Internal vs. External Frugality: Different Ways of Saving

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So I am trying to kick off one of my planned 2009 projects, which is to methodically go through each major expense area and explore ways to save money there. I started out last week with on housing costs (here and here), and still have a few ideas left. But while brainstorming an outline of future posts, I noticed that there seemed to be a divide in the types of strategies out there.

One set of ideas usually has to do with reducing the amount paid for a specific item or service. I call this external frugality, because you aren’t changing anything about yourself, just the price tag. For example, to save on what you pay for your house, you could look for a buyer’s agent rebate to save something like 1.5% of the purchase price, or carefully shop for mortgages with the lowest combination of closing costs and interest rate.

Another set of ideas usually involves either changing the type, amount, or quality of something. I call this internal frugality, because you are changing your consumption habits. An example of this would be realizing that you don’t necessarily need to same house as everyone else. You could look in more “up-and-coming” neighborhoods, or live in an older house with less square footage.

There are plenty of other examples out there:

External: Calling a cable company and asking for a lower rate.
Internal: You cancel cable completely. You could read more, watch episodes on your computer, or use a low-cost Netflix plan.

External: You find a cheaper long-distance plan, or switch to VoIP.
Internal: You get rid of your landline completely.

External: Learn ways to haggle down the price of a car.
Internal: Don’t own a car. Use public transportation.

I don’t think either or worse, but they are different. In general, it would seem like external frugality is at least initially easier to implement, as you don’t have to actually change your habits. However, I can also imagine that in many situations using internal frugality would lead to both greater absolute savings and also more enduring lifelong savings. But changing habits is really tough.

Next time you think you’re being frugal, examine if you’re doing it externally or internally.

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  1. Nice post! I have made this exact same observation, but haven’t been able to put it to paper in this clear of fashion. I find that, for me, it is much easier to be externally frugal. I have no problem calling companies we have service with and getting discounts, changing suppliers, etc… to save money.

    The internal frugality you speak of as been harder, but is finally starting to show in our lives. For example, my wife and I are relocating to Australia soon and will be living without cars at all. It’ll be a big change but one we are welcoming as a challenge.

    Once again, great concept, well written. Keep it up!

  2. Another one: Cook on your own and save some costs !

  3. (DVD) movie rentals have free movies Mondays,other days $1.00 per day. Also checkout:

  4. Anonymous says

    Jonathan,.. Anyway you suggest to save on personal Health Insurance for people buying their own health insurance when employer doesn’t cover or for self employed people?

    In the state of New Jersey, a normal PPO Health Insurance for a healthy family of two(wife and husband) is costing like $1200 per month. Would appreciate if you can cover health insurance saving tips in your future articles. And one can’t even even think of a HMO insurance plan, it is very very high.

    Can one buy health insurance from a cheaper out of state insurance company, say like from Texas ? I don’t understand why health insurance in one state costs like 300% or 400% more than another state.

  5. Internal: I just canceled my Sunday NY Times delivery. 🙁 I’ve had it for four years and finally decided I wanted to save the money instead. I don’t know how great a decision it is though. Having knowledge of world events was helping me in my business by having something to chat about with clients and colleagues. But I am trying to get the same info online. Of course it isn’t the same as buying a donut on a Sunday from the local bakery, sitting down with my paper, and relaxing.

  6. Greg Metcalfe says


    This was a great post. We have found great success when we have implemented both internal and external frugality. For example, we bought a new (new to us at least) home about two years ago. We used many of the standard techniques to save money on the purchase (including a recent re-fi at 4.5%). We also bought below our means, and tried to avoid buying more house than we needed.

    My wife and I have found that “internal frugality” is more personally rewarding. We continue to be stunned when we see how our consumption habits have changed. Essentially, we are content with less.

  7. Good post! I agree that the internal changes are the most rewarding and beneficial.

    In regard to the car bit, other internal frugality options could be to dump the car and get a motorcycle/scooter (cheaper gas/insurance); also, ZipCar and Citycarshare are good options if you know you occasionally need a car but not all the time (plus, you don’t need to pay for gas/insurance/parking at all!).

