How to Be a Savvy Cheapskate

Why consumers should focus less on giving up that daily latte and more on lifestyle changes.

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Don't judge this penny pincher by his cover. Jeff Yeager may be the author of The Ultimate Cheapskate's Roadmap to True Riches—which one might assume to be filled with coupon-clipping strategies and saving tricks—but his philosophy isn't as much about how to get more for less as it is learning to live with less, period. Sure, he blogs about "12 Surprising Ways to Reuse Aluminum Foil," making cider bisque out of your jack-o-lantern, and using just enough toilet paper, but the bigger goal here is to live green, not just cheap. Ultimately, Yeager says, consumers should direct their frugal efforts toward downsizing their lifestyle—in major areas like housing and transportation—rather than saving a buck here and there. U.S. News recently spoke to Yeager about the most effective ways to economize. Excerpts:

Explain your 'cheapskate' philosophy.

I don't really write about penny-pinching tips. I focus more on quality-of-life and happiness issues … especially the idea of deciding what "enough" is for you. Most people don't ask themselves that. What would be enough money and enough stuff for you? My wife and I answered that question early in marriage, in our 30s. We were living a comfortable lifestyle—why would we want to spend every last dollar we earned as our salaries increased over the years? We established what I call a "permanent standard of living," a level we still live comfortably at today, even though we could afford to spend more … we managed, for example, to pay off our house in 15 years and essentially retire in our 40s. It's all about the decisions you make.

[See 21 Things We're Learning to Live Without.]

What sorts of decisions?

Well, for me, it's all about the bigger financial decisions in life. I rail against the latte factor … for 20 years, pundits have been saying that if you give up your daily Starbucks cup and bank the money, you can attain financial security. That may work on paper, but I don't think it works that way in reality, for most people. One [of the bigger decisions] is housing. I'm a big believer in finishing in your starter home: Buy a modest home when you're first starting out and ignore people who tell you not to pay it off right away. Pay off your mortgage as quickly as you can, settle in and get to know your neighbors, and make your house your home. The conventional wisdom before the housing bubble burst was that if you could afford to pay down your mortgage early, instead take that extra money and invest it because mortgage money is relatively inexpensive to borrow. The financial pundits at the time said that any idiot could make a return on their investment above 5 percent or 4 percent of their mortgage interest. … Well, it didn't work out that way.

These days with the tight economy, you hear so much in the media about economizing. But that's almost always about "how to get more for less" … how to clip a coupon or find a bargain. But I think we're missing what could be the golden epiphany of these hard times: We shouldn't be asking ourselves "How can we afford it?" We should instead be asking, "Do we really need it?" There's lots of social science that shows that once you're above poverty level, more money and more stuff doesn't contribute to happiness. I believe that most Americans would be happier, and the quality of their lives would increase, if they would only spend and consume less. If you believe as I do, I think there will be a lot of upsides to the current recession in the long run.

[See 12 Hidden Costs of Homeownership.]

What are those upsides?

For example, when gas was $4, we all complained about it, but two-thirds of people reported that they changed their driving habits as a result. And unless I'm missing all the horror stories, nothing awful happened because of it. Certainly driving less is better for the environment and better for our pocketbooks, so where's the downside? Another example: Since the start of the recession, the size of new homes being built in the U.S. has dropped by about 11 percent … 300 fewer square feet. Again, that's a change, but I don't think that's a bad thing. Think about the tremendous financial impact that the decision to live in a smaller home will have on your life. Not only it cost more to buy [a larger home] in the first place, but once you have those extra 300 square feet, you have to insure it, decorate it, heat and cool it, maintain it, repair it, and pay taxes on it. That's the kind of fundamental decision that has enslaved so many Americans to the yoke of too much debt. So apparently now were going to be living in slightly smaller houses, but why is that a bad thing?