It's no secret that the economic ups and downs of the past few years have made many of us rethink our finances—not to mention our lifestyle choices.
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Gone are the days of buying bigger and better. In fact, since the financial crisis hit, more Americans have been paying off credit cards, shopping at thrift stores and purchasing smaller cars. Plus, based on census data, the median size of a new home in the U.S. shrunk by nearly 5% to 2,169 square feet between 2007 and 2010.
And it seems that austerity is here to stay: According to a Deloitte's 2013 American Pantry Study, 94% of consumers said that, even if the economy improves, they plan to remain cautious and keep their spending at current levels. "Frugal attitudes and behaviors have endured," noted the study's authors. "The impact of the recession lingers, and resourcefulness lives on."
This stalwart frugalness is reflected in the latest data on consumption: Sure, consumer spending has risen 9% since the end of the Great Recession—but that gain is less than half the average rise in consumption compared to previous economic recoveries.
"People are rightsizing their relationship to debt following the global financial crisis," says Bruce Piasecki, a management consultant and author of "Doing More With Less: The New Way to Wealth." In fact, he forecasts that a sizable chunk of consumers will take the lessons learned during the recent recession with them for a lifetime.
So who are these people who are actively spending less and buying small—folks who are essentially shunning the desire to upsize? We tracked down people in their twenties, thirties and forties who profess that they aren’t swayed by the “Keeping up with the Joneses" effect to find out how—and why—they prefer to embrace the less material life.
The high cost of living in New York City made Michael DeMarco, 37, question his lifestyle. "At some point, I was working three jobs just so that I could afford to live in New York, and I decided that enough was enough," DeMarco says. "I quit my jobs, moved to a cabin in the woods—and began to downsize."
From 2009 to 2011, DeMarco lived in Londonderry, a town located in a remote part of Vermont. “I headed north to reframe my life to work in a way that I wanted it to work—instead of the way it was supposed to work, based on what I call the 'standard narrative,' " he says. DeMarco, who worked as a therapist for a mental health organization, lived in a sparsely furnished cabin minus a TV. “I was more productive in Vermont," he says, "than all the years I had a TV put together.”
DeMarco's decision may seem extreme, but Piasecki says that it's common for people to reevaluate their consumption habits, especially after a financial crisis. "People want to reinvent themselves and find more things in their lives that are satisfying and have more than financial value," he says. "It's part of the process of working through financial anxiety."
I'm sure this makes me sound like some granola Occupy Wall Street person, but when I made these life changes, it made an immediate difference.
Two years ago, DeMarco ended up moving back to Brooklyn to be with his partner. “But I've tried to keep a bit of my Vermont life in place," he says. "I live in a small apartment, so I can afford to eat out and travel when I want. In Vermont, I financed the best used car I could afford—a 2003 Honda Element—which I still have. I don't plan to replace it until it dies.” DeMarco also shops at locally owned businesses whenever possible, and he mostly buys used clothes.
“I'm sure this makes me sound like some granola-hippie–Occupy Wall Street person,” he says. “But when I made these life changes—financial and otherwise—it made an immediate difference in the amount of stress I put myself through daily.”
Michael Hess, 49, and his wife, Megan Kamerick, 47, just bought their first house in April. It was a big step for the political science professor at the University of New Mexico in Albuquerque, who'd rented for most of his adult life. That's because both Hess's career and his wife's bounced them around from Milwaukee to San Antonio to New Orleans—until they finally settled in New Mexico a few years ago.
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But what the couple soon learned is that buying a home proved to be more costly than they'd anticipated. They went from paying $850 a month in rent to $1,050 in monthly mortgage payments, plus upkeep for their 1,350-square-foot home ... like a roof that needs repair and a deck that could use a restaining. "We saw the huge amount of zeros after the loan and got a queasy feeling," Hess says.
Although the extra cost is worth having a place that they can finally call home, the uptick in housing expenses has inspired the couple to be more frugal at an age when most people typically splurge on creature comforts.
Case in point: The self-professed film buffs now watch movies on Netflix, instead of shelling out more money to go to the movies. Hess also insists on riding his bike to work every day—a three-mile trip one way—so Kamerick can use their sole car for her work as a journalist.
"We don't have a lot of expensive electronics, we drive a 2006 Hyundai, and I tend to shop at consignment stores—which is more fun anyway," Kamerick says. "But I do like to spend money on eating out, traveling and entertainment, so we try to be more careful about that now."
Family and friends have encouraged the duo's new frugality. "My mom and dad grew up during the Depression and learned frugality from necessity," Hess says. "I probably learned some of that from them, although I think that I probably spend more than they would have been comfortable doing."
Plus, Hess and Kamerick plan to keep downsizing. “As I’ve aged, I’ve realized that we don’t need to accumulate stuff," Hess says. And although they don't have children, Hess adds that, even if they did, he's not sure that he'd want to have a lot of possessions for future inheritance because “kids will fight over stuff. I don’t like playing into that.”
Piasecki isn't surprised by the couple's newfound approach, noting that sticking to a budget helps people like Hess reduce financial risk and live within their means. "Frugality is about resisting the devilish dance of excessive debt," he says. "It's about leading a more sustainable life."
Collectively, Americans have amassed nearly $1 trillion in student loan debt. And Shawna Dinger is no exception: The 29-year-old has sacrificed a lot to pay off $60,000 in student loans.
In 2006, after graduating from Case Western University in Cleveland, Ohio, Dinger moved back in with her parents for a year, and worked as a certified nurse’s assistant for 10 months at a nursing home. She made $7.75 per hour, picking up any extra shift that she could in order to put more money toward her student debt.
In 2009, Dinger did a redux—and moved in with her folks again for two years while she attended a physician's assistant program at Wake Forest School of Medicine. When she wasn't in class, she worked at an orthopedic practice, enabling her to eventually pay off all of her student loans in 2010.
Dinger's tack isn't all that unusual among her peers in the wake of the recession. A Pew Research Center study found that more than 21% of adults between the ages of 25 and 34 are currently living in multigenerational homes—that's the highest such figure since the 1950s.
Thanks to her frugal ways, Dinger was even able to purchase a home this year in Washington, D.C., with some help from her parents. "I think my father was a bit wary when I told him that I was buying a house," she says. "But I had done the research, and when he realized that it was an investment, he came around." Dinger also has a smart plan in place: She rents one of the rooms, and the $1,050 that she collects from her tenant goes directly toward paying back the $30,000 loan that her folks provided for part of the down payment.
"My dad always told me to save while I'm young—that it will grow exponentially over time," says Dinger, who prides herself on being thrifty by not eating out, making her own lunch every day and rarely buying electronics or clothes. "It's about priorities."