Micro-frugality VS. Macro-frugality

Last week in How Frugality Becomes Counter Productive I wrote about how increasing income was more productive than cutting expenses. But the main take away in the post turned out to be what I thought was a minor point?one that I added just before publishing: micro-frugality and macro-frugality.

Now I don?t know if I?m the first one to introduce that concept, but there?s apparently enough interest in the topic to warrant a deeper discussion.

So what are micro- and macro-frugality, and what implications do they have on our finances?


Let?s start by recapping the definition given in the original post:

Micro-frugality VS. Macro-frugality
Micro-frugality VS. Macro-frugality

“Micro-frugality. This type of frugality is searching two dozen expenses for savings in each in the hope that collectively they?ll reach the level of real money. While that may (or may not) happen, the effort itself is exhausting, and requires constant vigilance. It has us researching, analyzing, discussing and executing cuts in nearly all expenses that make up our financial lives, and the effort can easily rise to the level of a part time job”.

Micro-frugality has us cutting the ?rest of life? expenses?food, utilities, clothing, entertainment, travel, etc?the very spending habits that we often derive a sense of well being from. None of us need to be total spendthrifts in any of those areas, but micro-frugality has us looking for ways to squeeze out a few extra dollars in virtually everything we do.

It?s a process of looking for the best deals in many, most or all spending categories, and unless you were raised to handle your money in that manner, it can turn into a real job. And it?s not hard to see that this type of frugality has the potential to become a full blown obsession with money.

Many people use micro-frugality as a way of freeing up money to pay for macro-expenses, like a high priced car or an out-sized house. This is often how people end up being ?house poor?, living in an expensive home, but never having much money for anything else.

If after putting the micro-frugality ax on every expense in your budget, you still have a house payment that consumes 35% of your monthly after tax income, and a car payment that eats up another 15%–your budget will still be uncomfortably tight. The nickel and dime expenses have been cut to the bone, but the dollar sized expenses continue to drain your budget.


Again, we?ll start out with the definition given in the original post:

“Macro-frugality. This is cutting the two or three biggest expenses that have the greatest impact on your finances. If your house is costing you $2000 per month between the basic house payment, utilities and upkeep, you replace it with one that you could live in for $1200 a month. A car with a $600 payment is replaced by a used car with no payment.”

Macro-frugality takes aim at the biggest expenses. If the big expenses are under control, it?s often easier to manage everything else, often with less sense of sacrifice.

Consider the decision to own a home; most people choose to buy the most expensive one they can afford?and there are implications to doing that. Look at the expenses that tend to move in tandem with the price of a home:

  • Real estate taxes
  • Home owners insurance
  • Utilities
  • Maintenance
  • Homeowner?s association dues
  • The type and cost of furniture you put in it
  • The type and cost of the cars you park in the driveway
  • And if I may, higher end homes often draw higher cost friends

Buying a home is never just about the cost of buying a home?there?s a whole battery of expenses that are set in motion. And once they are, it?s much harder to rein them in.

The same is true of a car. It?s not just the price of the car and the monthly payment. Insurance and repair costs also rise with more expensive cars. And more often than not, so do gasoline costs since higher end cars are generally less fuel efficient.

Macro expenses tend to affect a large number of micro-expenses?save money on the macros and many of the micros will take care of themselves. For this reason, greater budgetary control can be had by managing the macros more conservatively.

Which frugality type has the greater financial impact?

You might ask ?why introduce micro and macro components to frugality?why not just do both??

While we all need to live within our means, I?m of the opinion that doing both has the effect of putting you on an across the board, permanent financial diet. That might be necessary at certain times in life?unemployment certainly comes to mind?but sustaining it on a long term basis can sap the life out of you. Having control over our money isn?t just about saving and investing it, it?s also about enjoying at least some of it. That?s what makes it an either/or.

As you can easily tell from my analysis of both, my feeling is that macro-frugality is by far the better course. We control a few big expenses so we don?t have to worry so much about everything else. We?re free to concentrate on other issues in life.

A sense of prosperity is often defined by the freedom we have to spend our money as we please. Because it cuts the big expenses, macro-frugality leaves us with more money for everything else. With a lower house payment, no car payment, and no extraneous costs (boats, second homes, etc) we have more money in our budgets and in our pockets. We can choose to save it or spend it, but it?s the freedom of choice that creates the sense of prosperity.

In addition, since macro-frugality cuts down on the biggest expenses, we often have more freedom of action. For example, is it easier to start a business with a big house payment or a small one? Is it easier to make a geographic move with a big car payment or no car payment?

If you hit on a financial crisis in life, cutting the biggest expenses?macro-frugality?will have the most beneficial impact. Many people are losing their homes in the foreclosure crisis precisely because they attempted to preserve the home at the expense of everything else.

What?s your opinion? Frugality sometimes seems like the new cool in finance, but how much of it can we take? And where can we get the biggest benefit?with micro-frugality or with macro-frugality?

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( Photo from Flickr by Ell Brown )

14 Responses to Micro-frugality VS. Macro-frugality

  1. Hi Kevin, I like your analogy of a diet. When you concentrate on extreme frugality, it’s a lot like being on a strict diet. It’s easy to slip up when you are tempted all the time. If you choose a more reasonable eating plan with a little “cheating” built in, you are more likely to stick with it in the long term.

    Also, if you do become unemployed, it’s better to have cut your big expenses rather than the small ones. It gives you room to give up eating out or new clothes or whatever. If you’ve already quit the lattes to make ends meet what will you do in a crisis?

    I laughed about the part with higher cost friends. While that is generally true, my richest friend is easy to keep up with. He has no car, and lives in a 1 bedroom apartment. His favorite places to eat dinner cost less than $20 an entree.

