How I Can Be Frugal and Still Spend Freely


Believe it or not, I DO spend freely

Believe it or not, I DO spend freely

With very, very few exceptions, I actually buy whatever I want. I spend freely on whatever I want. Flat out splurge if I want. And yet I also practice frugal living and keep my annual basic living costs under $15,000. Here’s how all that can work together for me without contradiction. And how you could adapt my approach to your own situation.

Before I achieved earlier retirement, my core financial management tool was to mentally – and literally – separate my incoming cash flow into 3 separate pots. A pot for my basic living expenses (needs). A pot for my retirement savings. And a pot for my discretionary spending (wants). There’s nothing earthshaking about that, I know. It’s Personal Finance 101. But how I determined how much went into each of those pots made a big difference for me.

By applying what I call frugality without sacrifice to my basic living expenses, I brought those costs down as far as my basic lifestyle satisfaction allowed. And that established how much of my incoming cash flow went into that basic living expenses first pot.

Because earlier retirement was a priority to me, the amount I put into my retirement savings pot was crucial. How much went in, once I had covered my basic living expenses, is something I calculated by working backwards from the target earlier retirement date I had decided I could be satisfied with. From that selected – and realistically attainable – target date, I figured how much of my monthly income needed to go into my retirement savings pot in order for me to actually achieve earlier retirement by that date. That took care of the retirement savings second pot.

All monies over and above that then went into my discretionary spending third pot.

That discretionary spending money actually got deposited into its own separate bank account. Every month, after I had topped off my basic living expenses checking account so it could cover 3 months’ worth of those expenses, and I had made my targeted retirement savings contribution, I moved the remaining surplus money into my discretionary spending checking account. And there it was, free of any other allocation or obligation. There for me to spend freely any way I wanted. Without guilt. Because I had all my financial needs and priorities already covered. This Discretionary Fund was totally for me to splurge on my wants and on my fun.

Since I became earlier retired, I’ve continued this “pot” approach to my cash flow management. Except that I now only have TWO pots to deal with because my retirement savings pot is as full as I am going to need it to be. This means that even more money now goes into my discretionary spending pot every month. And that means more money is available for me to spend freely on anything I might want – as long as the funds in this pot can cover the cost.

So I can be frugal (without sacrifice) with my basic living needs AND splurge if I choose to on my discretionary wants. It’s another financial win-win for me.

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image courtesy of Stuart Miles at


  1. That’s a good way to think about it. I’m retiring in 77 days. My initial discretionary pot contribution will be $1,915/mo. But I’ll already have about $25,000 in the pot. We plan to do quite a bit of travel and sightseeing. I might lower this to about $1,415/mo and set aside $500/mo for “Maintenance”. You know, car and home repairs we should stay on top of.

    All of this without touching our 401k/IRA money. That can continue to work for us.

    1. Sounds like a great starting plan. We maintain a Home Improvement Fund in a separate bank account. That’s the pot we dip into whenever there’s something to do around/for the house.

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