The coronavirus pandemic has created unprecedented uncertainty throughout the global economy. No one knows the exact long-term impacts, but we do know one of the immediate effects: a drastic reduction in consumer spending due to newly established frugal habits.
Luke Tilley, chief economist at Wilmington Trust, says the coronavirus has caused “the sharpest decline in consumer spending that we have ever seen,” and early data supports that. Overall spending is down over 50% from pre-pandemic levels.
While we’d all rather be spending money and living our normal lives, there are some useful lessons to be learned from this forced frugality. Below are five frugal habits worth keeping after returning to life as usual. For each habit, I provide the estimated annual saving, as well as what that additional money would be worth when compounded for investment income over 30 years.
Home meal prep
Prepare meals at home and skip the coffee shop for an extra $575,000
With restaurants closing their doors, consumers have redirected their food spending, primarily to the grocery store. It’s no secret that buying from the grocery and preparing meals at home saves a lot of money compared to eating out. However, another expensive habit has crept into people’s lives: food delivery services, which have seen a 50% spike in spending. The added costs from delivery services can be staggering. According to Forbes, the average cost of a meal varies as follows:
- Home-cooked meal from grocery food: $4.31
- Meal kit (Blue Apron, Home Chef, etc.): $12.41
- Restaurant delivery: $20.37
Meal kits are triple the cost, and restaurant delivery nearly five times the cost of a meal from the grocery store. An extra $8 or $16 may not seem like much at first, but it adds up quickly. If you currently grab takeout or order in 5 times per week, cutting that to once per week will save you $64, factoring in the additional spend at the grocery store. $64 extra every week is $3,328 per year in additional savings.
Another frugal habit people have naturally developed while staying at home is forgoing the morning coffee stop and lunch around the office. It’s common to spend $4 each morning on Starbucks (somewhere between a grande latte and a venti Frappuccino) and $10 for lunch at Chipotle or another fast-casual restaurant. $14 is pretty reasonable for coffee and lunch, right?
If instead of Starbucks and Chipotle you chose to make coffee at home and bring in a casserole or sandwich, that would cost about $3 a day, netting you $11 in additional daily savings. Assuming a typical 5-day workweek, that’s $2,750 over the course of a year.
Simply by limiting your restaurant spending and making your own coffee and lunch every day, you can save over $6,000 per year. Compounded for investment income over the course of 30 years, that results in a net worth difference of $575,000.
DIY personal care
Cut your own hair and skip the nail salon for an extra $120,000
Personal care spending is down about 40% since the start of the pandemic. This is not surprising, as barber shops, nail salons, and other cosmetic services have been forced to close shop. Instead, people have either figured out how to do it themselves or have abandoned personal care altogether, opting for more of a caveman aesthetic.
While I didn’t consider myself a big spender in this category, even I found some significant savings. I had been going to Great Clips once a month to keep my hair nice and short, which cost $20 after tip. While shut in at home, I decided to buy a $30 set of Wahl clippers and cut my hair with the assistance of my wife, Rachel. After providing her a few too many instructions, causing her to angrily abandon the project, I finished it up on my own and had a decent haircut. Assuming those Wahl clippers last me 3 years, I will save $230 a year, and many people could see even greater savings.
And that’s just haircuts. A Groupon survey shows the average woman spends an additional $116 per month on personal beauty services such as facials and manicures. The pandemic has proven that life can go on without these services, so cutting them by 75% can save an extra $1000 a year.
That brings our total saving for DIY personal care to $1,274 per year. Compounded over 30 years, that will increase your net worth by $120,000.
Mix up your traditional nights out with cheaper entertainment to gain $210,000
Being stuck at home has also forced us to rethink what we do for entertainment when we can no longer go out to dinner, concerts, and sporting events. Instead, entertainment has turned into drinking a bottle of wine (or two) while watching a movie at home, playing games, or video chatting with friends. These are great cheap options to continue even after going out is back on the table.
Yahoo Finance estimates the average cost of a date night, including dinner for two, a bottle of wine, and two movie tickets, to be $102. As a substitute, there are many activities that are close to free and provide some variety. In addition to the at-home activities you’re already doing while quarantined, here are some to consider once the world opens back up:
- Grab dinner and drinks from the grocery store and picnic in a park – $15
- Go to a minor league baseball game – $20
- Hike a scenic trail – free
- Play tennis, basketball, or whatever sport you enjoy – free
These activities don’t need to completely usurp your regular nights out. If you typically go out four nights a month and replace half of those with these cheap alternatives, you will save $2,200 per year. Compounded over 30 years, that will net you an additional $210,000.
Build out a home gym and net an additional $59,000
Spending on fitness and gyms has ground to a halt. That doesn’t mean your exercise has to do the same. With fitness centers across the country closed, people have built out their home gyms and found other creative ways to maintain their exercise regimen. Here’s a price breakdown of my home gym, conveniently put together a few weeks before the virus hit.
- Adjustable dumbbells up to 100 pounds each – $206
- Foam exercise floor mats – $20
- Exercise bench – $99
- Olympics rings with straps – $35
That brings my total cost to $360 for a gym where I can do bench press, squats, curls, pull-ups, dips, and just about any other exercise I want. As an added perk, I don’t have to wait around for the bench to free up, standing awkwardly close to ensure people know I’m next in line.
For those who don’t care as much about lifting heavy weights, lighter dumbbells and resistance bands are much cheaper. Local parks are also a great place to get in a few sets of pull-ups and push-ups with no spending required.
In contrast to these low-cost workouts, the average gym membership costs $58 per month, or about $700 a year. That means my home gym pays for itself in 6 months and, assuming it lasts 5 years, will save me $630 per year. Compounded over 30 years, that’s an additional $59,000 in net worth.
Reduced frivolous shopping
Cut clothing and jewelry spending in half to earn $110,000
While we’ve been stocking up on food, toilet paper, and other household necessities, discretionary shopping spending has plummeted. Clothing and jewelry purchases are down 70% overall, with an even sharper drop in spending on pants, which are optional for video calls.
While spending this low isn’t sustainable (you will have to put on pants eventually), it is possible to reduce spending in these categories long-term. The average American household spends $650 on jewelry and $1,700 on clothes each year. The average American woman owns 30 outfits, one for every day of the month. Cutting those numbers in half saves $1,175 per year. Compounded over 30 years, that’s an extra $110,000.
Altogether, by maintaining the frugal habits you’ve picked up during the quarantine, you could save an extra $11,300 per year. If you invest that savings in the market for the next 30 years, you will have an additional $1 million in net worth. Not a bad tradeoff for some simple spending cuts!
What are your new frugal habits? Share in the comments below.
Spending category metrics from The New York Times