  2. Hi Jennifer–There might be something of a hierarchy with this. No. 1 is expand income, No. 2 is macro-frugality, and No. 3 is micro-frugality, but ONLY if and when necessary. That might keep us enjoying life and to avoid being misers!

    You’re friend sounds interesting–have you ever considered interviewing him for a post? (I would in a heartbeat!)

  3. Very good post. Some people just cannotb handle extreme frugality. Long term they cannot handle. Like anyone else you must balance it or else you will be miserable

  4. Couponing is an easy “micro”, it involves only the time spent in clipping, which costs nothing if it’s not properly valued in terms of opportunity costs.

    Macro, on the other hand, requires drastic change, and change is *hard*.

    Nice article.

  5. 101–We use quite a few coupons, but my wife is in that “habit” and has been for years. But personally, I think cutting the big expenses is the most bang for the buck and ultimately results in the most stable and flexible lifestyle. When the big stuff has been cut, you don’t have to worry as much either.

  6. You have to have the macro under control first. There’s no doubt about that. But there are those people who have a way of frittering away money on small things. You still have to watch the smaller expenses. But if the big expenses are under control, you don’t have to be obsessive about it.

    By the way, in the second paragraph under the “Which frugality….” headline, you mean “effect” with an “E”. not “affect”.

  7. Good catch on the spelling error! Affect/effect has always been one of my spelling gray zones 😉

    I agree, macro has to be first. If macro expenses are too heavy it causes a chain reaction through a budget. Money will always be short. Obsessing on finances, I think, is the single biggest reason to get macro frugality under control. You don’t want to be in a state where you have to watch ever dollar going out the door. That gets old and ugly in a big hurry.

  8. Hi Kevin,
    What an engaging post!! Must say,using diets as an analogy to explain the phenomenon of macro and micro frugality is just amazing. It makes the concept crystal clear. There are certain gripping moments in the post, which made me laugh like a kid. Thanks for the share.

  9. I would go with macro-frugality. Cutting down expenses in bigger chunks leaves far greater impact on the budget than would smaller expenses do. Great share.

  10. Thanks Fatima. I think it also leaves more money for activities that make enjoy life more, like a restaurant meal, an occasional movie or a weekend get away.

  11. Hey Kevin .
    Thanks for such an enlightening share .
    I liked the idea of using analogy of diet to explain micro and macro frugality . You have explained it in a simplified manner . It is undeniably quiet difficult to handle frugality and few wrong decision can land one in a complete mess.

  12. Thanks Purnima! I mostly think that if we can get the macro part right, the micro part will be easier. Or at least it won’t feel as if we’re on a permanent diet! What ever you’re doing financially, it’s still important to live life and to have some enjoyment. Keeping the big expenses under control will help to both control finances, and leave some money for fun.

  13. Some people can do the extreme micro frugality thing and make it pay off, just as some people can do rigid diets. I am not one of those folks.
    Two days into a rigid diet and I quit. The only thing that works for me is small cut backs and replacing the things I cut back with more healthy choices.
    I know someone that did that damn lemonade cleanse diet (nothing but water, lemon juice, maple syrup and vitamin pills) for almost a month. If I hadn’t died by then, I would have been a screaming lunatic. This same person still obsesses over every extra bite they eat.
    My thought is if you enjoy it and you are not allergic to it, eat it in moderation!
    I have the same thought about finance. If you enjoy eating out upon occasion or going to a movie or such – do so. If going to movies or eating out is breaking your budget you are: 1. Doing it to excess (like every day, every meal) 2. Not making enough income or 3. Overspending on the biggie macro stuff and are doing these things not because you enjoy them but because you need to keep up the pseudo rich lifestyle.
    I have never lived in an over-priced house or had an over-priced brand new car, so the big macro expenses are not something I can cut back on. I have cut way back on ‘recreational’ shopping. I unsubscribed from numerous time and money sucking retailers email lists. I kept only those lists I know I might use for things I actually need.
    I have stopped buying make-up I don’t need. I used to buy make-up just because it was on sale and I loved the pretty colors! Now I buy only when something is used up and needs replacing. Same thing with jewelry. (a theme here? I love sparkly, colorful stuff!)
    I don’t do much couponing. Coupons mostly tend to be for national brand boxed items with tons of additives. I do use coupons on TP and I use the store coupons Kroger sends for eggs, vegetables, etc..
    A couple of years ago my mister said we need to cut back. I said cut back on what? Why? If we cut back much more we will starve. And the thing is, my salary had just gone up and our expenses had not. His dad was a cheapskate and fearful about money and I think it rubbed off on him. My dad was the opposite; he was a selfish, foolish, debt ridden spendthrift. he would buy himself over-priced luxuries and ignore the family necessities such as medical care. I learned to balance the extremes and told the mister that he would do well to learn to balance things also. I think extreme frugality or extreme spendthrift lifestyles tend to make many people feel too poor and feeling poor makes you fearful and just draws more poverty your way.
    I think there is a balance point between foolishly living past your means and living way under your means.
    Extreme frugality might work for a period IF you have a goal in mind for all the money you have saved and IF you have a set period in which to do so.

  14. Hi Mary – I almost split a gut when I read “I have stopped buying make-up I don?t need. I used to buy make-up just because it was on sale and I loved the pretty colors!” Wow, that describes millions of people!!!

    You made a comment about fear, that I think moves the discussion to a higher level. Fear could motivate someone to either over-consume – to run away from reality – or to be a miser, out of fear of being poor. Neither is a healthy state of mind, nor a comfortable way to live. Balance is the solution, which is why I favor macro-frugality. You keep the big expenses low, and give yourself more flexibility on smaller expenses.

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