  8. I think it’s a bit fuzzier than that. Looking for a cheaper price could be somewhat external if we are changing our lifestyle to one that involves price shopping or haggling that we’ve never been comfortable with before.

    And the internal methods could require no lifestyle change that you haven’t already made. Like if you get rid of your landline because you realize that you no longer ever use it, that’s more external.

    Still, I like your point that there is more than one strategy. You could focus on price, “type, amount, or quality,” or other things like ownership (buy versus rent or borrow or temporarily trade).

    My focus tends to be on substitutions (which could encompass either of your strategies). I could substitute researching my options instead of just continuing what I’m doing (external). You also mentioned Netflix versus cable and public transportation versus car ownership (internal).

    My best substitutions have included:
    * auditing classes and going to the library instead of taking classes for credit (now that I have degrees).
    * having a roommate instead of living alone and having to make an appointment or throw a party every time I want to socialize
    * checking thrift stores first instead of regular stores
    * buying cars very used but buying only reliable models
    * researching insurance, utility, and investment options instead of just continuing with what is familiar
    * google repair and maintenance information first instead of buying new at the first sign of anything bad
    * cooking more instead of eating out or eating frozen food

  9. External frugality = lifestyle optimization
    Internal frugality = lifestyle minimization

    A moderate dose of both is healthy. Extreme of either is unhealthy.

  10. Internal better

  11. Yes, very well said! I had not thought about it this way, but it makes perfect sense.

    We have been doing a bit of both as well – I lowered our cell phone rate by $10 (though it wiped out the 6K overage minutes we accumulated). And we got a mortgage rate reduction from our credit union saving us nearly $200 a month (minus the $1800 fee). But, I do find the internal harder to actually do than the external (i.e. I still haven’t cancelled my Vonage account despite the fact I have been thinking about it for about 6 months). And while we do plan to sell one of our cars in the next couple of months and rely on a single car… it may be interesting to see when this actually happens…

  12. I like the examples since I don’t have cable, I don’t have a land line, and the wife and I only have one car since I take a city bus to work. And we live in a mid-sized Midwest town, which makes us very unusual.

  13. With these triple play offers always going on, all one needs to do is switch every so often from cable to Verizon or Satellite, and you’ll always get a good deal. So for me, I wouldn’t even bother going without landline/cable/fast internet. For $100 or so a month, it wouldn’t be worth it to cut out anything there and it would definitely decrease quality of home entertainment.

    But, you’re right, there are internal ideas that you could change to improve your bottom line. Usually, however, you are making a quality of life decision. One could give up restaurants and save lots (I personally would save about $500 a month), but it’s fun going out. Are you willing to give up fun to save money? That’s the internal compromise you are making. But going to less expensive restaurants and bringing coupons would be fine with me. External compromises are definitely easier to make.

  14. Save a few bucks by buying the coke or pepsi while dining out. Small costs that add up if you eat out often 🙂

  15. Charletta says

    Internal frugality is so hard in our societal trends of individualism and consumption. Both hurt our environment as we consume beyond the earths capacity. I’ve been experimenting with internal frugality that looks not only to my own needs but the needs of others. Do I use everything I have? Could a refugee family use it? I don’t have a vacuum, could I use my neighbors, and watch her kid after school some days? I have extra food in the fridge that could go bad, have someone over, or pass it to the neighbor.

    We do several things already mentioned:
    – no car – sometimes sharing others cars
    – no tv – we have games, internet and Neflix
    – no landline – cell phones and Skype do the trick
    – no insurance, but a shared plan with friends in nonprofit work

    I believe the next step beyond external and internal frugality is communal frugality. Sharing, building community, not having to possess everything on our own. This is by no means an austere life. Rather it is richer for it. Interdependence fulfills me!

  16. Instead of internal and external.. why not use the terms that go along with risk..

    Risk Avoidance
    Risk Reduction

    Cost Avoidance
    Cost Reduction

    You’re either Avoiding the cost all together (not driving)
    Or you’re Reducing the cost (driving less)

    These terms seem much more appropriate, no?

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