Our Finances » Measuring frugality

We don’t use a budget, but we do like to know if we are becoming more or less frugal over time.

Total spending alone doesn’t necessarily reflect frugality or our priorities. For example, we had an emergency surgery in 2016, which dramatically increased total spending. But we hadn’t turned into profligate spendthrifts. Similarly, travel (the frugal kind) is our luxury-of-choice. In years when we travel more, total spending goes up even if our “core” lifestyle is as thrifty as ever. Finally, education is a “social good” that we generally don’t want to skimp on.

To better measure our commitment to frugality, we calculate a metric we call the “Fugality Index”. The Frugality Index is a way of measuring how much a household spends, with adjustments made for:

  • household size
  • the local cost-of-living
  • “exempt” expenditures like education and health care
  • the amount of time spent traveling

It is calculated by removing education, health care, travel, and credit card rebates from total spending, then multiplying the result by an adjustment factor to account for the number of days spent away from home; adjustment factor = 365 / (365 – Travel days). The result is then divided by the Federal Poverty Threshold for a household of the same size, adjusted for the local cost-of-living. This allows the Frugality Index to be expressed as a percentage of the poverty line. Lower values indicate greater frugality.

The graph below shows the evolution of our household’s Frugality Index since 2012.

In 2012, our Frugality Index was 220%. That figure has come down over time as we’ve become more efficient with our dollars. For 2020, we were at 135% of the poverty line.

To be clear, we aren’t suggesting that our lifestyle is close to “poverty” in any meaningful sense. It most certainly is not. In fact, our overall quality of life is higher now than it was back in 2012.

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