “bottle recycling”. By tracking every penny, I was able to understand and improve my spending pattern and discover duplicate or fraudulent charges. But eventually, I realized there was no longer much room for improving 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 was able to reduce the insurance premium by $1,000 with the same coverage by shopping around.

Ask for cash discounts at restaurants

According to my experience, some restaurants, especially Chinese and Indian, may offer 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 reasons not to take it.

Use stuff for a long time

If you can use something for an extended period of time, 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 there are 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 to 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 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 went to debt collection and I received threatening phone calls from a debt collector. I knew hospitals sell debt to debt collectors at a fraction of the face value, so I first negotiated that I was willing 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 like “emergency room visit” or “surgery”. So, I wrote them a letter claiming that some charges are not legitimate, that I had already paid the legitimate ones, and that I am reporting to some consumer advocacy agency. I have never heard back from the debt collector again, 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 sent them an email saying that I am happy to pay the bill if they can provide an itemized bill, attaching 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 thought about donating money to my kids’ high school to support the tennis teams my kids play. Although the high school foundation website only had the option for donating using credit cards, I inquired whether they accepted stocks, 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 deduction, I saved hundreds of dollars by avoiding capital gains taxes.