Fight frugal fatigue

There’s nothing like a recession to make frugal habits trendy. Some even called them “chic”.

Alas, things that are popular often don’t stay that way for long. Recent numbers suggest the “New Frugality” may already be falling out of favour. People are feeling optimistic about the economy — and they’re sick of pinching pennies.

Case in point: a recent online poll from the U.S. National Foundation for Credit Counselling (NFCC) found that two thirds of respondents are tired of their new frugal habits (though they’re stuck with them for now), and another 5 per cent plan to increase their spending. In contrast, only 21 per cent felt their new habits were a positive change and plan to keep them.

While it’s only one poll with a select audience, some experts see it as the latest symptom of “frugal fatigue”. No, it’s not actually a psychological condition — rather, the buzzword describes the point where frugal habits start to backfire. Too many sacrifices for too long can give people the “urge to splurge” — even if they can’t afford it.

Some experts liken the behaviour to dieting in that frugal habits are often viewed as short term sacrifices to meet goals (with consumer debt often at the top of the list, in this case). Once the novelty wears off or they achieve their goals, many people return to their old habits. Others think long-term and make sustainable, permanent changes to their lifestyle. Guess which group regains the weight — or the debt?

This poll isn’t the only indication that people are becoming battle-weary. North American shoppers spent more this past holiday season than in previous years. Car sales are up, and housing experienced a nice boom in many parts of Canada. Travel experts are predicting growth in the industry for the first time in a few years. The latest report from the Vanier Institute of the Family shows that while household expenditures did dip during the recession, we’re now back to pre-2008 levels. Retail sales are up too — evidence experts say means a faster recovery in spending than in previous recessions.

While we’ve seen gains in the employment rate and in wages, the amount Canadians save hasn’t kept pace and debts continue to rise. If you’ve been following the numbers, you know Canadians’ household debt has increased more than 6 per cent in the past couple of years. Our debt to income ratio — the amount we earn after taxes versus what we owe — is now at a record high of 150 per cent. (It was just 93 per cent in 1990.) Not only have Canadians matched their U.S. neighbours, they’re leading all 20 OED countries — and we could soon hit 160 per cent if the trend continues.

And we passed another major threshold in 2010: the average total accumulated debt per Canadian household (including mortgages, which account for about two thirds) topped six figures, up 46 per cent from the year 2000 and up 78 per cent since 1990. Two decades ago, the average debt was about $56,800 compared to the nearly $100,900 at the start of 2011. It’s not surprising that on average, Canadians are now saving less than a third of what they put away in the 1990s.

The bottom line? The situation is complex and the numbers don’t tell the whole story. However, many experts feel that the hard lessons we learned during the downturn aren’t staying with us like we hoped. People may be tired of cutting back, but that doesn’t change the financial reality.

10 tips to fight frugal fatigue

While the recession is technically over, it isn’t time to ease up on those money-savvy habits. We already know the best ways to get ahead are to spend less than you earn, build an emergency fund and pay down high interest debt. However, ongoing financial battles can be draining, so it’s important to get yourself in the right mindset to avoid those spendthrift urges. We’ve got some tips to help:

– Measure your success. It’s hard to stay on track when you aren’t seeing results. Experts recommend to set specific targets or “milestones” that you can measure — like saving $1000 for an emergency fund or reducing debt by $500 increments. Track those goals in a spreadsheet or post a chart to your fridge so you mark off your progress. By focussing on your successes, it’s easier to maintain a positive attitude towards change.

– Treat yourself to reasonable rewards. A healthy diet includes the occasion treat… just not all the time. Likewise, a modest reward for your progress can help stave off that feeling of deprivation and reinforce success. Build some meaningful and affordable rewards into your plan and your budget so you don’t fall for impulse spends.

– Keep reminders handy. We’re constantly surrounded by prompts to buy, so many experts recommend using marketing techniques to keep goals top of mind. How, exactly? Say you’re saving up for vacation: find pictures of your destination and put them on your fridge, tape them to your mirror and even carry one in your wallet. Trying to reduce debt? A chart showing it’s steady decline can help.

– Be creative. Beating boredom is half the battle, but something new doesn’t have to cost a lot. Try switching up your routine with new recipes that are easy on the budget or attend a free event in your community. Indulge your love of books, movies and music at the library, not the store.

– Think big picture. Strategies like using less energy and gas, creating better meal plans so you don’t throw out food, buying used items and avoiding throwaway conveniences also help the environment. You’re living with less, but your contributing to a greater cause.

– Budget for gifts. It’s okay to splurge on someone else, right? Many people face frugal fatigue around holidays because of the double rush of spending and making someone else happy. However, personal finance experts have long warned that gifts and charitable donations should be part of our budgets rather than unplanned purchases.

– Hit the pause button. Many experts suggest abiding by a 30 day rule to avoid impulse or emotional spending: if you still want the item after 30 days, buy it. Chances are you’ll have lost interest by then, or you’ll have taken the time to evaluate whether you need it and if it fits in your budget.

– Find support. Feeling the urge to spend? Deal with your money emotions by turning to your support system. No, not the friend who loves to shop — the one who will let you talk out your feelings and remind you of your goals.

– Find constructive ways to deal with stress, like getting enough exercise and sleep, eating a healthy diet and taking some “down time” for hobbies. Dealing with money is stressful, but shopping is a dangerous release that can create a downward spiral.

– Be realistic. As with any goal, you’re setting yourself up for frustration if you aim too high. Nobody is perfect, and setbacks can be expected. The important thing is to focus on what you can achieve, and don’t beat yourself up over mistakes. Learn, and move on.

Overall, there have been many positive changes to how we think about money — including the recent interest in improving financial literacy. However, most experts agree we still need to cautious of our spending and debt, and mindful of our savings.

ON THE WEB
Read the report from the Vanier Institute here.
Read the press release from the NFCC here.

Additional sources: Bankrate.com, The Globe and Mail, MarketWatch, MSNBC, Newsweek.com, Reuters, Yahoo Finance (US).

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